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How serious is credit card debt?

Woman holding credit cards while looking at bills.

Credit cards seem to offer unrivalled convenience: with a tap or swipe, we can purchase anything from groceries to flights without needing cash in hand. But this ease of spending can mean that it’s easy to lose track of your spending and fall into credit card debt.

According to The Money Charity, credit card debt in the UK totals over £66 billion – and this figure is likely to keep growing. For the millions carrying balances month to month and struggling to make repayments, credit card debt is certainly a serious problem. But how serious is credit card debt really, and what happens if you can’t repay? Read on to find out.

What happens if you go into credit card debt?

Using a credit card essentially means borrowing money from the card provider. They loan you the funds, which you agree to pay back at a later date – generally within a specific interest-free period if you pay your balance off in full.

Using your credit card sensibly within your means isn’t an issue. But problems can arise when you only make partial payments, causing credit card debt to roll over to the next month. You’ll be charged interest on the outstanding amount, starting from the date of your statement.

Credit card debt is unsecured, meaning it’s not tied to an asset that can be repossessed if you default. However, because it’s a revolving debt, your credit limit replenishes as you make payments, allowing you to continue spending. With the added interest, this means that balances can quickly snowball, making the debt tricky to get under control.

Is credit card debt serious?

Credit card debt is considered ‘non-priority’ in the UK. Priority debts are those which may cause urgent and significant problems if not dealt with. For example, if you don’t pay your electricity bill, your supply might be cut off. Or if you default on your mortgage, you could lose your home.

However, classing credit card debt as non-priority doesn’t mean that it isn’t serious, or that you can simply ignore it. This is because:

Interest builds up quickly – the average APR on a credit card is 31.2%, according to Which. As interest compounds, you can owe interest on interest, so even small balances can rapidly grow.

Your credit score may suffer – missed payments can damage your credit rating, limiting your access to new credit.

You may face legal action – creditors can still pursue repayment through the courts.

Not to mention, being weighed down by credit card debt and chased by creditors is extremely stressful and can be detrimental to your overall mental wellbeing.

What happens if you don’t repay your credit card debt?

While less severe than some priority debts, ignoring your credit card debt can still result in major financial and legal consequences.

01. Going into default

Firstly, your lender will contact you to pursue your credit card debt. They may also report your late or missed payment to credit reference agencies, which may lower your credit score.

If you miss multiple payments in a row (typically around 3-6 months), the credit card company may issue a default notice. This means you have breached the terms of your credit agreement. Once a default is added to your credit file, it will typically remain there for six years and can further harm your ability to get credit.

In the meantime, interest may continue being added to your balance, along with potential late payment fees.

02. Debt collectors

Once your account is in default, your credit card provider may ‘sell’ your debt to an external debt collection agency.

The aim of debt collectors is to recover the money you owe through letters, phone calls, text messages, and even visits to your home address. Being contacted repeatedly can be very stressful.

Debt collectors must follow rules set by the Financial Conduct Authority regarding how often they can contact you. If you are struggling, explain your situation and they may be able to arrange a repayment plan.

03. County court judgement (CCJ)

If you still don’t pay, the creditor or the debt collection agency can take you to court. This may result in a CCJ – a county court judgement against you that confirms the amount you owe.

Avoiding a CCJ should be a priority: having a CCJ registered can severely damage your credit score and lasts for 6 years.

04. Bailiffs

If you don’t comply with the CCJ, the creditor can ask the court to send bailiffs (also known as enforcement agents) to your home. They have the power to confiscate some of your belongings to sell and use the proceeds to pay off the debt.

However, they can’t take essential items, and certain rules must be followed. For example, they aren’t allowed to force entry if they are collecting credit card debts.

05. Charging orders and bankruptcy

In some cases, a creditor might apply for a charging order against your property. This means the debt is secured against your home, and if you sell the property, the debt must be paid off from the proceeds.

If the debt is substantial and you can’t pay it, the creditor might petition for your bankruptcy. This is a legal process that can result in the sale of your assets (including your home) to pay off your debts.

How can debt management plans help?

If juggling multiple credit card payments has become unmanageable, a debt management plan (DMP) could provide the solution.

DMPs are informal agreements between you, your creditors and an expert third-party debt company like DFH Financial Solutions. They allow you to consolidate various debts into one affordable monthly payment.

The key benefits of debt management plans typically include:

  • One manageable payment – By combining all your debts, you only need to maintain one monthly payment that works with your budget. No more juggling repayments.
  • Lower interest rates – Your DMP provider should attempt to negotiate reduced interest rates from creditors, preventing your debt from rapidly growing.
  • Potentially improved credit score – Staying on top of your new consolidated payment may be reflected positively on your credit file over time as your debts reduce.
  • Reduced creditor contact – Your DMP provider manages all communication with creditors, stopping nuisance calls and letters.

DMPs need to be carefully considered based on your unique circumstances. Professional debt help can assess if one is right for you.

Take control of your credit card debt with DFH

If debt is starting to feel overwhelming, you don’t need to tackle it alone.

Here at DFH Financial Solutions, our experienced team help people across the UK regain control through personalised debt management plans. We know taking the first step can seem daunting, but our friendly experts will guide you through the process.

Don’t let credit card debt hold you back. Reach out to DFH today and start your journey towards a better financial future.

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