04 Feb 2020

How to clear credit card debt

Whether it’s making general purchases through your bank or buying products using a store card, credit cards make it easier to buy what you’re looking for without having to pay for your items in full straight away.

Eventually though, a credit card will need to be paid off. If you’ve missed or delayed making repayments, you may find that you cannot afford to pay the money you owe, where it can be tempting to bury your head in the sand.

Unfortunately, pretending credit card debt doesn’t exist won’t make it disappear. It’s a myth that this kind of debt will be written off after a certain number of years. The fact is, the debt won’t go away until you’ve agreed a payment plan with your lender, or until it’s been paid off in full.

It’s true that the Limitations Act 1980 could make the debt statute barred after 6 years of it going unpaid, meaning that the lender cannot take you to court after this date. However, this is a risky strategy to pursue if you really want your debt to go away. Most lenders are well aware of the 6 year period and will ask a court to issue a CCJ quickly if they are not receiving payment. All in all, statute barred does not necessarily mean that the debt will be written off and is not therefore the best way to help your situation.

How to pay off large credit card debt

When credit card debt becomes unmanageable, it can be overwhelming to try to tackle it and you may feel like there is no way out. That being said, however high the debt, there are three primary ways to approach it:

  1. Arrange a repayment plan with your lender.
  2. Consider ways of refinancing the debt such as a balance transfer to another card.
  3. Find a method to challenge the lender and what they claim you owe.

Unsurprisingly, the first option is often the most straightforward and also means you may avoid incurring additional interest and charges as many lenders agree to freeze these while you are paying. You may well be able to agree a low monthly payment which is affordable to you if you are struggling to meet your other commitments. While agreeing a payment plan will skip the necessity of having to find loopholes within the small print in order to challenge your lender, this option is likely to take much longer than the other two in the process of clearing the debt entirely.

Refinancing your debt by requesting a balance transfer from another credit card company can be a helpful way of moving your debt to a different plan with reduced interest payments. You may also be able to take advantage of promotional ‘interest-free’ offers.

You should consider your options very carefully before deciding to take on more debt to clear your credit card. Borrowing to cover other debt can also lead to higher repayments and a ‘snowball’ effect, particularly if you are already struggling to meet your commitments. You may also find difficulty with opening additional credit cards if you have a lot of debt.

There are now many lenders who specialise in lending to people with a poor credit history, but the interest and charges associated with these accounts can be very high (sometimes as much as five times a standard rate of interest). There are professional debt advisers who can help you decide if this is the right option for you.

Challenging your lender and the amount they claim you owe can be successful, but the process is very technical. Without expert help, it will also be extremely difficult to finalise any challenge and make sure your lender cannot come after you again at a later date. A successful challenge would mean that your debt is cleared and you do not need to make any more payments to your lender, making this an effective way of clearing credit card debt.

Does declaring bankruptcy clear credit card debt?

Bankruptcy is an insolvency process which you can enter voluntarily. It can also be imposed on you by your lenders if they don’t think you will be able to repay the debt you owe to them. All debts, including credit cards, will be included in the agreement and your unsecured debts are written off after the end of bankruptcy.

In most cases, bankruptcy typically lasts for one year. During this period, the bankruptcy court will appoint a third party trustee or other specialist who will have control of your assets and income until you are discharged. This party will be responsible for making sure you make the required payments.

The decision to enter bankruptcy, or any other insolvency solution, is a massive one to make and must be very carefully considered. Bankruptcy has a certain stigma attached to it, however, if you have no valuable property or assets and no real prospect of paying off your debts within a reasonable time, bankruptcy may be a sensible solution.

If you are considering bankruptcy, make sure you speak to an independent adviser before making any final decision.

What happens if I can’t pay credit card debt?

When you can’t make any payments toward your credit card debt, there are a number of steps that your lender may take. In the first instance, they will contact you to ask for the payments required of you. The lender will give you a period of time to bring payments up to date, and if you do not do this then they will end your agreement and the account will be defaulted. At this point, the lender may decide to employ debt collectors to chase you for the money owed to them.

You can still agree an affordable monthly repayment plan, even if your account has been passed to debt collectors. Every lender has a legal duty to take account of your circumstances and come to a sensible arrangement. If payments are still not made, the lender is likely to take further enforcement action. This could include home visits or asking a court to issue a CCJ.

If you’re struggling with debt, it’s a good idea to get financial help, as you’ll need to understand your rights and decide on your next step to make the right decisions during what is a very stressful time.