How to pay off credit card debt: a complete guide

Credit cards may be convenient, but if you don’t pay off the full amount each month your debt could soon mount up. We look at different ways to pay down or pay off your credit card and share some top tips for smarter credit card management.

Credit cards may be convenient, but if you don’t pay off the full amount each month your debt could soon mount up. We look at different ways to pay down or pay off your credit card and share some top tips for smarter credit card management.

Written by
Alex Hasty
Last Updated
14 DECEMBER 2022
6 min read
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When should I pay off my credit card?

The first thing to say is always pay your credit card bill before the payment due date found on your statement. Missing the deadline can land you with late fees, not to mention an increased interest rate. Lenders will typically charge you £12 for a late payment, so not paying your credit card bills on time can be costly and could make it harder for you to get credit in the future.

If you can afford to pay off the whole balance straight away, it’s a good idea to do that because it means you won’t be charged interest on the amount you’ve borrowed. But if you’ve recently made an expensive purchase, like a new washing machine, you might need to pay it off in more manageable chunks instead.

Pay more than the minimum

If you only make the minimum repayments on your credit card bill each month, you’ll pay interest on the remaining balance, which will be carried over to the next billing period. Repaying the smallest amount possible means it can take ages to reduce your balance. Paying more than the minimum can help you clear your balance sooner and prevent interest from stacking up.

The table below shows you the huge difference when you pay off your balance quicker.

Balance Interest rate Monthly repayment Years to pay off Total interest
£2,500 20% £63 (minimum) 26 years, 2 months £3,631
£2,500 20% £200 1 year, 2 months £296

As you can see, the more of your credit card balance you clear each month, the less you’ll pay in interest. That said, paying the minimum amount due is better than paying nothing as it ensures you won’t be hit with late payment charges.

Move your debt to a 0% balance transfer card

You could move your outstanding credit card debts to a 0% balance transfer credit card.

A 0% balance transfer credit card gives you a set period during which you won’t be charged interest; in some cases, for up to two years. This gives you time to pay off your outstanding balance without having to pay interest.

Just be aware that:

  • There’s usually a fee for a balance transfer – it’s worked out as a percentage of the amount you move over.
  • Once the interest-free period is up, you may be charged a higher rate of interest on any remaining outstanding balance. It’s important to try to pay off the entire balance before the interest-free period ends.
  • 0% balance transfer credit cards are usually only available if you have a good credit rating.
  • You must make the monthly minimum repayments on time. A missed or late payment could result in you losing your interest-free period.

Did you know?

Individuals in the UK borrowed £0.1 billion on credit cards in September 2022, according to the Bank of England.

Prioritise your credit card debts with the highest interest

If you have more than one credit card, paying off the debt with the highest interest rate instead of the highest outstanding balance could save you money on interest. This is known as the avalanche method. Once you’ve cleared the debt on the most expensive card, you move on to the next highest interest rate card and so on.

An alternative is to put any spare money towards the card with the smallest balance. When that card is fully paid off, you put the funds you’d set aside for the smallest debt, plus any spare cash, to the next lowest balance card. This is called the snowball method, as it gains momentum every time you pay off a debt.

Whichever method you choose, remember that you must keep up the minimum repayments on all your other credit cards.

Negotiate interest rates with lenders

You may be able to negotiate lower interest rates with your lender if you have a decent credit score and make your credit card repayments on time. If your interest rate is reduced by even just one or two per cent, this could add up to considerable savings.

Pay off debts before saving

It might seem tempting to start putting money away for the future but, unfortunately, it’s probably best to use that money for your monthly credit card payments to avoid the high APR (annual percentage rate) charges that come with credit card debt. These currently average out at around 22%. While it’s clever to put a little bit of money aside for emergencies, it’s best to focus on cutting out your debt before putting money towards a holiday, for example.

7 top tips for managing your credit card debt

  1. Leave your credit card at home so you’re not tempted to spend on it. And avoid online shopping sprees that you haven’t budgeted for.
  2. Beware low introductory rates. A card with 0% or a very low rate on purchases can be useful, but it only makes sense to have if you’re able to pay off the balance before the higher interest rate kicks in. Check what the usual rate will be to see how competitive it is.
  3. Set up a direct debit, so you never miss a monthly payment. If you can, set it up to pay more than the minimum payment each month.
  4. Don’t use your credit card to withdraw cash. You’ll be charged a higher interest rate and additional fees.
  5. Be smart when paying off credit card debt early. It might sound counter-intuitive, but be careful not to pay your minimum fee too early – as you risk being charged for doing so.
  6. Your balance and your credit limit are different things. It’s all too easy to view your credit card limit as your remaining balance – in other words, you convince yourself that it’s the amount of money you have left to spend and forget that you’re in debt.
  7. Try to limit how many credit cards you get. While there can be benefits to taking out separate cards for different types of purchases, each new credit card application you make leaves a mark on your credit report, which can make it more difficult to take out other types of credit in the short term.

Frequently asked questions

What happens if I don’t make my monthly credit card payments?

If you don’t pay your credit card bill, you can expect to be charged a late payment fee and an increased interest rate, and you’ll get a black mark on your credit report. If you continue to miss payments, you credit score will take a dive.

If you’re worried about repayments, help is available. Let your card provider know if you’re having problems or get free confidential advice from a debt charity, such as StepChange or National Debtline.

Will credit card debt affect my credit rating?

Making late payments or going over your credit limit is likely to have a negative impact on your credit score.

But if you’ve kept up with your minimum repayments and have stayed within your credit limit, you may have a good credit score even if you have large debts. This can put you in a better position to consolidate your credit card debt: for example, with a balance transfer card.

Can I get a loan to consolidate my credit card debt?

Yes, it’s possible to take out a debt consolidation loan with a lower interest rate than typical credit cards. However, while a loan might give you longer to pay back your debt than a balance transfer credit card (if you’re eligible for one), you may find you pay more interest overall.

If a loan is secured against your home, you could lose your home if you don’t make the repayments. Your property isn’t at risk when you take out an unsecured debt consolidation loan. But because this is a higher risk to the lender, you’ll need a solid credit score to get this type of loan.

Be aware that taking on new debt is a big decision, as extending the term of your debt can incur more interest and cost more in the long run.

Will paying off my credit card debt improve my credit score?

Contrary to what some people believe, paying off your debt could help you achieve a higher credit score.

Big balances can mean higher credit utilisation, which could harm your credit rating. Your credit utilisation rate is how much of your credit limit you’ve used, expressed as a percentage. So if your credit card spending limit is £2,000 and you use around £1,000 over the month, your utilisation rate is 50%. Most lenders advise that you keep it below 30%.

Paying your balance on time and in full every month is a good sign that your finances are in a healthy state, and shows lenders you’re a reliable borrower who can be trusted to handle debt responsibly.

Can I consolidate my debt with a credit card?

If you’re thinking about consolidating your credit card debt, comparing balance transfer cards from some of the UK’s most trusted providers is a good idea. When you compare credit cards with us, we’ll only show you cards you’re likely to be accepted for and it won’t impact your credit score.

Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.

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