Does it feel as though you are caught in a trap of credit card debt? And no matter what credit card debt repayments you make, your balance seems to go down?
You could be a victim of the credit card debt trap thanks to the ‘negative order of payment’ method employed by many credit card lenders.
The ‘negative order of payment’ trick means that credit card lenders allocate any credit card debt repayments towards clearing your cheapest credit card debts first (those accumulating the least interest, which you might have acquired through a promotional balance transfer), and leaves your most expensive credit card debts (those accumulating the most interest, such as cash withdrawals) trapped on your credit card. This means your most expensive debt will be attracting extra interest until the cheapest debt has been paid off.
This method is used by many credit card lenders, meaning that your credit card debt may cost you more than you originally thought. For example, if you are benefiting from a 0% balance transfer but still had credit card debt on the card beforehand, you will be making the repayments towards you cheapest transaction.
So, are you a victim of the credit card debt trap? If you are unsure whether your credit card provider uses the negative order of payment method, you can check your latest credit card statement. By law, your credit card provider is obliged to make this information available.
Make sure that you read through the Terms and Conditions of your credit card closely. It should offer you more information about how your payments are prioritised.
“How can I avoid the credit card debt trap?”: The only way this can really be avoided is to make sure that you do not use your credit card for cash advances and that you pay off your credit card debt in full on a monthly basis. This means that you will not have to pay interest on your credit card debt.
If you are struggling with your credit card debt and it is unaffordable to you, there is credit card debt help available. One Advice are leading financial solutions experts. We could make your monthly credit card debt payments more affordable to you. If you want to see if you can benefit from a reduced monthly payment through a financial management plan, please get in touch.