How to pay down your credit card debt: Our top tips

This week, we’re looking at how to pay down your credit card debt by talking about our top tips for clearing your balance quicker.

Credit cards are a delicate balancing act, aren’t they?

On the one hand, they’re a great way to spread the cost of big purchases out a little without needing to apply for a loan (not to mention the extra protection and perks you get on purchases with a credit card).

On the other, it’s very easy to forget that you’re actually borrowing money when you spend on your credit card.

And that slippery slope can lead to credit card debt that’s hard to pay back.

Now, you’ve probably heard the scary headline that it takes the average person in the UK 26 years and 9 months to pay back their credit card debt if they just make their minimum repayments every month.

And technically, that’s true. However, the law has changed over the last few years to give you extra protection against persistent debt (a technical term for if you pay more in interest and charges on your credit card than you repay of the amount borrowed) so it’s highly unlikely that you’ll ever take that long to pay off your credit card debt.

Nor does it mean that you shouldn’t make a real effort to clear your debt. Even if it doesn’t take almost 27 years to clear, credit card debt can still be a costly debt to pay off.

So we thought we’d break down our top tips for how to pay down your credit card debt…

Tip #1: Speak to your credit card company

The first tip we have on how to pay down your credit card debt is to speak to your credit card provider.

As we mentioned earlier, the law changed to make sure that your credit card provider is obliged to tell you if your debt is considered “persistent debt” and to:

• Ask you if you can pay more of your debt each month to clear the debt faster
• Make you aware of other repayment options they may have available
• Inform you what could happen if you only make minimum repayments

As such, giving them a call and asking them for help on how to pay down your credit card debt could result in them suspending your interest and/or charges for a little while or helping you switch to a better card.

Likewise, if you’ve thought about consolidating your credit card debt, mention this to your provider. It might make them more willing to find you a better deal to keep you as a customer.

Tip #2: If you’re eligible, think about transferring to a 0% balance transfer card

It would be strange to talk about how to pay down your credit card debt without mentioning 0% balance transfer cards.

However, please remember: switching to a 0% finance card to pay down your credit card debt isn’t as simple as it sounds. Lots of 0% finance cards require you to make the minimum repayments on time every month to qualify for the 0% deal. And if you miss these, your interest rate could skyrocket to between 18% and 40%.

Likewise, if you don’t wipe out your balance before the 0% period is over, the interest rate is likely to jump up again. And, unfortunately, it’s very easy to get used to the temporary extra disposable income that a 0% interest card offers, making it even more difficult to budget and pay down your debt.

In other words, switching to a 0% credit card is a smart move if you tick three boxes:

• Your credit score qualifies you for a 0% balance transfer card
• You are prepared to make every effort to pay off the debt during your 0% window
• You have the discipline to not spend the temporary extra disposable income (and to put it towards paying down your debt instead)

If you tick those three boxes, here’s why a 0% balance transfer card is a smart move:

When you’re paying off your credit card debt — especially if it’s on a card with a high interest — a lot of your money isn’t actually paying off what you owe, it’s just going towards paying off the interest on what you owe.

Instead, you can transfer your credit card debt onto a 0% interest credit card and make payments that go towards clearing just the money you owe. This allows you to get debt-free quicker and stop paying so much in interest to your credit card provider.

Here’s a great 1-minute video that gives a little more information on balance transfer cards and how they work:

Tip #3: Pay off more than your minimum repayments

One of the best pieces of advice on how to pay down your credit card is to pay off more than your minimum repayments month-after-month. Just look at this great infographic from StepChange to see how making small changes to the amount you repay can have a drastic effect on how long it takes to clear your credit card debt.

(The scenario below is based on £2,796 of credit card that is no longer used. Your situation will likely be similar, but may vary depending on your total debt, your interest rate and whether you’re still using the card…)

Can you see what a difference an extra payment of just £10 makes? It clears the debt 17 years quicker! That’s amazing.

And, if you want to start implementing this approach, here are a few ways you can do it:

Pay the same amount each month:

Look at your budget and calculate how much you can afford to repay as a lump sum every month, making sure that amount is more than your minimum repayment.

For example, if your minimum repayment is around £50 each month, committing to paying £60 a month will help you make a big dent in your credit card debt, especially as your minimum repayments will get smaller month-after-month and a more significant portion of that £60 will go towards clearing your debt.

This approach has two major benefits: it’s consistent and quickly becomes part of your monthly outgoings (making it easier to budget for) and it helps to clear your debt quicker because as your overall debt gets lower, the lump sum repayment becomes a more significant percentage of your debt each month.

To get started and work out how much to pay each month, check out CardCosts.org.uk, a website dedicated to helping you calculate the best way to tackle your credit card debt.

Choose an affordable amount to pay on top of your minimum repayment each month

This approach is quite similar to paying the same amount every month but involves committing to paying an extra payment on top of your minimum repayment every month.

For example, rather than paying £60 a month every month, you commit to paying an extra £10 on top of your minimum repayment, which means that each month you’ll be paying a slightly different amount, but consistently chipping away at your debt with an extra £10.

And as you can see from the infographic, even that extra £10 repayment can help you clear your credit card debt significantly sooner.

Make one-off payments when you can afford them

If you get a surprise payment — perhaps you sell an item online, get a bonus from work or get a tax rebate — it’s a good idea to pay that towards your credit card debt. As we’ve seen, even little payments on top of your minimum repayments can have a huge difference.

Or, if you’re struggling to find the extra money to pay off, you could do things like putting all of your change in a jar or to taking lunch to work to save some extra pennies.

At the end of the month, if you’ve managed to save £50 and pay it off your credit card debt, you’ll pay off an extra £600 of your debt over the course of the year!

Likewise, you could use an app like Chip to automate your savings (or round up purchases and tuck the extra away) and use that amount every month to pay down your credit card debt.

Tip #4: Consider consolidating your credit card debt

If you’re still wondering how to pay down your credit card debt — perhaps you have lots of debt spread over a few cards — then you might want to consider consolidating your credit card debts into one monthly repayment.

Not only will your monthly repayments and the interest you’re charged be agreed on from the start, but you’ll make the repayments on the same day every month and have a clear end-date for clearing your credit card debt.

You may also be eligible for lower interest rates too, but make sure you double-check the interest rate and APR to be sure you’re going to save money in the long run.

So, there you have it, an article packed with tips on how to pay down your credit card debt. If you’d like more advice on money management and budgeting, Boo the Panda has hundreds of articles to help you out over on the blog!