I was so ashamed about owing £9,000 debt – I made a crucial mistake after getting a credit card at 18
A PROJECT manager tumbled into thousands of pounds of debt after being offered credit from her bank when she was just 18.
Courtney Clayton, now 30, from Newcastle initially borrowed sensibly, paying off her bill regularly each month.
But she started relying on the credit card more frequently when she moved out of her family home and in with a friend.
Her balance was creeping up but at the same time, the bank kept raising her credit limit even though her earnings were still the same at around £18,000 a year.
Courtney told The Sun: “All my friends were students at the time.
“There was a social pressure to go out all the time, and I was trying to keep up even though I couldn’t afford it.
“I realised I could use my credit card to get money out.
“But I didn’t understand the long term impact and I didn’t really understand how interest worked.
“The bank said we’re going to automatically up your credit limit unless we hear from you.”
Eventually, Courtney reached a £4,000 limit on the card.
She transferred the debt to a balance transfer credit card.
These cards have low or no interest introductory periods on balances transferred from different credit cards, and can help people repay debt quicker.
However, once the initial zero interest period ends, the interest jumps up meaning you will have to pay much more if you haven’t repaid all the money owed.
It meant she didn’t have to initially pay interest on the sum switched over.
However, she made a crucial mistake by not closing her first credit card account.
Instead she carried on spending at the same time as making the minimum repayments on the balance transfer credit card.
By the time she was 21, Courtney had maxed out both cards with the monthly repayments alone had reached around £500.
She says: “The minimum payments had got so high, I couldn’t afford to pay it anymore.
“And because I didn’t make the payment, it was taken direct from my bank account with no warning.
“That’s when I realised I needed to do something about it.
“It was terrifying, I felt like I had the weight of the world on my shoulders.”
Courtney contacted debt charity StepChange and was asked to calculate how much she owed.
It was then she realised she overspent to the tune of £9,000.
She said doing the sums forced her to be accountable.
StepChange then put together a fee-free debt management plan for Courtney, which is an agreement to pay back debts based on what you can owe.
Interest and charges on debts are often stopped when you enter into a debt management plan but it usually impacts your credit score for at least six years after taking one out.
Through StepChange’s plan, the charity contacted the credit card firms directly for Courtney, agreeing to total repayments of £250 a month.
Courtney said: “It’s intimidating to deal with companies that are sending you threatening letters.”
Courtney adds: “I was very avoidant.
“I spoke to my mum after I started dealing with StepChange and was feeling a bit lighter.
“I thought she’d be disappointed but I wish I’d told her earlier. I had just felt so much shame.”
As she repaid the money she owed, Courtney said she realised she didn’t need to spend as much to have fun.
StepChange also introduced her to a budgeting spreadsheet which helped her turnaround the way she manages money.
This included all her income, against bills and other commitments that she had each month.
Courtney explains: “Each month I worked out how much I had to spend and I’d break down how many weekends I had to spend that over.
“I’d know if I needed to pull back and have a quiet weekend.”
Even though Courtney has since paid off the money she still uses a similar method for keeping on top of her income and outgoings.
“It really helped keep track of my money and even since the debt is paid off I have continued doing this with a notes app on my phone.
“Every time I spend, I deduct it from what I have to spend so I know how much I have left for the month.”
How to set a budget
Learning to budget is easier if you break it down into as much detail as possible
- First, track your expenses. You may initially know how much your rent or mortgage and bills cost, but how about your other regular costs? These can have a big impact on how much you have left to spend.
- Look through recent bank and credit card statements to identify regular expenses. For example, is your morning caffeine fix adding up? You might think you don’t need to budget for your daily £2.50 latte, but over the month this can cost up to £75.
- Add up all your outgoings and split spending into categories like “rent”, “food”, “bills” and “going out”. You can do this in a spreadsheet.
- It’s important to be realistic as it will form the basis of your budget – so if you don’t think you can go without your daily coffee, or your weekly night out, then make sure you budget for it.
- Once you’ve worked out your outgoings, tot up the total and subtract it from your total monthly earnings. Whatever is left is called your disposable income, and it’s there to use for little treats. You could also use this money to save, or to pay extra money towards debts you may have.
- Stay in control by reviewing your budget every few months. You never know, you could make even more savings.
In the end, it took Courtney almost four years to pay back the money and she’s since been debt-free for around five years.
But she has decided against getting another credit card.
“I’d rather save and spend that way,” she says.
HELP WITH DEBT
If you are worried about money you owe, contacting a free trusted organisation is one of the first steps to take.
Charity StepChange offers free advice. Contact them through their website stepchange.org or call on 0800 138 1111.
Citizens Advice is another national organisation with thousands of volunteers who can help guide you.
Find your nearest branch using the tool on its website, or contact them by phone on 0800 133 8848.
Making a clear budget with your incomings and outgoings, including bills and credit repayments, is crucial for getting a grip on your situation.
You can then start to work out how much you can repay and how long it might to take to clear debt.
Always tackle priority debts first – this includes rent, mortgage, energy bills, child maintenance and taxes.
Depending on your debt situation, you may be able to use the Breathing Space scheme which freezes your interest and any charges or debt collection activity your creditors might take for 60 days.
We have also spoken to someone who had £50,000 of debt but now has a six-figure business.
And another borrower who cleared £18,000 of money owed.
How to cut the cost of your debt
IF you're in large amounts of debt it can be really worrying.
Here are some tips from Citizens Advice on how you can take action:
Check your bank balance on a regular basis – Knowing your spending patterns is the first step to managing your money.
Work out your budget – By writing down your income and taking away your essential bills such as food and transport. If you have money left over, plan in advance what else you’ll spend or save. If you don’t, look at ways to cut your costs.
Pay off more than the minimum – If you’ve got credit card debts aim to pay off more than the minimum amount on your credit card each month to bring down your bill quicker.
Pay your most expensive credit card sooner – If you have more than one credit card and can’t pay them off in full each month, prioritise the most expensive card (the one with the highest interest rate).
Prioritise your debts – If you’ve got several debts and you can’t afford to pay them all it’s important to prioritise them. Your rent, mortgage, council tax and energy bills should be paid first because the consequences can be more serious if you don’t pay.
Get a payment holiday – Credit card companies and mortgage lenders are offering three-month payment holidays until the end of March 2021 if you’re struggling to meet your repayments. You should always keep paying until you’ve come to an agreement with your provider. Most lenders will also still charge interest during this time, so be aware that these costs will keep building up.
Get advice – If you’re struggling to pay your debts month after month it’s important you get advice as soon as possible, before they build up even further.
Speak to:
- National Debtline – 0808 808 4000
- Step Change – 0800 138 1111
- Citizens Advice – 0808 800 9060