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What happens if you can't pay unsecured debt like credit cards?

Credit cards are a popular way to borrow money. According to figures from the Bank of England in September 2011, total outstanding credit card debt in the UK was £57 billion. Brits made an average of 28.4m plastic card purchase transactions every day in April 2012 with a total value of £1.392 billion.

If you are looking for a quick and easy way to borrow money, paying using a credit card can be a good way of getting the cash you need. However, with average credit card interest rate at 17.3 per cent in March 2012, the overall amount you owe could quickly build up if you don't clear your balance in a reasonable period of time. And, if you can’t keep up your repayments then you could find yourself experiencing debt problems.

But, what happens if you can’t pay unsecured debt such as credit cards? We explain.

What happens if you don’t pay unsecured debts such as credit cards

Unsecured debts include any kind of debt that isn't secured against an asset, such as your home or your car. Common unsecured debts include store cards, personal loans, catalogues, overdrafts and credit cards.

Unlike secured loans, a lender cannot repossess your home or another item of property if you don’t pay an unsecured loan. However, although non-repayment of unsecured debts won't come with consequences as severe as non-repayment of secured debts, not making your agreed repayments towards credit cards can still have a big impact.

The most common consequences for not paying your credit cards are:

  • You face increasing fees and charges from your credit card provider

  • Your credit rating will be damaged as your credit file will show late or missed card payments

  • Your creditor will take you to court and you could be issued with a County Court Judgement (CCJ) ordering you to repay the debt

  • You will have to deal with debt collectors

  • Bailiffs may be employed to try and obtain possessions which can be sold to repay your debt

As the consequences for not paying unsecured debts such as credit cards can be severe, it is important to make sure you can keep on top of your monthly credit card repayments. Next, we look at three ways you can help yourself to keep up to date with your credit card repayments.

3 ways to make sure you can always pay your credit cards

As we have seen, missing credit card payments can have serious consequences. So, it is important that you make at least your minimum payment every month. Here are three tips to help you:

  • Look at your income and outgoings – Work out how much money you have spare every month to ensure there is always enough to pay your unsecured debts

  • Make sure you know when payments are due – Set yourself reminders so you know when payments are due. Alternatively, you can set up a direct debit for your minimum credit card payment to ensure you make a payment every month

  • Reduce your outgoings – Try to cut back on your spending to free up money to meet your credit card commitments each month. This may involve eating out less, switching your utility providers or cancelling non-essential direct debits

If you still find that you can't afford to repay your credit cards every month as agreed, you should get some professional debt advice as soon as you can. The Citizens Advice Bureau and the Consumer Credit Counselling Service can help you.

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