Problem Credit Card Debt: Practical Steps

If your credit card debts have started to spiral out of control and you can no longer afford the repayments, it's time to take back control of your finances. Perhaps you've been burying your head in the sand for so long you don't even know the extent of your debt ... well, it's time to find out.

You need to work out how much you can actually afford to pay towards your credit card debt.  First, add up your monthly income from employment, benefits etc. and write that figure down.

Now, you need to calculate all of your day-to-day living expenses.  It's helpful to look over a recent bank statement to see what your regular outgoings are.  They'll look something like this:

Mortgage / Rent     £600 per month
Insurance               £30 per month
TV License             £11 per month
Car Fuel                 £50 per month
Satellite/Cable TV  £30 per month
Gas & Electricity    £40 per month
Phone Bill              £15 per month
Mobile Phone        £30 per month
Food                     £400 per month

The first thing to do is see if there is anywhere you can cut costs to reduce your outgoings.  Make sure you have the best deal with your gas & electricity, for example.

Once you have a final figure for all your outgoings (minus your credit cards), subtract it from your income and take a note of what's left over.

The amount you're left with is the amount you can afford to pay towards your credit card debt each month.

The easiest way to do this is to write it down, or create a spreadsheet if you can. Write down ALL of your credit cards and the balance of each one, along with your current monthly payment, then add up the totals.

CREDIT CARD A     £1,745     £45 per month
CREDIT CARD B     £3,583     £95 per month
CREDIT CARD C     £765        £29 per month
TOTAL                    £6093      £169 per month

The figure you end up with might seem a little scary - but the important thing is that you've bitten the bullet and taken the first step towards gaining control of your finances again.

Now that you have a total amount available to share between the credit cards, it's time to work out how to split that up fairly.

The calculation to perform is:

[Amount owed on credit card] x [Total amount available to pay each month] / [Total debt]

For example, using the examples above gives me a total debt of £6093. Let's say I can afford to pay £95 per month TOTAL. So, the calculations for the credit card debts shown above are:

CREDIT CARD A (balance of £1,745)
1,745 x 95 / 6,093 = £27

CREDIT CARD B (balance of £3,583)
3,583 x 95 / 6,093 = £56

CREDIT CARD C (balance of £765)
765 x 95 / 6,093 = £12

This way of calculating payments is the method most commonly used by courts when dealing with debt cases, so it's the method most likely to be accepted by your credit card company.

The final step is to contact each of your credit card companies with your new payment proposal.  When you write to them, send them everything you've calculated above - all your income details, your outgoings, all your credit card debts and the payment calculations.  Be totally up front and try to make this communication before you've defaulted any payments, if possible.  Most importantly, request that they freeze interest on your account.

Keep a note of all letters you send or phone calls you make.  If your credit card company put up a fight, you may wish to consult an organisation such as the Citizens Advice Bureau, who will negotiate with the credit card companies on your behalf (at no cost to you).

Taking control of this kind of debt can be frightening at first, but it's important to take back control as soon as possible - even if just for your own peace of mind!