How to pay off credit card debt

HomeBanking › Pay off credit card 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.

Key takeaways
  • Interest: Credit card debt carries the risk of high interest payments

  • Repayment strategies: There are several ways to pay off your credit card debt, with two common methods known as the avalanche and snowball methods

  • Negative effects: 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’ll 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:

1. 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, 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. 

2. 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.

So how does it work in practice? Let’s say you owe £3,000 on a credit card with an APR of 21.9% and you only pay the minimum balance (1% plus interest or £5) each month. In this case, it will take you almost 28 years to clear your balance and you’ll have paid a total of £4,750 in interest. 

However, if you were to pay, say, £120 every month, you’ll have paid off your credit card debt within two years and nine months and the overall interest payments will be significantly lower at £910.

3. 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. 

4. 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.*** 

You might also want to consider ways to boost your income so you can put the extra money towards paying off your credit card debt. Selling your unused or unwanted items is often a good place to start. You could also consider starting a side hustle or participating in online surveys. They might not generate big sums of cash, but every little extra helps when you’re trying to pay off credit card debt. 

And don’t forget to check you’re claiming all the benefits and tax breaks you’re entitled to. According to some estimates, a staggering £15 billion goes unclaimed from the Treasury every year. You can use this handy calculator to check which benefits (if any) you’re entitled to.

How to avoid getting into debt on your 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. Start by reviewing your income and outgoings to determine what you can afford to spend and then create a budget plan. Living within your means is important if you want to avoid getting into debt and accumulating costly credit card bills. Our article ‘How to stop spending money’, includes some handy tips to help you keep on top of your spending.

Rather than using your credit card when you can’t afford to purchase an item, it may be better to save for it instead. Whether you want to buy a new car or book a holiday, setting some clear savings goals can be a good way to help you stay motivated. If you find yourself relying on your credit card to pay for unexpected expenses such as household repairs or vet bills, you might want to think about starting an emergency fund

Also known as a ‘rainy day fund’, an emergency savings pot can help you to cover unforeseen expenses and avoid the need to spend on your credit card or overdraft. A good option for your emergency savings could be an easy access savings account, which allows you to safely stow your money and access it whenever you might need to.

If you want to build a good credit score and you’re in a strong financial position, you could use your credit card solely for things you can 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 only to 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 paying on time. This will eliminate the hassle and unnecessary additional expense of incurring late payment fees.

If you really want to curb your credit card spending, you could leave your credit card at home before heading to the shops. Don’t forget to delete your card details from online shopping sites too. Saving your payment details might make the checkout experience more convenient, but it also makes it easier to spend on your credit card.

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.

Can you pay off credit card debt and save at the same time?

If you want to pay off your credit card debt and save at the same time, there are a few things to consider. As we’ve already discussed, it’s usually best to prioritise paying off expensive credit card debt before saving, especially if you have a large balance. 

However, if you do find yourself with some extra cash, you might want to consider opening a savings account that pays a competitive rate of interest. Fixed rate bonds usually pay the highest interest rates, but if you want the freedom to withdraw your savings whenever you need, an easy access savings account may be a better option.

Is it bad to get into 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, 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 debt

In general, coping with financial worries and debt can have a negative impact on your mental health. If you’re struggling to pay off your credit card debt, and it’s affecting your wellbeing, seek professional help. 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.