Fastest ways to clear credit card debt

If you have credit card debts to clear, it makes sense to do it as fast – and as cheaply – as possible.

And while this involves a healthy dose of organisation and discipline, some of the latest credit card deals can help make the job easier. Here we round up the fastest ways to clear your card debt once and for all.
  • Get onto a 0% shelter…

With typical interest rates of around 18% annually (APRs), it follows that you will be able to eradicate card debt faster if you could take a breather and pay no interest on your debt. The good news is there’s a whole host of 0% balance transfer cards on the market at the moment designed to do just that. 

Barclaycard’s Platinum Credit Card with Extended Balance Transfer currently offers the longest 0% introductory period on balance transfers at 31 months, but has a steep balance transfer fee of 2.99%. After the introductory period ends, this card has a representative annual percentage rate (APR) of 18.9% (variable).

Then there’s a whole host of other deals including Halifax which offers 30 months at 0% for a 3% fee, and MBNASantander and Tesco that offer 29 months interest-free for similar fees. A range of balance transfer providers is a good thing as you won’t be able to shift your debt to a card issued by the same provider.

  • ...but DON’T head blindly for the longest 0% duration

But things are changing in the credit card market and it could now make sense to take a shorter 0% deal which comes with a lower fee – even if you do need the maximum 31 months to clear your debt.

Take Nationwide’s new credit card offer which comes with 26 months at 0% for a 0.75% fee. If you transferred a balance of £3,000 onto Barclaycard’s Platinum Credit Card with Extended Balance Transfer, which offers a 0% promotional rate of 31 months, and repaid a fixed £100 every month, the total cost of borrowing over this period would be £89.70.

However, if you transferred the same amount onto the Nationwide card, which only has a promotional rate of 0% for 26 months and, again, made monthly payments of £100 over 31 months, the total cost of fee and interest is much lower at £36.88. That’s more than £50 cheaper than Barclaycard, and you would still pay off the whole debt in that time.

However, the Nationwide deal is only available until March 31, so you’ll need to get your skates on if you want to take advantage.

  • Crank up your monthly repayments

Many people make the mistake of only repaying the minimum amount necessary each month, which can be as little as £5 or 2.25% of your overall card balance. But doing this means it could take you years to pay off what you owe. For example, if you had a £3,000 debt (at 17.9% APR) and only made the minimum repayments, it would take you an eye-watering 27 years and four months to pay off what you owe, and cost you £3,961 in interest alone.

If you can, increase the amount you pay each month, and remember never to miss any payments or fail to pay on time as you will be hit with extra charges and you may lose any special promotional rate you are on. It could also damage your credit history.

  • Clear the cards with highest interest first

If you have debts on several different credit cards, check which one charges the highest rate of interest. Make this one your priority first and pay more towards clearing this debt than your other cards. Then, once you’ve paid it off, do the same with the card with the second highest interest rate, followed by the card with the next highest rate. This is known as ‘snowballing’ which you can read more about in Rachel Wait’s article.

By paying off your most expensive cards first, you can slash the amount of interest you pay and cut the length of time it takes to clear what you owe.

  • Consider cards with a consistently low APR

Introductory rates on credit cards are very tempting, but be realistic and think how long it’s really going to take you to pay off what you owe. If you know you’re going to be paying down your debts over the long-term, it might be more cost-effective to opt for a card with a consistently low APR rather than one with an introductory rate that shoots up after the initial period.

For example, Sainsbury’s Nectar Low Rate Credit Card has a representative APR of just 7.8%, and there is no balance transfer fee, while Tesco Bank’s Clubcard Credit Card with a Low APR again has a 7.8% APR but offers a 0% introductory rate on balance transfers for three months. The Tesco card also has no balance transfer fee.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

  • Divert savings to pay off credit card debts

There’s little point squirrelling away lots of savings each month if you’re shelling out a fortune in interest on your credit card debts. Debts nearly always cost you a lot more than you can earn on your savings, so if possible, use some of your savings to pay off your credit card balance.

To give you an idea of how much financial sense this makes, if you owe £2,000 on a credit card which has an 18% APR, you’d have to pay £360 in interest over a year. But if you have £2,000 in a savings account, paying 2% interest after tax, you’d earn £40 in interest over the year, so you’d be £320 better off over a year by using these savings to pay off what you owe.

 
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