How to Pay Off Your Credit Card
Credit card debt can quickly mount up, leaving you wondering how to pay it off. Read on to learn how to assess how much you owe, how to stop your debt from growing, how to pay off your credit card, and the steps to take if you can’t afford the repayments.
Credit card debt can build up very quickly if you don’t handle it carefully. In 2020, the average UK household owed around £2,000 on credit cards, with the average adult owing £1,122. While this shows that credit card debt is fairly common, it does not change the fact that when it isn’t managed properly, it can be tricky.
Follow these tips to regain control, so that you can move forward without the stress of credit card debt hanging over you.
Is credit card debt bad?
Used correctly, a credit card can be a cost effective way to borrow money and, in many cases, you can borrow without paying any interest at all.
To do this, you need to pay off your credit card balance on time and in full each month, or have an interest-free deal on purchases or balance transfers.
However, if you do start paying interest on your credit card debt, the amount you owe can swiftly build up.
How do I assess how much I owe?
To find out how much you owe, look at your latest credit card bill or log in to your account to see the outstanding balance on your credit card.
Your bill will tell you how much you owe, when it must be paid by, and what interest you will pay if you don’t clear the debt.
How do I stop my debt growing?
There are several steps you can take to stop your credit card debt from growing.
The first step is to repay what you owe in full. That way, you clear the debt and avoid any further interest charges. This may be a good use of savings, if you have them.
If you can’t afford to clear the debt, stop using the card. If you are worried about how you will clear your credit card debt, further spending will only make matters worse.
Next, look at how much interest you are paying on your existing credit card debt. Consider moving the debt onto a credit card with an interest-free deal on balance transfers. These cards can offer you interest-free borrowing for a set period of time, giving you breathing space to concentrate on reducing what you owe.
The length of the interest-free deal will depend on your credit rating. When comparing balance transfer cards, don’t automatically go for the card with the longest deal. If you don’t need that long to clear your debt then a shorter deal, with a lower balance transfer fee, may be a cheaper option.
Finally, look at your finances in detail. Are there any other areas where you can save money? For example, by looking at unused subscriptions and direct debits you may be able to free up extra money each month.
» COMPARE: Balance transfer deals
How do I pay off my credit card debt?
Once you have worked out what you owe and taken steps to stop your debt growing further, it’s time to work out how much you can afford to pay off each month.
If you have moved your debt onto an interest-free deal, aim to clear the debt before the 0% period ends. The simplest way to do this is to take the amount you owe and divide it by the number of months in the interest-free period – this will inform you how much you need to repay each month to clear your debt.
For example, if you owe £1,500 and have a 20-month interest-free period, you’ll need to repay £75 a month to clear the debt by the end of the 20 months.
If you can afford to repay your debt in full, you can contact your credit card provider and arrange repayment. Often, this can be done online, over the phone or in person.
How long does it take to pay off credit card debt?
This will depend on how much debt you have, how much you can afford to pay each month, and how much interest you are paying on your debt.
Combine a low interest rate with larger monthly repayments and you’ll clear your credit card debt faster than if you have a high interest rate and make smaller monthly repayments.
How do I clear my credit card debts faster?
There are two ways to speed up how quickly you can clear your credit card debt.
- Increase your repayments: the more you repay each month, the faster you will clear your debt.
- Lower your interest rate: transfer your balance to a credit card with an interest-free period and you’ll be able to clear your debt faster as interest won’t be adding to what you owe.
The minimum repayment trap
There is another way you can speed up your route to being debt free – change the way you repay each month.
Many credit card providers encourage you to set up a direct debit to cover the minimum repayment on your credit card. This is usually a percentage of what you owe, so as your debt decreases the amount you repay falls too. Begin paying a set amount each month (at the same level or higher than the initial minimum payment) and you’ll knock a substantial amount of time off how long it takes to pay off your credit card.
Let’s say you owe £2,000 on your credit card with an APR of 18%. You have a direct debit set to cover the minimum payment each month. If you only made the minimum repayment each month it would take you 24 years to pay the debt off, and cost £2,592 in interest.
However, if you paid £50 a month instead, the debt would take four years and 11 months to pay off, costing you £939 in interest. Double that payment to £100 and you would only need two years to clear your credit card, shelling out just £359 in interest.
Better still, if you can afford to do so, set up a direct debit to pay off your credit card balance in full each month and you will avoid paying any interest or building up debt.
What to do if you can’t afford your repayments
If you are struggling to make the repayments on your credit cards, you should speak to your card provider. They can help you find a way to make things more manageable. This could be by:
- Helping you draw up an achievable repayment plan
- Reducing the interest rate on your credit card
- Extending the repayment term on the card
- Changing the due date for your repayments.
» MORE: How can debt charities help you?
Image source: Getty Images
Ruth is a freelance journalist with 15 years of experience writing for national newspapers, magazines and websites. Specialising in savings, investments, pensions and property. Read more