If you cannot pay your credit card bills then it is likely that other bills are not being paid either as they fall due: mortgage, rent, utilities, car HP, loans and overdrafts. However, if credit card bills are the only ones where payments are falling behind, perhaps you can do something about it. You really have to act because the problem grows greater and simply won’t go away. Let’s examine your options.
Minimum Monthly Payments
The first option to consider is to make only the minimum monthly payments demanded. We can do this for a period of months but it is not a long term solution. Unfortunately debts will continue to grow even if we stop ourselves making any new spending. Ultimately making only the minimum repayments each month will lead to the creditor taking aggressive recovery action.
Stop using the cards
What about cutting up the credit cards and stopping using them? This is an excellent first step. At least the financial bleeding will be stopped. However until we settle the credit card bills, interest and penalties will continue to be applied by creditors. Cutting up credit cards can provide a temporary respite but it doesn’t help us if we are unable to re-pay the debts.
Debt Consolidation
A real step in the right direction may be to obtain a personal loan at a low rate of interest and use these funds to pay off all of the credit card balances. If we can manage to get the personal loan and can afford the loan repayments, this can work. Again, we should cut up all the now cleared credit cards.
Balance Transfer
Not a long term solution but one that might give us some temporary respite is to obtain a new credit card on a balance transfer and zero interest basis. Even if we can obtain such a card, the original debts still have to be paid off and after the interest free period expires, the interest rates and penalties on the new card can be higher than before. Currently, creditors are being more restrictive in issuing such balance transfer cards.
Re-mortgage
If you are fortunate enough to own a property with a reasonable amount of equity in it, then you could consider seeking a re-mortgage and releasing some of that equity. With the released funds you can clear some or all of the credit card debts. Remember though that lenders today are inclined to limit such borrowings drastically. Because property values have reduced sharply in the last few years, the amount of realisable equity may have reduced sharply and indeed it may be that you will be unable to find a mortgage provider who is willing to offer a re-mortgage at all. Even if you do succeed, the mortgage interest rates may be unattractive and there may be additional costs to bear, such as the cost of obtaining a valuation and your existing mortgage may also be subject to an early re-payment penalty, if you move from your current mortgage provider to a new one and the term of your early redemption penalty has not yet elapsed.
If you are unable to make your credit card payments even at the minimum level, you must avoid the temptation of maxing out all your credit cards and then petitioning for bankruptcy. To borrow money, which is what using a credit card is, with no intention of repaying the debt, is fraudulent and could lead to your criminal prosecution and possible imprisonment.
Enter a Debt Solution
If you are desperate, you should consider contacting an insolvency practitioner (IP) in order to determine what options are available to you. This is often the best initial course of action. A reputable IP will look at your financial circumstances and advise on all of your options. No costs should be incurred in obtaining this initial advice. One option that may be attractive is to enter a Debt Management Plan with your creditors whereby you make reduced payments to all of your creditors until your debts are fully repaid. If you happen to be insolvent and this is something your IP can determine for you relatively quickly, than you may be able to consider entering into an Individual Voluntary Arrangement (IVA) with your creditors whereby you make reduced payments to them for a limited period, usually five years, after which your residual debts are written off. A solution of last resort for insolvent debtors is to petition for your own bankruptcy where you may have to make payments for up to three years under an income payments order or an income payments agreement. If you own property you are likely to lose it if you become bankrupt but you can be discharged from bankruptcy in as little as one year.
Ultimately your control over your financial future will improve if you take an appropriate course of action rather than defaulting on your credit card bills.