How do I pay off my credit card debt?
Offering low introductory interest rates and high credit limits, credit cards can be incredibly useful and convenient, especially in emergencies. However, as practical as they are, they can be dangerous when it comes to accumulating debt. 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.
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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 fully pay off your debt 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 1 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.
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:
- 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.
- Transferring your balance to a credit card with 0% or low fee, but paya 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.
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