Credit cards are a staple part of most people’s financial lives and, used properly, can provide valuable liquidity at particular times as well as enabling individuals to purchase high value items and services, or just simply for paying expenses. Knowing that there is at least a 30 day period to repay balances without incurring charges makes using credit cards a versatile and important way to smooth out financial bumps in the road, or a convenient method of making payments in one place for later reimbursement by an employer.
However, their plus points can easily be obscured because of how easy credit cards are to use. Outstanding credit card debt came to £54.7 billion at the end of February 2021, averaging £1,962 per household and £1,032 per adult*. The only good news is that due to the lockdown there was a decrease of 23.9% over the previous year.
One of the accepted ways of managing credit card debt in the past, apart from debt consolidation, has been to switch outstanding balances to other cards with rates down to 0% for a set period (also known as balance transfer deals) and then move them on again to other 0% cards.
However, recent research by Moneyfacts has shown that the number of interest-free balance transfer deal offerings has fallen by a third since January, with just 54 accounts still available, the lowest figure ever recorded. The report published showed a 29% fall in available balance transfer deals since January, and only 11 of those deals did not charge fees when transferring the balance across to a new provider.
While there has been some relief offered by banks to customers with outstanding balances as part of the payment holiday protocol initiated by the government to help people who would struggle with payments of mortgages and loans, this relief is due to finish.
Those struggling with credit card debt should act quickly if they want to avail themselves of the balance transfer deals which are still there. However, your financial adviser should be contacted to give you an opportunity of finding out if there are other avenues to help alleviate the pressure.
If you are a homeowner, you might be able to consolidate your outstanding credit card balance by adding it to what you already owe on your mortgage, either by taking a further advance with your current lender or by remortgaging to a new lender. In most cases, because the mortgage term is longer, consolidating in this way means that your repayments on the new mortgage will reduce your overall outgoings considerably. If you consider consolidating your debts in this fashion, it is essential to note that the total credit charges in the long term may be higher than your current short-term arrangements. It is crucial that you explore all the options available to you with your adviser as there may be more suitable options available to you, depending on your circumstances.
Another option would be to take out a secured loan (second charge mortgage) which runs alongside your existing mortgage, but leaves it in place.
If you would like more information on debt consolidation, or second charge secured loans, please do not hesitate to get in touch your free initial consultation.