How to pay off credit card debt

How to pay off credit card debt is a question many people in the UK have to ask themselves at some point.

Credit cards can be incredibly useful and convenient, especially in emergencies, because they can offer low introductory interest rates and high credit limits. However, as practical as they are, they can be dangerous when it comes to accumulating debt. As the chart below shows, credit card debt grew to £75 billion between 2008-2019:

If you have more than one credit card, paying all your bills might seem impossible. In this article, we’ll cover the risks of credit card debt, how you can avoid credit card debt and explore some of the best ways to pay off your credit cards.

Recent studies have shown that credit card debt accounts for around £22bn of total household debt in the UK. Although this is a worrying figure, it does mean you’re not alone, with almost five million people each owing over £10,000 in loans and credit. 

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The rundown
  • Credit card debt carries the risk of high interest payments
  • There are several ways to pay off your debt, with two common methods known as the avalanche and snowball methods
  • Credit card debt could be damaging to your credit score if you don’t manage it effectively

How do I pay off credit card debt?

Paying off your credit card can feel overwhelming, especially if you have a large balance. It’s better to break it down into several smaller steps: 

Step 1: Make the minimum payment on all your credit card accounts

Step 2: Use any additional funds you may have to pay off the credit card which charges the highest interest 

Step 3: Once the card with the highest interest rate is paid off, move onto the one with the next highest rate

There are two recognised ways to pay off debt; the avalanche and snowball methods. The avalanche method means paying off debt with the highest interest first, then paying off the debt with the second-highest interest and so on. 

On the other hand, the snowball method might be better for you if you want to use visible results to stay motivated. You start by making extra payments off the debt with the lowest interest while still making minimum payments on your other debts. Once the debt with the lowest interest is paid off, you move onto the next one with the lowest interest. This method typically takes longer and you may pay more in interest, but it could be a good choice if you want to see visible results quicker. 

How much do you have to pay off your credit card each month?

All credit cards have a mandatory minimum amount you must pay every month to avoid being charged and potentially damaging your credit score. However, it’s better if you can pay more than the minimum off your credit card each month. This will improve your credit score, help you pay off your credit card more quickly and minimise the amount of interest you’ll pay. 

If your credit card came with a promotional offer such as 0% interest, you should try to pay off your credit card in full each month and only use it for things you know you will be able to afford. 

Here’s what you should know about being charged interest on your credit cards:

How to pay my credit card

There are a few ways you can pay off your credit card, including the following:

  • Setting up a direct debit
  • Paying in person if your card provider has a nearby branch
  • Sending a cheque to your credit card provider
  • Using your debit card to pay online or by phone
  • Transferring money from your online bank account to your credit card provider

To avoid going into your overdraft, make sure there’s enough money in the account you’re making the payment from.

What’s the best way for me to pay off my credit cards?

Paying off your credit cards can be difficult, especially if you don’t know where to start. To help you make good financial decisions, here are some of the best ways to pay off your credit card debt:

Use a balance transfer

Typically used by borrowers who want to extend the time they have to pay off their credit card debt, this option involves moving your existing credit card balance onto a 0% balance transfer credit card. In most cases, these cards offer a set period where you will not be charged any interest. This allows you to focus on reducing the size of your original debt without accruing interest. 

Balance transfers usually come with a fee, typically around 2-4% on your transferred balance, and are normally only available to those with good credit ratings. If you’re not eligible for a 0% deal, you could still consider choosing a card that has lower interest rates than your existing card.

For example, other types of balance transfers available include the following:

  1. Transferring your balance to a credit card with 0% fee, but pay a lower interest rate over a set period of time, for example, 4% p.a. for 48 months.
  2. Transferring your balance to a credit card with 0% or low fee, but pay a relatively low interest rate until the amount is paid in full, for example, 6.9% p.a. until your balance is paid. 

Exceed the minimum payments 

Making minimum payments when paying off your credit card debt* only prolongs the payment process and can mean you pay more interest. This could damage your financial well being and disrupt any future plans. Instead, paying your entire monthly bill means you won’t have to pay any interest. 

Most standard credit cards offer 45 to 59 days’ interest-free credit when you consistently pay your bill in full each month.

Prioritise your most expensive credit card debt first

If you have more than one credit card, you might want to focus on settling the one with the most expensive debt, or highest interest rate, first. This will eventually mean that your monthly payments decrease. Just keep in mind that you’ll still need to make payments on other credit cards to avoid fees. 

Consider setting up standing orders or direct debits

If you think you’re likely to miss payment dates, you could set up a monthly standing order or direct debit**. This ensures you won’t be charged for late payments or risk losing any benefits, such as a 0% balance transfer rate.*** 

How do I avoid getting into debt on my credit card?

Using your credit card is quick and convenient, but it can also be an easy way to lose control of your spending. A good way to avoid getting into debt on your credit cards is to change your spending habits. Rather than using your credit card when you can’t afford to purchase an item, it may be better to save for it instead. If you want to build a good credit score, you could use your credit card solely for things that you are able to pay for at any time, and ensure you pay your balance in full at the end of each month.

Another way you can avoid getting into debt on your credit card is to only have one card. The more credit cards you own, the greater the chance that you’ll fall into credit card debt. It’s also important to keep track of what you’re spending on your credit card, for example by using a budget planner, and always pay on time. This will eliminate the hassle and unnecessary additional expense of incurring late payment fees.

What happens when I pay off my credit card?

Once you’ve paid off your credit card, your account can remain open. Unless you want to pay off and close your credit card because it’s one of several, you don’t really need to close your account. Credit cards, when managed well, can actually improve your credit score

If, however, becoming debt-free leaves you with the temptation to spend again, you may want to consider closing your credit card.

Is paying off my credit card in full a bad idea?

There’s a common myth that paying off your credit card debt gradually can improve your credit rating. However, only making the minimum payments might actually be harmful to your credit rating

It’s much better to pay off your credit card in full each month if you can, as having a high balance on your cards may go against you, and you could end up paying more interest.

What are the risks of credit card debt?

The main risk associated with credit card debt is the potentially high interest rate. If you’re only paying the minimum payment each month, you’re prolonging the time it takes to pay off your debt in full,and you’ll pay much more than you originally owed, because of how much interest you’ll incur. 

For example, let’s say you owe £1,000 on a credit card with a 20% interest rate. If you pay the minimum payment each month, which is usually 2% or £5, whichever is greater, you’ll be paying off your credit card for 31 years and one month, and will pay £2,525 in interest.

You can ease this risk of credit card debt by paying off more than the minimum each month, so you’ll pay less in interest overall.

Emotional support with credit card debt

In general, coping with financial worries and debt can have a negative impact on your mental health. You can turn to some services for support, to speak to those who understand what you’re going through and who can offer advice. Services you can contact include:

Mind – Mental Health Charity 

Phone line: 0300 123 3393 

StepChange – Debt Charity 

Helpful and free information about paying off debt as well as phone lines and chat services for assistance and support. 

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