How I Built Up a £30K Debt and Repaid It

As an adult you will have a collection of credit-cards in your wallet. Do you have more than you need? Can you honestly say that you have never been tempted to buy something because your credit card is nowhere near the limit?

Credit cards are a part of adult life, but very few of us have ever been taught how to use them. Yes, we all know about paying the balance in full every month, but there is much more to using them sensibly than that.

credit-card Psychology

The Hook

When you are accepted for your first one and find out that you have a credit limit of £2,000 you think you have £2,000 in your pocket. Many people go out and spend on their card with this philosophy. Six weeks later the credit card statement (read credit-card bill) comes in and you have to find £1700 that you do not have. Luckily you only need to repay £34; it says so at the bottom so you only “really” owe £20, phew! WRONG. You have spent £1700 so you owe £1700.

The Answer

Think of your credit as a charge one, like an American Express one. Only use it if you have money in the bank to pay the charge and put that money aside immediately, or move money into your credit card account from your bank account straight away. That takes a lot of discipline though.

The Alternatives

  1. You can repay your credit-card debt slowly over many months, gazing in constant amazement at the interest that you are paying each month and at the tiny monthly reductions in your debt
  2. You can check a credit ones comparison site to find a card with a 0% APR balance transfer offer and repay the balance within that time. This sounds great, but you need a lot of willpower, you need to cut up your old one and your new one immediately and to cut your spending until your debt is paid off
  3. You can bite the bullet, cut your card into tiny pieces and live on bread and cheese for six months until you have repaid what you owe

The Probability

Most people do none of the above and take out another credit-card with another £3,000 limit. They continue paying the minimum on the first card and spending on the new card to take advantage of any introductory offers on that card.

In six months’ time, both cards are maxed out and it is time to take out another card . . .

Five Years Later

You have six cards all maxed out and owe £30,000, but it’s OK because you only need to pay £600 a month.

Bite the Bullet Time

You have spent £30,000, and have an awful lot of stuff that you are still paying for; including a car that you bought on one card because you got 2% cash back and it seemed like a good deal at the time.

What is the answer? You have to turn all those debts into one personal loan with a lower rate of interest and fixed monthly payments. All your cards are issued by banks. Talk to each bank and see which one will offer you the best deal. You will need to destroy or return all your cards and close your credit cards accounts as part of any deal you are offered. Your monthly payment will not be an easy one to find, but the bank wants you to be able to afford it to avoid it appearing as a  bad debt on their accounts.

It will probably take four or five years to repay all that you owe. You can then start again with a very limited credit-card and being resolute about repaying it in full every month.