Credit Cards | Credit Crunch

With the abundance of credit cards on the market today it is easy to see how and why credit card debt is so common. Also, because of the competitiveness of that particular market, credit cards are widely available and therefore people from all walks of life have access to them.
Some people who don’t even have the appropriate means of repayment can even get credit cards.

This page will provide you with some information and FAQs on credit cards and their related debt. You can hopefully avoid falling into the credit card trap of high interest and constant draining monthly repayments.

Some Types of Credit Card

  • Balance Transfer Cards – Balance transfer cards are available for consolidating your debts from other cards. These cards offer 0% interest on your transfers. To help alleviate your charges and interest that you have been paying. You could save hundreds of pounds.
    The market is VERY competitive with these types of card. Most providers offer 0% interest for a specified number of months. These cards are particularly good if you maximise what they offer. In other words, with great commitment, you should aim to have all or most of the debt paid off within     the timeframe of the 0% interest. If you don’t do this, you could get landed right back into high interest payments. The same applies if you purchase anything with these cards. You need to focus on using the card as a repayment plan for your debts.
  • Cashback – Cashback cards are most suitable to the fortunate people who manage to clear their full statement every month. The cards offer a percentage cashback offer on purchases, sometimes up to as much as 5% on each purchase. So you can actually make money while you spend money. It is like a type of reward scheme. Remember, these cards are encouraging you to spend, so steer clear of them if you cannot afford to repay each month.
  • Rewards and Incentive – Rewards and incentive cards are similar to cashback cards, in the sense that they offer you something in return for your money. The reward is normally a points based system; so many points per pound spent. As above, this type of card is mainly recommended for people who can spend and pay off the balance in full on the due date.

Should I transfer my balance?

If you are struggling to pat off your credit cards or even reduce the balance, if all you seem to be doing is paying off the interest, then the answer could be yes, transfer. You could save hundreds of pounds by doing this.

Credit Card Debt example

Debts
  • You have two credit cards: One at approx £4800 and the other at £3000
  • You can only afford to pay a little above the minimum payment each month and the apr is 16.9% and 19.9% respectively
Solution
  • You decide to apply for a credit card and transfer your balances. The balance transfer deal is 0% for 12 months. There is a charge of 2% for the transfer, however, with that charge included, you could still make a saving of over £1,250 on interest within that year. You are successful in the application and when it goes through, you cancel your old cards, and pay off as much as you can every month on your new card. You do NOT use your new card for purchases.

Monthly calculations of the above example based on repayments of £120 per month

Months Card 1 £4800
on 16.9% apr		 Card 1 when transfered
to 0% apr card		 Card 2 £3000
on 19.9% apr		 Card 2 when transferred
to 0% apr card
Jan 4800 + interest
-120 = 4747.60		 4800 + 2% charge
- 120 = 4776		 3000 + interest
- 120 = 2929.75		 3000 + 2% charge
- 120 = 2940
Feb 4747.60 + interest
-120 = 4698.47		 4776 – 120 =4656 2929.75 + interest
- 120 = 2858.34		 2940 – 120 = 2820
Mar 4698.47 + interest
- 120 = 4644.64 		4656 -120 = 4536 2858.34 + interest
- 120 = 2785.74		 2820 – 120 = 2700
April 4644.64 + interest
- 120 = 4590.05		 4536 – 120 = 4416 2785.74 + interest
- 120 = 2711.94		 2700 – 120 = 2580
May 4590.05 + interest
- 120 = 4534.69		 4416 – 120 = 4296 2711.94 + interest
- 120 = 2636.91		 2580 – 120 = 2460
June 4534.69 + interest
-120 = 4478.55		 4296 – 120 = 4176 2636.91 + interest
- 120 = 2560.64		 2460 – 120 = 2340
July 4478.55 + interest
- 120 = 4421.07		 4176 – 120 = 4056 2560.64 + interest
- 120 = 2483.10		 2340 – 120 = 2220
Aug 4421.07 + interest
- 120 = 4363.33		 4056 -120 = 3936 2483.10 + interest
- 120 = 2404.28		 2220 – 120 = 2100
Sept 4363.33 + interest
- 120 = 4304.78		 3936 – 120 = 3816 2404.28 + interest
- 120 = 2324.15		 2100 – 120 = 1980
Oct 4304.78 + interest
-120 = 4245.41		 3816 – 120 = 3696 2324.15 + interest
- 120 = 2242.69 		1980 – 120 = 1860
Nov 4245.41 + interest
- 120 = 4185.12		 3696 – 120 = 3576 2242.69 + interest
- 120 = 2159.88 		1860 – 120 = 1740
Dec 4185.12 + interest
= 4244.14		 3576 2159.88 + interest
= 2195.70		 1740
Amount paid off 555.86 1224 804.30 1260
Balance transfer savings 668.14 455.7
Total Savings 1123.84