Why a 0% credit card could mean 100% trouble

by StepChange Debt Charity on 05 September 2012  |  9 comments
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Interest-free credit cards can help clear your debt. But what happens when the 0% deals are no longer within reach?

Part of our work as debt counsellors is answering questions from clients and people needing help online. One of the most common questions put to us are from people who are nearing the end of a 0% deal from a credit card company.

The main area of concern is that the person wants to secure another 0% deal and have found out that, for whatever reason, no deals are available for them.

0% pantomime

Many of these people seem bewildered that they’re going to be stuck paying interest for large balances being carried on these cards.

It seems that during better times it was little more than a formality that balances could be switched between providers, hungry for business and offering 0% deals like they were going out of fashion.

Well, from the questions that we answer on a daily basis, it seems that for many lenders the 0% deal has gone out of fashion, or at least the criteria to qualify for an interest-free period has got a lot stricter.

£50 extra per month

It’s been reported in the press recently that even a £50 increase in expenditure can tip families and individuals into debt trouble. The end of a 0% credit card deal means that monthly payments will often rise by more than £50.

We already know that paying the minimum payments on credit cards is no way to clear the debt. That means the £50 extra to find each month will often stretch many years into the uncertain future.

Our normal advice in this scenario is to look at putting together a budget paying off as much of the credit card balance as you can reasonably afford. This sometimes falls on deaf ears and the client’s next question is inevitably about the dreaded consolidation loan.

Not the answer

We don't usually recommend consolidation loans as a good debt solution (although in some particular circumstances they can work). The problem with debt consolidation is simple. The very nature of the solution usually means you’re making your debts bigger and repayable over a longer period. This is not good advice for someone who is already struggling.

The other problem with consolidation loans is the ‘human factor’. A large consolidation loan may clear all outstanding loans and credit cards, but this doesn’t necessarily mean the problem of over spending or poor budgeting has been cured.

We see over and over again, people who have taken out a consolidation loan, paid off credit cards and then, within a few months, have used the credit cards again. 

Don’t fudge it, learn to budget

We don’t just give free debt management advice and offer free solutions. We also give advice about budgeting, how to put one together and how to stick to it. The most important thing with a budget is to make it realistic and sustainable. Budgeting, once mastered is quite a skill to have in your financial armoury.

If you’re nearing the end of a 0% credit card deal and you’re going to be starting to pay interest on the debt, the first thing to do is put together a budget and we can help with this.

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