With no pubs, no restaurants and no holidays, many UK consumers spent their money repaying billions in personal loans and credit card balances in April.
The Bank of England’s latest figures reveal £7.4bn in repayments – the highest since records began in 1993.
Here, we look at ways you could pay off your credit card if you’ve managed to save money under lockdown and the measures that are there for you if you haven’t.
Paying off your credit card with leftover income
There’s a reason April’s credit card repayments set a new record: millions of Brits who are working (perhaps from home) or are on furlough with full pay have far less to spend their money on than they usually would.
You too could take this opportunity to pay down your debts if you’re finding your essential spending alone leaves you with disposable income, but little to ‘dispose’ it on. Reducing your credit card debt, or eliminating it entirely, could be one of the best ways to spend it.
If you can, you should keep some of this money in a savings account for a rainy day. The economic forecast at the moment is certainly cloudy. But if you’ve managed to put enough aside to pay off your entire balance already, you could join the millions who contributed to April’s record repayment figure.
Increasing your monthly repayments
You might only be saving a little under lockdown – perhaps the cost of rail tickets if you used to commute but you’re now home-based.
Essentially ‘reassigning’ this money to pay off your credit card debt is a stable way to make sure you’re not spending beyond your means, and you won’t have to end up borrowing more in the long term.
Lowering your interest rate
The Bank of England’s base rate plummeted to a historic low of 0.1% thanks to coronavirus. But your credit card’s interest rate is likely much higher than this, typically more than 18%.
If you’re eligible, shifting your debt over to a 0% balance transfer credit card will stop your balance growing and make it easier to pay down. At the moment, you can get up to 30 months’ interest-free with the best deals.
This is especially useful if your spending is now low enough that you aren’t paying with your credit card anymore, but not low enough to leave you cash leftover to pay the balance immediately.
Applying for a payment holiday
There’s support out there if circumstances have made it difficult for you to pay your minimum repayments each month.
The regulator, the Financial Conduct Authority (FCA), introduced borrowing relief measures in April to help credit card customers through this hard time.
Banks and building societies have been instructed to offer three-month payment holidays to customers struggling financially thanks to coronavirus – meaning they won’t have to make any payments during this time.
They’ve also been asked to make sure these holidays don’t affect customers’ credit scores.
Every major lender has now announced they will do this – meaning a freeze on your credit card payments could be just a phone call or online form away.
There could be more help on the way. On Friday 19 June, the FCA announced proposals to extend banks’ support for those who need it. These include offering a further payment freeze or reduced minimum payments when a payment freeze comes to an end.
These additional measures are still under consultation, and the FCA will take a firm decision on them on 22 June.
It’s important to only take a payment holiday if it’s the right choice for you, however. Interest will still build up while you’re not making payments, so other approaches might work better for some.
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