Avoid this devious credit card trap today!

If you're a regular user of a credit card, make sure you don't fall into this devious trap...

Did you make more purchases than usual on your credit card last month? Went into your overdraft a few days earlier? Spent, in general, a bit more than you can truly afford?

If you did, I have some news for you. You’re officially exactly like everyone else in Britain.

Latest figures from Bank of England show that, last month, we took on more personal debt than we have since the height of the recession in May 2009.

We’re now in the red to banks, credit card lenders and other loan providers to the tune of, oooh, about £208.6 billion. That’s £9,070 per household. Worst of all, we took on a massive £5 billion of debt in the past year alone.

Why? Take your pick from the following reasons (but prepare to be depressed). If you’ve been reading lovemoney.com regularly over the past year, you’ll know that unemployment has hit a 17-year high, rents have risen at a record rate, inflation has jumped to more than 11 times the Base Rate, there’ve been massive hikes in energy prices and food prices have rocketed.

No wonder there is said to be more ‘stressed borrowing’ occurring, with more people having to borrow to finance their day-to-day spending.

But I don’t think this is the whole story. I think there are also lots of you out there who have a chunk of debt in personal loans and credit cards but are coping just fine and meeting all your minimum payments. Yes, you are spending more than you can afford to pay off in full each month - but no one knows that, except your credit card provider. And they’re getting their slice of interest each month and keeping quiet about it. So everything’s fine and dandy and there’s no need to worry.

Until disaster strikes. You lose your job, get sick or - for whatever reason - suddenly find yourself unable to make your usual payments.

What do you do then?

Credit card clampdown

The moment you start missing payments is the moment that all those credit card providers which had been queuing up to lend to you start clamping down on the amount of credit you can get.

That’s the devious trap they will allow you to fall into. Easy credit when you don't need it, the door slammed in your face when you do.

Typically, at this point, you’ll find yourself unable to borrow anymore and facing spiralling interest costs, never mind late payment penalties. If you can’t borrow money from friends and family to meet your debt repayments, you may find yourself unable to meet essential bills or even buy food and clothes.

At that point, it will be far too late to get a 0% credit card, which would have allowed you months and months and months of breathing space from your interest payments. These cards are only available to borrowers with good credit records. The moment there’s evidence you’re struggling and really do need one of these cards, your application will be rejected.

Act now!

I think you can see where I’m going with this. If you are:

• Not paying off your credit card bill in full each month
• Not already on a 0% credit card

Then now is the time to switch to one. Before disaster strikes. Even if you are coping just fine with your payments right now.

Not only will you save hundreds of pounds in interest payments over the lifetime of your debt, you will also be able to pay off your debt much more quickly. So if disaster does strike, you’ll have far less debt to deal with.

And if it doesn't, you'll obviously be much better off!

The best credit cards to switch to

The best credit card to switch to right now depends on what you want to use your card for.

If you have a lot of existing debt and you would like to spread your payments over longest possible 0% period, then the market-leading card to go for right now is the Barclaycard 22 Month Platinum Visa card. This will give you 22 months - so until September 2013 - to pay off your debt, interest-free. Bear in mind there is a 2.9% balance transfer fee however, so you’ll pay £29 in fees for every £1,000 of debt you transfer.

Alternatively, if you think you can pay off your debt within 16 months, go for the Barclaycard Low Fee Platinum Visa card instead. It only gives you 16 months at 0% interest, but the fee is just 1.6% at the moment. So you’d pay just £16 in fees to transfer £1,000 of debt.

On the other hand, if you need even longer than 22 months to pay off your debts, then a good option is the Sainsbury’s Low Rate Credit Card. This card doesn’t charge a fee for a balance transfer, but it does charge 6.9% APR. However, it will give you as long as you need to pay off your debt at this rate.

Your other option is to consolidate your debt into a personal loan. Loans are cheap right now, with Sainsbury’s leading the market. If you need to borrow £7,500 to £15,000 over four to five years, you’ll pay just 6.2% APR. But bear in mind this is a much less flexible way to borrow than a credit card, with larger minimum payments to make every month. You’ll need a Nectar card before you can apply (but Nectar cards are free and easy to get).

Whichever method you go for, it is important to use it as a debt repayment vehicle - not a new source of credit. Otherwise your debt will continue to grow. If you opt for a credit card, I’d recommend actually physically cutting the cards up as soon as they drop through the door!

Finally, if you think you will find living credit-free a struggle, check out our free spend tracker tool. It will help you see at a single glance where you can easily make cutbacks and can also be used help you to stick to your budget. Good luck!

Compare credit cards at lovemoney.com

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