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What is debit card debt?

A debit card is a payment card that allows you to spend funds in your bank account. A debit card allows you to make transactions and payments directly from your bank account instantly, and is used for general spending and everyday purchases in the UK.

Debit card debt is money owed to the bank provider of your debit card.

While debit card debt is considered a less common form of debt due to the nature of debit card spending, debit card debts can happen.

What can cause debit card debt?

Debit card debt can occur when you fall behind on payments owed to your debit card account provider. This can happen when entering your overdraft, when you fail to make late payments, or if you fail to pay any fees related to your account.

Your overdraft is an excess allowance on your debit card account that allows you to essentially ‘borrow’ an amount beyond your current funds. Once you enter your overdraft your bank account is classified as overdrawn. Bank accounts can offer an agreed-upon allowance that will include agreed terms for any interest or late fees attached to the repayment of the overdrawn amount. Any amount taken out beyond this agreed-upon allowance can come with further charges and fees.

If you’ve failed to pay your overdraft and have accrued late payments and interest, you could find yourself in debt with your provider.

Can debit card use affect my credit score?

General spending on your debit card won’t affect your credit in any way. A credit score is created and updated whenever you use credit services such as credit cards, financing agreements, and loans. This means that so long as you are using your own funds, your credit score is not affected.

If, however, you enter your overdraft, fail to keep up with payments linked to your account, or take out any form of credit or loan with your bank, failure to keep up with these forms of credit will have a negative effect on your credit score.

What is the difference between a debit card and a credit card?

As mentioned above, a debit card is a payment card linked to your bank account that allows you to spend and transfer your own funds through transactions. With a debit card, you’re spending your own money and the amount available to spend is entirely dependent on your own finances.

A credit card is a form of credit that allows you to spend credit with providers, usually with a set limit to the amount that can be spent. This is known as a line of credit with the money then being paid back (usually monthly), clearing the balance before a set date.

Failure to repay the balance of a credit card could see you being charged interest and late fees, and could negatively affect your credit score as a result of failing to maintain payments.

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Managing debit card debt:

If you find yourself burdened with debit card debt, it’s crucial to take proactive steps to manage and eliminate it. Here are some strategies to help you regain control:

Start by compiling a list of all your debit card debts, including any overdraft balances or outstanding payments. Understanding the full extent of your debt is essential for formulating a plan.

Develop a budget based on your income and outgoings. Once you’ve worked out what you have left over, allocate a portion of your income towards paying off your debit card debt, being sure to prioritise high-interest debts first.

Identify discretionary spending that you can temporarily reduce or eliminate. By cutting back on non-essential items, you can redirect those funds toward paying down your debt faster.

If you’re struggling to make payments, reach out to your bank or card issuer to discuss potential repayment options. They may be able to offer assistance or suggest alternative solutions.

It’s also important to seek professional advice when your debt situation feels overwhelming or you need guidance. Consider consulting with a reputable debt counsellor or financial advisor. They can provide personalised advice and help you explore debt management strategies.

Avoiding debit card debt:

Sometimes debt can be unavoidable. We never know what financial situations may arise and it’s good to be prepared for when debt troubles arise.

Here are some tips to help you avoid accumulating debit card debt:

  • Track Your Spending:
    Keeping a good record of your debit card spending and ensuring you regularly review your bank statements is essential. This will help you stay on top of your spending habits and identify any areas where you can make changes to better manage your finances.

  • Stick to a Budget:
    Establish a realistic budget that aligns with your income and financial goals. By adhering to a budget, you can ensure that your spending remains within your means.

  • Build an Emergency Fund:
    Set aside funds in an emergency savings account to cover unexpected expenses. Having a financial safety net can help prevent the need to rely on your debit card or overdraft in times of crisis.

  • Use Debit Cards Responsibly:
    Treat your debit card as a tool for convenient access to your own funds, rather than a source of unlimited spending. Avoid impulsive purchases and consider the financial impact before swiping your card.

  • Seek Financial Education:
    Take advantage of free resources, workshops, or online courses to improve your financial literacy. The more knowledgeable you are about personal finance, the better equipped you’ll be to manage your money wisely.

Consider if a debt solution is the right option for you:

If you feel your debts are unmanageable and you have no realistic way to repay them, a debt advisor can also help you set up a debt management plan, a financial agreement designed to help those struggling to repay their debts. There are many options for debt solutions that apply to various financial situations. Some of these solutions include:

Individual Voluntary Arrangement: An Individual Voluntary Arrangement (IVA) is a formal debt solution for residents of England, Wales, and Northern Ireland, that consolidates your debt repayments into one affordable monthly repayment. An IVA is a legally binding debt solution and once you enter into an agreement, you must keep up with your monthly payments towards your debts. After making repayments for a set time period, usually between 5-6 years, all of your remaining debt is written off and you’re free to begin rebuilding your finances free from your debts.

For Scottish residents, this is known as a Protected Trust Deed and is an alternative to insolvency for people with debts exceeding £5000. A Protected Trust Deed typically lasts for 4 years.

Debt Management Plan: A Debt Management Plan (DMP) is an informal debt solution that allows you to repay your debts at a more agreeable rate over an extended period of time. It’s an agreement between you and your creditor, and your repayment rate and the time for repaying your debts will be determined between you and your creditor based on what you can realistically afford.

To learn more about the different debt solutions available to UK residents and discover what may work best for your debts, head over to our debt solutions page.

For free debt advice from a professional debt charity, you can visit MoneyHelper.

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