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Credit card debt

 

Handy tips to clear card debts

If you’re struggling with debt on your credit cards our guide explains your options and the steps you can take to pay it off 

 

By Tim Heming

Published: 15 July 2021

couple looking at laptop

If you’ve got credit card debt it’s not unusual to be worried about how you’ll pay it off. The important thing is not to panic - or bury your head in the sand and ignore the problem. 

Facing up to the situation early can make a big difference in tackling your card debts - helping you to get back on top of your finances and feel more in control.

Is it bad to have credit card debt?

There are two problems with having credit card debt. Firstly, it can be expensive. Many credit cards have high interest rates (sometimes called APR) so as your outstanding debt builds up the interest charges also increase. It means your total debt can start to grow quickly. 

The second challenge is that if you can’t stay on top of your debt and begin to miss repayments, not only will you be hit with late fees and charges, but it can also damage your credit rating. A low credit score is likely to make it harder to borrow in the future, for example if you need a mortgage, loan or another credit card. 

Not all credit card debt is bad. Credit cards, when used well, can be a useful budgeting tool. As long as you clear your balance in full every month you shouldn’t pay any interest at all. But even if you can’t pay in full each month try to make at least the minimum payment to avoid late payment fees.  

When should I consider paying off credit card debt?

As soon as possible. If you are paying interest on your credit card debt, then the faster you pay it off, the less you will pay overall.  

The first step should be to take a view of all your debts and prioritise paying off those with the highest interest rates. If you have a number of cards to clear, the card with the highest rate is the one that’s costing you the most in interest payments – so tackle this first. You can find the interest rate on your monthly statement, or ask your credit card provider. 

Once you’ve worked out which card is charging you the most interest, pay as much as you can towards this card each month, while also keeping up with the minimum monthly repayments on your other credit cards.

When you’ve cleared the credit card with the highest interest rate, start paying more towards the card with the next highest interest rate and so on.  

Just remember to keep making at least your minimum payments on your other cards so that you don’t end up facing late payment charges and jeopardising your credit score.

What's the best way to clear credit card debt fast?

If you have money in savings or your current account then using this could be the fastest way to clear your card debts. 

You’ll need enough money to live on and pay regular bills, such as the rent or mortgage, but after that it’s wise to put any extra funds towards paying off what you owe on your credit cards. 

If you don’t have surplus cash to pay off the debt, try to budget efficiently so you can at least pay off more than the minimum amount each month. This way you can slowly start to chip away at the debt. 

Minimum monthly repayments are often set at low levels, so by paying more than this each month you’ll pay off your credit card quicker and save interest in the long term. 

Our handy credit card calculator can help you work out how quickly you can pay off your outstanding balance by adjusting the amount you repay every month.

If you need help with credit card debt, another option is to take out a 0% balance transfer credit card. By moving your card balances to one interest-free balance transfer card you can quickly reduce the amount of interest you’re paying for a set amount of time – up to two years or more in the very best cases, although you will typically need a good or excellent credit score to be accepted for the top deals.

You’ll usually have to pay a fee (typically around 2% to 3% of the overall balance of debt transferred). But this can still be worth paying when you take into account the amount you’ll save overall in interest payments.

If you get a 0% balance transfer card, it’s best to avoid using it for purchases and stick to using it for clearing your existing balance.

How can I cut interest on credit card debts?

Taking out a 0% balance transfer credit card allows you to transfer money from existing credit cards and pay no interest for a set period.

Even if you cannot take out a 0% balance transfer card – perhaps due to a less than perfect credit score, a new card that offers a lower rate than your existing credit cards could help you consolidate what you owe and bring down costs. Simply transfer your debt balance from existing cards to the new one.

What if I can't pay my credit card debts?

If you feel your credit card debt is out of control and you’re struggling with repayments speak to your card providers to see what help and support they can offer. They may be able to switch you on to a better deal, offer a payment holiday for a time or restructure your debts so you have a realistic repayment plan to clear the debt in full. 

Different lenders will take a different approach, but all regulated companies must take a supportive and sympathetic view when customers express financial difficulties. Bear in mind that any tailored support, such as payment holidays, are likely to be recorded on your credit file.  A payment holiday may suit you if your financial difficulties are temporary – interest and charges will continue to be added to your debt during the payment break.

However, if you know you won’t be able to keep up your card repayments, a short-term payment holiday is unlikely to be a suitable option. Again speak to your lender to see what help may be available. There are also a number of free debt charities - such as StepChange, Citizens Advice and National Debtline, that can provide advice and practical steps to help.

They can speak to your lenders on your behalf and support you if you’re being harassed by debt collectors. They can also work out a realistic budget and create manageable debt repayment plans which can then be presented to your creditors. 

Should I consider getting a loan to pay off my card debts?

debt consolidation loan can give you the funds to clear your credit card debt. Then you’ll have one loan to pay – typically at a lower interest rate than your cards.  

One loan should also make the debt easier to manage as you’ll have just a single monthly repayment. 

Longer term loans, such as five years or more are likely to have lower interest rates so monthly repayments are low – but remember it will mean you’re paying more interest overall. With a shorter loan, the interest rate may be higher but you’ll typically be clear of the debt sooner and pay less back in total.  

Cut-up or hide your credit cards so you’re not tempted to use them again and build-up more debt. 

What should I do after I've paid off my debts?

Once you’ve cleared your debt take steps not to put yourself in the same position again. Often this is through improving your spending habits and budgeting more effectively. 

If you know you’ll find it hard not to impulse spend, consider only keeping a credit card for emergencies.

Make sure you set up a monthly direct debit to pay the balance off in full every month if you do continue to use a credit card. This way you won’t risk a late payment.

Staying out of debt doesn’t just put you in a better financial position, it can also help improve your credit rating so when you need to borrow for a necessity in the future you have a better chance of being accepted and at the best rates.

Other helpful guides

What is an APR

Guide to credit card charges

What is a balance transfer

How to apply for a 0% balance transfer card with MoneySuperMarket

Comparing balance transfer credit cards with MoneySuperMarket is free and easy. We can search the market for the best cards to suit your needs.

All you need to do is give us a few details about you and your finances and we’ll put together a soft search of the market so you can see results without harming your credit score in the process. 

We’ll also show you your chances of being accepted, so you aren’t left disappointed. If you see ‘pre-approved’ you’ll know you’ll be accepted for the deal you see. This means that the interest rate and interest-free period are confirmed. The only thing we can’t guarantee is the credit limit you’ll get. Searching in this way puts you in control because you’ll know where you stand and can apply for a new card with confidence.

MoneySuperMarket is a credit broker not a lender – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. 

 

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