How to pay off credit card debt
Struggling with debt on your credit cards? Our guide explains your options and the steps you can take to pay it off more quickly
Key takeaways
Managing credit card debt effectively and making timely monthly payments is crucial to avoid falling into a cycle of compounding interest
Take advantage of credit cards with 0% interest rates for an initial period
Always pay more than the minimum payment as it clears debt faster, reduces overall interest, and boosts your credit score
Credit card debt is a common financial burden that can spiral out of control if not managed properly.
It's easy to find yourself in a situation where you're missing payments or only making the minimum payments each month, but this strategy can lead to higher balances and more interest charges over time.
Interest compounds, which means you're paying interest on the interest already accrued, causing your debt to grow even faster.
However, there are ways to avoid this trap, such as taking advantage of introductory 0% rate cards, where no interest will be added to your balance for a set period.
For instance, carrying a £500 balance and making monthly repayments of £25 could result in £95 of interest charges at an 18.9% APR.
Tackling credit card debt head-on
When it comes to paying off credit card debt, there are several effective methods you can employ.
One approach could be to use a bank transfer to pay off the balance in full from your current account. This can be easily done through digital banking.
Alternatively, setting up a direct debit ensures that you automatically pay the full balance each month, helping you avoid late fees and additional interest charges.
There may be a transfer fee to pay, but this is usually far outweighed by the savings you'll make on your monthly payments.
Another savvy strategy could be to utilise a balance transfer – a balance transfer credit card offers low or even 0% interest for a set period, allowing you to move your existing credit card debt and pay it off without accruing further interest charges.
For those with a significant amount of credit card debt, a debt consolidation loan might be a suitable option.
By taking out a personal loan with a lower interest rate, you can pay off your credit card balances and then repay the loan over a fixed term, potentially saving money on interest and making monthly repayments more manageable.
When deciding which credit card debt to prioritise, it can be a good idea to target the high interest cards That way, you're clearing the most expensive debt first.
The power of paying more than the minimum
With a credit card, it can be tempting to just make the minimum payment. However, it is good practice to pay more than the minimum payment, especially when you’re in debt.
The reason is that paying more than the minimum payment means you clear your debt faster. Exceeding the minimum payment will also mean you pay less overall interest and boost your credit score.
What to do when you can't make payments
If you find yourself unable to pay your credit card debt, it's crucial to take action immediately.
Contact your card providers to discuss your situation; they may offer better deals, payment holidays, or options for debt restructuring.
Regulated companies are expected to be supportive of customers facing financial difficulties.
However, be aware that payment holidays might increase your debt due to added interest and charges.
If you need further assistance, free debt-advice charities are available to provide guidance, negotiate with lenders on your behalf, and help create a manageable repayment plan.
Credit card debt and your credit score
Carrying credit card debt can have a detrimental effect on your credit score, signalling to potential lenders that you may be a credit risk.
This can make it more difficult to obtain additional credit cards, loans, or mortgages.
Conversely, if you clear your balance every month, it can positively impact your credit score, demonstrating your ability to manage finances responsibly.
For more tips on enhancing your credit score, our guide on how to improve your credit score is an invaluable resource.
What should I do after I've paid off my credit card debt?
Once you've paid off your credit card debt, it's essential to take steps to avoid falling back into the same trap.
Improving your spending habits and adhering to a budget are key to staying debt-free.
Consider keeping a credit card solely for emergencies and ensure you set up a monthly direct debit to pay off your card balance in full, thus avoiding any late payment charges.
These practices can not only improve your credit rating but also lead to better terms for future borrowing.
Strategies for a debt-free future
To reduce the likelihood of accruing future credit card debt, it's important to create and stick to a budget.
A well-planned budget that accounts for your income and expenses can help you manage your finances more effectively.
Additionally, building an emergency fund can provide a financial cushion for unexpected expenses, reducing the need to rely on credit cards.
Further reading
We have a range of useful guides for credit card borrowers, including:
Comparing credit cards with MoneySuperMarket
Searching for a new credit card with us is quick and straightforward. We can look across the market to find deals from leading providers to suit your needs. All you need to do is give us a few details about you and your finances. We’ll do a 'soft credit search' to find the cards most suited to you - and it won't impact your credit score in any way.
We’ll show you your chances of being accepted for different card deals, so you aren’t left disappointed. Searching in this way puts you in control because you’ll know where you stand and can apply for a new card with greater confidence.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead, we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.
