According to statistics from The Money Charity, it would take more than 26 years to repay the average level of credit card debt, if the user only makes the minimum monthly repayments.
But what if you could pay off your debt much faster than that? While clearing those outstanding card balances can sometimes feel like an impossible task, the good news is you really can do it if you plan ahead and take some strategic action.
1. Pay off your highest-rate cards first
If you have multiple cards, one of the easiest ways to save money and eliminate your debts faster is by prioritising paying off the cards with the highest interest rates. This makes perfect sense, since the card with the least favourable rate accrues the most interest each month and is, therefore costing you the most money overall, while also taking the longest to repay.
Begin by sitting down and working out the interest rate for each card, then put them in order from the highest through to the lowest to see which card you should focus on first. Once you have paid the balance on the first card in full, you can then move on to the second one, and so on.
Prioritising your debts in this way means you’ll limit the amount of interest and pay off your most expensive debts first. Win-win.
2. Pay off the card with the smallest balance
Another popular option is to start by paying off the card with the smallest outstanding balance.
On a logical level, this doesn’t make anywhere near as much sense because it fails to take into account interest rates, and therefore it’s likely to cost you more money over the longer term.
That said, the advantage of this method is that it gives you a psychological boost much earlier on in your journey towards becoming debt-free. Imagine how good it will feel to completely clear that balance, cut up that card and strike it from your list of debts!
3. Make more than the minimum monthly payment
One of the biggest mistakes people make with credit card debt is only paying the minimum amount each month. Sadly, this is often only enough to cover the interest, so you’re not actually eating into the capital much and getting any closer to paying off your debt!
If you can afford to, you should always make more than the minimum monthly repayment – and pay off as much as you can afford. It’s surprising how upping the amount even by a little can make a huge difference towards helping you reach your goal.
For example, let’s say you have a card with an outstanding balance of £1,500, an APR of 20%, and a minimum monthly payment of 1% or £25 (whichever is greater).
If you only make the minimum payment each month, it would take 13 years and 10 months to repay the balance in full, and you’d accrue a whopping £2,627 in interest! Up this amount by just £5 (to £30) and you’d instead pay it off in 8 years, while almost halving the interest to £1,363. Double your monthly repayment to £50 and you’d clear it in just 3 years and 5 months – and you’d pay just £523 in interest.
4. Make a balance transfer
One of the biggest reasons why people struggle to pay off credit card debt is that a large proportion of the amount they are paying each month is simply going towards paying the interest. If you have cards with higher interest rates, you can save a lot of money and repay your debts much faster by transferring some (or all) of your debt to a 0% balance transfer card.
Typically, balance transfer cards have a 0% introductory rate lasting for between 12 and 24 months, meaning that during this time you won’t have to worry about accruing interest and can instead focus on bringing down your outstanding balance. You’ll usually have to pay a fee of around 2% to 3% to qualify, but this is often well worth paying when you take into consideration the total savings.
5. Get a lower rate card
One problem with 0% balance transfer cards is that you’ll typically need to have an average-to-good credit rating to be accepted.
If you don’t have the credit rating for a 0% card but like the idea of making a balance transfer, it’s worth doing some research and finding an eligible card with a lower interest rate than you are currently paying. Even if this is 6% or 7%, you could still save a LOT of money and be able to pay off the debt much faster.
On a similar note, an alternative may be to consolidate debt with a single loan. Loan broker Growing Power state, “a debt consolidation loan means that you have a single payment to worry about and, as long as you have carefully done the maths, a lower monthly outgoing”.
6. Avoid unnecessary fees
Finally, there are a few things you can do to avoid racking up any unnecessary fees along the way. For example, make sure you avoid missing repayments and incurring late fees by setting up a monthly direct debit. Just be sure to check you have enough money in your current account, otherwise you might incur overdraft charges. Likewise, avoid withdrawing money from cashpoints, which again usually incurs a fee.
So, there you have it. With a little bit of planning, you’ll soon be well on your way towards clearing your credit card debts. Good luck!