Credit card debt tends to be expensive and can spiral out of control if you don’t pay off your balance in full each month.
Let’s explore five simple ways to pay off a credit card and stay debt free.
1. Prioritise your credit card debt
If you have multiple credit cards, work out how much you owe on each one and the interest rate charged.
As a general rule, you should focus on paying off the most expensive credit card. For example, if you owe £800 on a card charging an interest rate of 21% and £800 on one charging 33%, try to pay off the 33% card first.
You’ll need to keep making payments towards the other cards you have as well to avoid late payment charges. Missing payments may also negatively impact your credit score.
2. Get a balance transfer credit card
Getting a 0% balance transfer credit card can help make your repayments more manageable. Balance transfer cards allow you to move your balance from a more expensive credit card to one with no interest. This means that you can split your repayments across a certain period of time without accruing more interest.
Credit card providers usually charge a fee of around 3% of the balance you transfer.
If you’re unable to get a 0% deal it’s worth looking for a balance transfer card with a lower interest rate. This would still help you pay off your credit card at a cheaper rate of interest.
3. Pay by direct debit
Setting up a direct debit can help you pay off your credit card. It ensures that you never miss a payment and avoid late payment fees or risk losing any benefits and introductory rates.
Ideally, the direct debit should clear your credit card balance in full each month to avoid accruing interest. If it’s not possible to clear the balance in full, pay as much as you can to reduce the amount of interest added to your repayments.
Some credit card companies let you set up an automated payment for an amount of your choice.
4. Pay more than the minimum repayment
The minimum monthly repayment is the lowest amount of money you need to pay to your provider to avoid a fine. It’s usually calculated as a percentage of your total balance, which can be as low as 1%.
The amount you repay each month falls as your balance reduces too. This means that it takes much longer, sometimes decades, to pay off your credit card.
For example, if you have a credit card balance of £2,000 with a fixed interest rate of 21% and a 2% minimum repayment charge – it would take 24 years and 6 months to pay off your credit card! You’ll also end up paying £3,003 in interest as well.
Although it may be tempting to stick to the minimum repayment, it’s an expensive option for clearing your debt.
There are lots of free tools, such as MoneySavingExpert’s Minimum Repayment Calculator, that can help you work out how much you need to repay each month to pay off your credit card sooner.
5. Use your savings
Interest rates for savings accounts are exceptionally low at the moment. This means that the cost of having debt outweighs the interest earned from a savings account.
For example, if you have credit card debt of £3,000 on a card with an APR of 21%, it would cost you £630 in interest a year.
Whereas if you had £3,000 in savings paying 1%, you’d earn just £30 in interest in the same amount of time. In this example, paying off your credit card using your savings could save you £630 in interest.
Although dipping into your savings may not sound ideal, it could help you pay off your credit card sooner and avoid spiralling debt.
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