What not to do when your credit cards are maxed out
Posted January 15th, 2009 With the credit crunch drastically limiting our ability to find new credit, we’re becoming more and more reliant on our existing credit sources. But what happens when you run out?
No matter how you got your card maxed out, the first and most important step we should all take is to make a plan. The plan should provide a clear guide to getting back ‘out of the hole’.
Below is a list of the key things you should do to avoid getting into a worse situation with your credit cards:
Don’t miss any payments or make any late payments
When you’re running low on cash, even making the minimum payment on your credit card can put a strain on your wallet, particularly if you’ve got other bills piling up. We’re not going to say that your credit card is the first bill you should pay, but if you miss payments, your credit rating will worsen, which can lead to the financial institutions reducing your credit limit, increasing interest rates and increasing minimum payments. Be very careful about making your payments on time. You should also consider the amount of time it can take for the payment to arrive on your credit card, or for cheque payments to clear. To minimise the risk of having a late payment, you should make your payment at least a week before it’s due.
Don’t get more credit
The least sensible thing to do when you’re at risk with your credit is get into more debt. There is obviously a difference between getting more credit and transferring your balance or consolidating your debts in a personal loan. If you do proceed with the latter, make sure you cancel all of your credit cards straight away, to remove any temptation.
Store credit cards are also a big no-no. Aside from regularly having fairly outrageous rates (25%+), they restrict your spending to one store.
Re-mortgaging, or using your property as a new line of credit, for the reasons above is also a poor choice. Particularly with the property market crashing at the moment, you run a significant risk of running into negative equity, which happens when your debts exceed the vale of your assets. Which, needless to say is really bad and will prevent you from getting any new credit.
Don’t spend any unnecessary money
Unnecessary is the operative word here. Be as frugal as possible with your expenditure, but don’t completely stop spending money (unless you absolutely have to).
With eBay, Craigslist, and a variety of second hand shops, charities, garage sales etc, there are a whole host of ways for you to buy the stuff you really need for a lot less than you’d pay if you were buying new from retail. Freecycle is an even better option, which deals exclusively in free stuff, you can get amazing things here for no cost.
Conversely, be sensible with your expenditure, don’t just stop spending money, reduce your TV or Internet plan, go out less, have friends over for dinner rather than going out. All of these little things (and we’re sure you can think of many more) add up to big savings. If you cut all the fun out of your life, unless you’re super disciplined, you’re much more likely to not stick to your budget. You need something to look forward to, you just need to moderate your expenditure.
Don’t try to do it by yourself
Getting out of debt is hard and stressful, so don’t assume you can do it by yourself, speak to your friends and family about your situation, as they’re probably in the same boat, or at least have been before.
Budget
Make a budget and stick to it. This is so important. Plan all your purchases a month before you’re due to make them so you can ensure you’re covered for all of your activities. Allocate some spare money to deal with unexpected events. Allocate your income into buckets; work out what you’re spending your money on each month (Electricity, Gas, Shopping, TV License etc) and then allocate cash against those pots.
This process is made a lot easier if you pay your bills by direct debit, as usually you’ll know how much you need to pay each month in advance.
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Comparison of Top 10 Credit Card Offers
| Credit Card | Card Details | Interest Rate | Cash Advance Rate | Balance Transfer Rate | Annual fee | Interest free days | ||
|---|---|---|---|---|---|---|---|---|
 Halifax All in One Credit Card |
The Halifax All in One credit card offers a great introductory rate, and is perfect for saving you money now as well as in the future. | 15.9% APR | 27.95% p.a. (variable) | 0% for 9 months | No Annual Fee | 59 Days interest free |
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 Virgin Credit Card |
As well as a great rate, the Virgin Credit Card comes with:
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16.6% APR (variable) | 27.9% p.a. (variable) | 0% for 16 Months (2.98% fee on balance transfers) | No Annual Fee | 50 days on card purchases |
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 Capital One Classic Visa |
This card is designed for people with bad credit ratings, this is why the rate is quite high. |
Typical 34.9% APR variable | 34.9% APR | 34.9% APR | No Annual Fee | 56 days for purchases. 0 days for balance transfers and cash. |
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As well as earning Flying Club miles which you can spend on brilliant rewards like flights, upgrades, car hire and more, a Virgin Atlantic Credit Card gives you up to 46 days interest free on card purchases. |
17.9% APR typical rate | 20.9% p.a. (variable) | 0% for 6 months (2% handling fee) | No Annual Fee | Up to 46 days on card purchases only. |
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The Virgin Prepaid MasterCard from Virgin Money is a prepaid Mastercard that you can add funds to, and use these funds for normal purchases. |
N/A | N/A | N/A | N/A | N/A |
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5% cashback on purchases in your first three months (up to £4,000 of spend). Thereafter, earn 0.5% on the first £3,500, 1% on £3,501 to £10,000, and 1.5% after £10,001. |
18.9% p.a. | 27.9% p.a. | 18.9% p.a | No Annual Fee | 56 days for purchases. 0 days for balance transfers and cash. |
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Vanquis Visa Card is designed for people with no credit history or who have previously had bad debt. |
39.9% APR variable | 39.9% | 39.9% | No Annual Fee | Up to 56 days on card purchases only |
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The award winning prepaid card with no credit check or bank account needed. | Funds in your Account will not earn interest | Prepaid only - N/A | Prepaid only - N/A | £59.40 p.a. (£4.95/month) | Prepaid only - N/A |
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