If you are serious about paying off your debt, stopping using your credit cards and catalogues is the key first step to take.
Until your debt stops increasing, you can’t make a realistic plan to clear your current debt. As the saying goes, if you want to get out of a hole, then stop digging.
But how hard will it be?
Four common excuses for not giving it a go
Do you recognise any of these:
- “I’m only using credit cards for convenience as they save having to think about how much money is in my bank account at every point in the month”
- “I use them because of extra legal protection”
- “I get cash back (or Nectar points or air miles) on my credit card purchases”
- “I’m managing the minimum payments so it’s not really a problem”.
Unless your debts are clearly going down each month, you are probably just fooling yourself with these excuses.
0.5% or 1% cash back or loyalty card points are tiny compared to the interest you are paying every month. They are great for people who clear their balances in full every month, but not if you don’t. The legal protection only applies if you buy something large, not your groceries, petrol or everyday expenses.
If you are only paying the minimums and still spending on the card, it will take 10, 15 or more years to clear the extra debt you are adding. That pair of shoes will be in the bin long before they are paid for.
The legal protection is nice, but that only applies if you buy something large, not your groceries, petrol or everyday spending.
So try stopping using the cards for a month and find out if you really are dependent on them.
How to manage without them
Ignoring the neat but impractical idea of just stopping spending on anything (!), you have basically two options: use cash or use your debit card.
Using cash means you don’t have to track what is in your bank account every day, only when you withdraw money. And it may well have an extra psychological advantage that you find yourself more reluctant to hand over hard cash for something than flashing the plastic.
If you decide to use your debit card routinely instead, then you do have to keep an eye on your account balance, especially if you have a joint account.
Be especially careful when you use contactless payments. In 2018 the use of contactless cards overtook the use of chip-and-pin payments in UK shops. People love them because they are so quick and convenient – but it can feel like you aren’t spending “real money” at all.
If your income doesn’t all come at once – two pay-packets and tax credits say – then you may find it helps to postpone less urgent spending until the end of the month when it is clearer how much money you have.
What to do with the credit cards
Cut them up? That’s a serious suggestion if you have any cards which are either nearly maxed out or are on a 0% balance transfer.
If you have a whole collection of cards, cutting them all up apart from one (which ideally would have both some spare credit on it and a comparatively low-interest rate) is a good idea.
Less dramatically, you could leave them at home or freeze the card in a block of ice. This won’t damage the card (unless you try to defrost it in the microwave!) but may be sufficient of a deterrent, giving you that extra dollop of willpower not to spend.
If you find you are spending a lot each month in online shops or eBay, have a look at these 5 ways to reduce online spending. They won’t stop you shopping, but they will make it just a bit harder than a couple of clicks.
I failed – I just had to use the card today
Don’t let that make you give up on the whole idea! There may have been a very good reason or you may be very cross with yourself. But carry on trying…
At the end of the month
Did you find the month wasn’t too bad, just a bit inconvenient, then have a read about “Snowballing”, as that is very likely to be your best option – it clears your debts as fast as possible and leaves you with a great credit rating.
If you found it a struggle, then have a think about how you could improve your finances. Start by having a look at a “money detox“.
If you couldn’t manage it and your debt has gone up a lot during the month, then it’s probably time to take some debt advice. The longer you wait, the harder the solutions are likely to be. Have a look at this simple roadmap of options and see which feels right for you.