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How to pay off credit card debt

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How to pay off credit card debt
Even if you can only pay a few extra pounds on top of the minimum monthly amount, you will pay off your debt more quickly and cheaply.

Credit cards have many benefits, not least that they can help you spread the cost of an expensive purchase into more manageable repayments. But they can also encourage you to rack up debt that then becomes difficult to repay. This is especially true if you have multiple credit cards that charge high rates of interest. 

So, if you’re struggling to pay back debt on your credit cards, take a look at these six tips to help you take control and tackle your credit card debt head-on.

1. Work out how much you owe

As a first step, you need to calculate how much you owe across all your credit cards. Take a look at your recent credit card statements and tot up the balance on each card. 

You should also check how much interest you’re paying on each credit card and what you repay each month. Are you repaying a fixed amount or only the minimum monthly repayment? This should give you a clearer picture of your financial situation and you’ll have taken the first step to becoming debt free.

2. Create a budget and cut back

Your next step is to work out how much money you have coming in and going out on bills and other expenses each month. Is there anywhere you could make cutbacks to save money? Could you cancel any unwanted subscriptions or eat out less? 

It’s also important to shop around for a better deal whenever your car insurance or home insurance policies are up for renewal. Likewise, with your energy, mobile phone contract or broadband deals.  You could save yourself hundreds of pounds this way.

3. Pay more than the minimum monthly repayment

Credit card minimum monthly repayments are typically set very low – often around 2% to 3% of the statement balance, or £5 to £25, whichever is higher. If you only pay off this amount each month, it could take years to repay the debt in full and you could end up paying hundreds of pounds in interest.

It’s important to meet the minimum monthly repayment to avoid late payment charges and potential damage to your credit score. But it’s better to pay off more if you can. Even if you can only pay a few extra pounds on top of the minimum monthly amount, you will pay off your debt more quickly and cheaply.

Credit card calculator

Use the credit card calculator to help work out the costs of owning a credit card.

4. Pay off your most expensive debts first

If you have debt on several credit cards, work out which of them is costing you the most. Look at the interest rate on each credit card and put them in order of the highest to the lowest rate. You want to focus on the credit card with the highest interest rate first.

Put as much money as you can afford each month towards paying off this credit card, while also keeping up with the minimum repayments on your other cards.

Once you’ve paid off the most expensive credit card, you can start focusing on the credit card with the second-highest interest rate, and so on. This is a cost-effective way of clearing your credit card debt.

An alternative method is to focus on paying off the credit card with the lowest balance first – you won’t save as much money, but it’s the fastest way to clear the balance on one credit card. It can also give you a bit of a boost knowing that you’ve already paid off some of your debt.

5. Use your savings

If you have some savings tucked away, it can be worth using some of these funds to pay off what you owe. That’s because the cost of your debt is often higher than the interest you’re earning on your savings. Using your savings to pay off your debt will make you better off in the long run.

6. Think about a balance transfer 

You might be able to save money and clear your debts faster by using a balance transfer credit card. Moving over existing credit card balances to a new card that charges a low rate of interest, or even no interest at all, for a set time gives you some financial breathing space. 

You might have to pay a fee of around 2% to 4% of the amount you transfer. But as you won’t be paying interest on that debt for a number of months, more of your monthly repayment can go towards paying off the original debt.

You ideally want to pay off the balance in full before any 0% promotional deal ends. If you can’t, you might need to shift your balance to another 0% balance transfer credit card and pay another fee. Be aware that the longest 0% credit card deals are reserved for those with excellent credit. 

What happens if I can’t pay my credit card debt?

If you’re struggling to repay your credit card debts, speak to your providers as soon as possible. They might be able to move you to a cheaper deal, help you come up with a repayment plan or even offer you a payment holiday. Keep in mind that interest and charges may be added to your debt if you take a payment holiday.

Credit card providers should work with you to help you find a solution, so it’s important to get in touch as soon as you find it difficult to make your repayments on time.

It can also be worth speaking to a free debt advice charity, such as StepChange, Citizens Advice and National Debtline. Advice is free of charge and you’ll be offered tailored support based on your circumstances. Debt advice charities can even speak to lenders on your behalf and help you come up with a manageable debt repayment plan.

How long do you have to pay off a credit card?

Unlike loans, credit cards have no fixed repayment term, which is why it can be easy for debt to build up. You must pay at least the minimum amount each month, but how much you pay on top of this is up to you. If you don’t pay off the balance in full each month, you’ll usually be charged interest. 

If you have a credit card with a 0% introductory offer, it’s best to pay off your balance in full before the 0% deal ends. If you don’t, interest will be charged on the outstanding balance.

Compare balance transfer cards

Find a balance transfer card with a long interest-free period