Credit card debt in the UK today totals £72.6 billion – affecting the lives of all too many UK consumers. With the typical credit card interest rate being 18.5%, it’s perhaps unsurprising that the average household is caught in the grip of £2,668 worth of credit card debt.
With more people seeking credit card debt solutions than ever before, we want to demystify five credit card debt myths that many believe to be true.
Myth One: Debt settlement won’t impact your credit score
Making ‘full and final debt settlement’ offers to your credit card creditors can write off a set amount of your debt (generally speaking creditors are known to accept offers of between 50% and 75%). However, debt settlement can negatively impact your credit score, because it marks your accounts with ‘P’ on your credit history (which stands for partially settled).
This debt solution won’t ‘wipe off’ any past defaults either (e.g. the times when you’ve missed a credit repayment or were late in paying).
However, it’s worth noting at this point that many other debt solutions can also affect your credit rating, which may make a fall in your credit score unavoidable.
Myth Two: You must pay a debt agency to settle your credit card debt
There are many options of debt solutions for dealing with your credit card debt, one of which involves using a debt agency. While some unscrupulous businesses present false information for convincing you that there’s no other option, the fact is that there’s never a situation where you must use a debt agency. That said, there are multiple benefits of debt intermediaries, such as there being able to advise you on your options from a debt expert’s viewpoint and negotiating with your credit card company on your behalf.
Myth Three: You should focus on paying your credit card over your other debts
Credit card debt is not a ‘priority debt’. If you have debts that fall into any of the following categories, with only a limited amount of money to be used on your repayments, you should pay these first and foremost (but you should regularly update all creditors as to your circumstances):
- mortgage repayments and loans secured on your home
- gas and electricity debts
- certain payments ordered by the courts
Myth Four: Anyone can choose a debt settlement for their credit card debt
To qualify for debt settlement, you need to be considered as being in hardship (e.g. your creditor won’t accept a cut-price offer for a credit card debt on which you’ve kept up with your repayments).
Myth Five: If you have a large credit debt, you only have the options of debt settlement or bankruptcy
There are many debt solutions available that can deal with problem credit card debt, and you should always explore all of your options before deciding what to do next. Possible credit card debt settlement solutions may include:
- An Individual Voluntary Arrangement (IVA) – A form of debt settlement that allows you to repay your debts over a period of up to 6 years. This type of debt settlement will ensure interest and extra charges are frozen, while a debt agency acts as the negotiator between you and your creditors.
- A Debt Management Plan (DMP) – A debt solution that arranges a repayment schedule for non-priority debts (such as overdrafts and credit cards).
- An Administration Order – A debt settlement solution for those with two or more debts, the total debt of less than £5,000, and a minimum of one County Court judgment.