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How to pay off credit card debt

To avoid unnecessary stress related to paying back your credit cards, here's a step-by-step approach to pay back credit card debt, rebuild your credit score and regain your financial health.

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  1. Pay the minimum amount due on each of your credit cards every month, without fail.

  2. Any surplus funds you have left in your budget should go towards paying back your balance on the credit card that charges you the highest interest rate.

  3. Try to maximise payments on this card using any cash saved from the household budget through better planning.  This will help you get out of debt faster.

Look at your financial situation

The first step is to take stock of your debt situation. Verify the account statements of all your credit cards. Tabulate the data on a rough sheet of paper, jotting down the important numbers for each of them.

Against each credit card, note down the outstanding balance that you are required to pay back, and the interest charged on the balance.

Find out what is the minimum payment due every month to avoid being in default. To reduce the interest due, credit card companies often ask customers to pay at least a minimum portion of the total amount due. Find out how much this amount is for each of the credit cards.

This evaluation might be depressing and distressing, but is a necessary step in your long journey back to financial health.

Never miss the minimum repayments

Each of your credit card bills has a "minimum amount due" amount printed on it. Add these "minimum dues" from all your credit cards. Set aside the above sum in your monthly budget for repaying debt.

Make these payments without fail to avoid ruining your credit history.  If you have to cut down on other expenses in order to find the money for repaying your card bills, then bite the bullet and do it.

Cut your interest rate

Negotiate a lower rate of interest with your credit card company. If the company refuses to reduce rates even after you have paid your dues, consider switching to another card provider who offers better rates.

An effective method to reduce debt is to switch any outstanding balance from a high-interest card to a low-interest credit card. You may have to pay some fees for the transfer, but you will save more money over time because of the lower interest rates that now apply to the unpaid balance.

If you have debt on a credit card enter your details in our calculator to work out what you could save:

Credit card calculator

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

Pay down your high interest debt first

Paying down the debt on your highest interest credit card should be your top priority. This only makes sense because you will save more money by repaying the costliest debt than any other.

Once you have paid off the debt on this card in full, you can proceed to the card with the next highest interest rate.Follow this procedure for all of your cards, always repaying the one with the highest interest rate.

This process is a simple and effective way to become debt-free in a relatively short time.

You might also be able to manage your debts and reduce interest with a balance transfer credit card. Read our guide on the topic to see if this is a good option for you.

Do some financial planning

It is tough to balance even a modest household budget with your debt obligations. To get a firm grip on your finances, make a determined effort to pay down your debt as fast as possible.  In the meantime, also start planning your home and family finances.

Begin by compiling an exhaustive list of your monthly expenses. Note down all the utilities, services, discretionary expenses, leisure activities and other costs that you incur every month.  Use this information to plan your budget.

Set aside money for essential expenses and debt. A meticulous list can help you identify wasteful or unnecessary expenses. Eliminate these non-essential items from your list. Use the extra cash to pay off your debt.

How to stay out of debt

To permanently reduce your debt, review your spending history. Check to see whether you really need multiple credit cards. If not, surrender the high-interest cards after you have paid back all your dues on it.

This will eliminate the desire to spend more than you can afford and keep you from falling into a debt trap.  Slowly, yet surely, you will rebuild your financial health and improve your credit rating.

Compare balance transfer cards

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