How to avoid post-lockdown overspending

As lockdowns ease and Britons are liberated to go shopping again, we need to take care with credit. Everybody wants to have a bit of fun right now, but this is not the time to run up fresh debts on plastic.

Clear credit cards every month

Credit cards allow you to spend money instantly, with nothing to repay for up to 55 days.

However, if you do not pay it off after that, the interest racks up at quite a rate.

Typically, you pay a hefty annual percentage rate of 21.9%, and more on some cards. This is how debt spirals begin.

Tip: Set up a direct debit and pay off your bill in full every month.

Always pay the minimum

If you can't clear your bill, at least make the minimum payment. Otherwise, you face an instant penalty of around £12, and will damage your credit record. Never exceed your total credit limit, either.

Tip: Paying the monthly minimum isn't enough but it's better than nothing.

Don't use debt for essentials

Credit cards can help you spread the cost of major purchases, but if you rely on them to pay for food, energy and rent, you are storing trouble for the future.

Do not use cards to withdraw cash (except in an emergency), or gamble online, as you pay interest from day one.

Tip: Reserve cards for special purchases.

Tackle debt problems today

If you have debts across several cards, focus on paying down the one charging the highest interest rate, then the next most expensive.

Draw up a monthly budget and cut back on spending until you’re in control again.

Tip: Don’t forget to pay the minimum on your other cards, too.

Consider balance transfer cards

If you are struggling to pay off your cards, see if you can switch the debt to a balance transfer credit card.

These charge zero interest for an introductory period of two years or more, putting you back in control.

Tip: Aim to clear the full balance before the intro rate ends.

Beware store cards

Store cards are tempting but typically charge more than credit cards, with APRs of 30 per cent or more.

Tip: If making a major purchase, look for a store card with an initial 10% discount. Repay the debt in full that month and tear up the card.

Know the score

Maxing out on plastic put your credit report at risk. This is a history of all the credit you took out in the last six years, including credit and store cards, mortgages, bank overdrafts, mobile phone contracts and HP payments.

The data is held by credit reference agencies Equifax, Experian and TransUnion, and lenders check this against their own records when you apply for credit.

If you are applying for a loan, credit card or mortgage, then a good credit rating counts. Those with problems may face higher interest rates, tougher repayment terms or rejection.

Tip: If worried, ask to see your credit file and correct any errors or explain why you ran into money troubles.

Read more: Why do women have more debt?

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