Credit cards can be a convenient way to pay for goods and services you perhaps can’t afford outright, but they can quickly become a problem if you don’t pay back what you owe by a specific date.
From high interest to late fees, it doesn’t take long for extra costs to be added to your credit card debt and, the longer this cycle continues, the harder it becomes to clear your outstanding balance. This is why credit card debt is one of the most common types of debt people face in the UK.
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What is credit card debt?
When you make a payment with a credit card, the provider essentially pays the full purchase price upfront and you pay it back at a later date. You’ll then receive a credit card statement at the end of the month outlining how much you owe the credit card company for the last 30 days of spending.
If you don’t pay the full amount owed by the given due date, you’ll officially be in debt to the credit card provider. The longer you don’t pay off your credit card debt, the more interest will be added and the harder it will be to clear your balance.
Extra charges can also be applied for late payments, cash withdrawals, and foreign transactions, increasing your total debt level. It’s important to think ahead when using a credit card to prevent potential debt.
The Bank of England estimated that consumers in the UK owed a total of £71 billion in credit card debt in September 2024 – 9.5% higher than the previous year.
How much debt do you have?
How does credit card debt happen?
Credit card debt can happen for many reasons but it typically occurs when you spend more on your credit card than you’re able to realistically pay back.
It’s a common misconception that making the minimum payment on your credit card will help you avoid debt, but this isn’t true. While this will help you avoid late fees, interest is still added so your debt level will continue to increase unless you have a 0% interest credit card.
Most credit cards also apply compound interest, which is interest charged on the original amount owed as well as the accumulated interest. This can cause the total amount you owe to rapidly increase.
Having too many credit cards can also cause debt to accumulate as it makes it difficult to keep track of each balance and payment date. This might also tempt you to spend outside of your means, which is another contributing factor to debt.
How to pay off credit card debt
If you’re struggling with credit card debt and are looking for a way to deal with it, there are various options available to you.
Here are some methods that can help you pay off credit card debt:
Add up your total debt
Before dealing with your credit card debt, it’s important to get a full picture of how much you owe and to who. Start by working out how much debt you have on each credit card, including interest, and compare it against your take-home pay to determine how much you can realistically pay off each month.
Most financial experts recommend dealing with credit card debts with the highest interest rates first. This way, you can pay off the fasting-growing debts safe in the knowledge that your other debts aren’t increasing quite as quickly.
For example, if you have two credit card debts of £500 but one has an interest rate of 0% and another has an interest rate of 22%, the one with the 22% interest rate will grow much faster while the one with the 0% interest rate won’t accumulate any interest.
Consider using your savings
If you have a savings fund but you’re not saving for anything in particular, it might be worth using the extra money to pay off your credit card debt before it spirals out of control.
This can be an effective way of reducing how much you owe. For example, if you’re earning 1% interest on £1,000 worth of savings but you’re paying 18% interest on a £1,000 credit card, you’ll automatically be £170 better off every year if you use your savings to pay off your debt.
However, while this can help you pay off your credit card debt, it should only be used as a last resort as relying on this method more than once can eventually deplete your savings, putting you in a precarious situation if you need money for an emergency expense down the line.
Apply for a balance transfer credit card
If most of your credit card debt is made up of interest alone, a balance transfer credit card could help you reduce the amount you owe by a substantial amount by allowing you to make fixed payments each month via direct debit until your debt is cleared.
For example, switching to a credit card with a 0% interest rate could see you pay no interest for a set period (usually a couple of months) while you focus on paying off your original debt. This can allow you to pay off your credit card debt much quicker.
However, you’ll usually need a healthy credit score to be approved for a high enough credit limit to cover your debt and there might be a one-off transfer fee of between 3% and 5% required.
Consolidate your debts
Taking out a debt consolidation loan can help you turn multiple debts into a single monthly payment, making it easier to manage your repayments and ease some of your financial stress.
It works by applying for a set amount that covers the total amount you owe on all of your credit cards. If you’re approved, you pay it back in fixed monthly payments for a set period.
The money will usually be paid into your bank account on the same day you apply, so it’s important to resist the urge to spend it on anything other than debt repayment.
Pay more than the minimum amount
When it comes to credit card debt, paying more than the minimum payment can help you avoid persistent debt. Even if you’re not in a position to clear your balance in full, anything you can pay above the minimum amount will contribute to you gradually chipping away at your debt.
This will also prevent you from being hit with late fees, which will only add to your total debt and extend your repayment term.
For example, if you owe £2,000 on a credit card with a 26% interest rate, it can take you over 25 years to clear your balance when you only make the minimum payment each month. By just paying an extra £59 a month, you can pay off the debt in less than five years.
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What happens if I don’t pay my credit card bills?
As with any type of debt, it’s important to be aware of the consequences of not paying what you owe in full or on time.
Here are some of the things that could happen if you don’t pay your credit card debt:
Interest will be added
Interest is added to a credit card as soon as you don’t make full payment by the due date. The rate of interest charged depends on the individual credit card account but, in the UK, it typically hovers around 25%.
It also tends to be charged daily, which means that the amount of interest added is based on the outstanding balance from the previous day. This is what causes credit card debt to escalate and become unmanageable so quickly.
You’ll be charged late fees
Failing to pay the minimum payment in full by the due date will result in you being charged late fees. Even if you pay something towards the debt, you’ll still be charged late fees if it’s not the minimum amount listed on your credit card statement.
The amount you’ll be charged in late fees depends on the type of credit card and the provider, but it’s typically capped at £12 in the UK.
Debt collectors might visit you
The longer you ignore a credit bill debt, the more actions will be available to the lender to try to recover payment. If the debt has gone unpaid for some time or it’s for a sizable amount, they might hire debt collectors to visit you at your property.
When they visit you, they will ask you to pay what you can towards the debt or arrange to set up a payment plan to clear your balance in regular instalments. However, they must give you notice before they visit and, unlike bailiffs, they are not legally allowed to seize any of your belongings.
Your credit score will be damaged
Just a single late payment on your credit card is enough to negatively impact your credit score for up to six years – even if it’s only a day late. Repeated late payments can then cause further damage, causing a significant drop in your credit score very quickly.
Before applying for a credit card, it’s important to plan ahead to ensure you’ll be able to afford to repay your balance on the expected due date. If you’re still unsure how credit cards work, it won’t hurt to refresh your knowledge of credit card repayment basics.
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Conclusion
Credit card debt happens when you don’t pay off your credit card bill in full on the expected due date. Making the minimum payment can help you avoid late fees, but interest will still be added, making it difficult to clear your balance.
There are various things that can help you deal with your credit card debt, such as adding up your total debt, using your savings, applying for a balance transfer credit card, consolidating your debts, and paying more than the minimum amount.
Ignoring credit card debt can lead to interest being added, late fees being charged, debt collectors visiting you, and a damaged credit score. If you’re struggling to afford your monthly payments, it’s important to inform the provider or reach out for credit card debt support as soon as possible.
