Tackling Credit Card Debt when on State Benefits

Access to Debt Help Services and Debt Solutions - Become Debt Free

Dec 13, 2008 Asa Ghaffar

Credit card debt is spiralling out of control for those on state benefits. Utilise debt help and take advantage of debt solutions to become debt free.

Clearing credit card debt when on state benefits can seem impossible, but there are a number of money saving ideas and debt solutions available to help someone become debt free. It requires budgeting, but a few lifestyle changes could turn credit card debt problems around.

Credit Card Debt and High APR -- a Recipe for Disaster when on State Benefits

Credit card debt gradually increases over time for those on state benefits. A shortfall between income and expenditure results in an increasing reliance on credit cards to survive. Credit card debt is a growing problem because they are so easy to use, yet difficult to pay off because of escalating rates of APR.

Robert Winnett, Political Editor for the Daily Telegraph, stated in an article entitled "Credit Card Firms Pledge Not to Increase Interest Rates" that "Cardholders now face an average interest rate of 17.7 per cent on credit cards - more than eight times higher than the base rate - up from 16.6 per cent last year."

Pay More than the Minimum Monthly Amount to Clear Credit Card Debt

Making the minimum monthly payment on credit card debt only serves to benefit the banks' profit margins. This type of customer pays vastly more interest and is more likely to accrue late payment charges than someone who settles in full each month.

Alex Barnett, a spokesman for HSBC said "If customers were paying the minimum, all their monthly payment might go to paying off the charges, rather than reducing the principal."

Pay more than the minimum monthly payment as not doing so only serves to prolong the duration of the debt. Paying an extra £50 a month will clear credit card debt vastly quicker. Paying just the monthly minimum could mean that credit card debt lasts for up to 40 years.

Ways to Save Money and Clear Credit Card Debt for Those on State Benefits

Cut down on drinking and smoking. Neither of these are a necessity and may even be the cause of debt problems. Making these lifestyle changes could reduce monthly outgoings by as much as £100 a month;
Switch from branded foods to own brand products. There is rarely much difference between branded and unbranded foods. Making the switch to unbranded foods could reduce the monthly food bill by £30 or more;
Sell things that aren't needed on eBay. Everyone acquires things that aren't needed over the years. It is possible that by selling them on eBay or at a car boot sale that enough money will be raised to clear any credit card debt in full;
Make sure that all state benefits are being claimed. See a Job Centre claims advisor to find out if additional benefits can be claimed. For example, if the claimant has health problems check to see if entitled to Carers Allowance.

Debt Solutions for Those on State Benefits

Debt Management Plan. This is a way of putting all unsecured debts under one roof. A payment is made to a debt management company who disseminates money on a pro rata basis to creditors;
Make an arrangement with the creditor. It is possible that a creditor will agree to freeze interest and charges. Some will also accept a payment of a £1, although affordability will be assessed every 6 months;
Personal bankruptcy. Those who don't own a property and have serious debts may wish to consider personal bankruptcy. The current charge for declaring bankruptcy is £475. Most bankrupts are discharged after a period of 12 months.
Secured loans. Some loan companies specialise in lending to those on state benefits. This would allow a borrower to consolidate all credit card debt under one roof. Think carefully before going down this route as not keeping up with the repayments could lead to the loss of the family home.

Inappropriate Debt Solutions when Claiming State Benefits

It isn't possible to enter an Individual Voluntary Arrangement as a full time job and income is a basic requirement. Similarly, it will be difficult to identify a suitable unsecured debt consolidation loan. Those that can get an unsecured loan will pay a higher rate of APR than the credit card debt.

A credit card should never be used as a means of long term borrowing as it is one of the most inefficient and costly forms of debt. It is important to find a way to reduce social spending to pay off credit card debt. Always seek debt help before opting for a debt solution as it is imperative that the right one is chosen.

Those with credit card debt may also be interested in reading about Debt Management Plans & Controlling Finances and Reducing Utility Bills and Stopping Fuel Poverty.

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