Paying off your credit card

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 off your credit card and share six 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 off your credit card and share six top tips for smarter credit card management.

Anelda Knoesen
From the Money team
minute read
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Posted 30 NOVEMBER 2020

Credit card interest rates

The interest charged on credit cards can leave you with a pretty big debt if you’re not regularly paying off the balance in full. The average credit card interest rate is around 20%. That’s a lot of interest if you’re only paying back the minimum each month.

If interest is building up and you’re struggling to pay off your credit card, you might want to consider some alternative ways to help cut down the interest you’re paying.

Move your debt to a 0% balance transfer credit card

One option is to move your outstanding credit card debts to a 0% balance transfer credit card.

A 0% balance transfer credit card gives you a set period when you won’t be charged interest; in some cases, for more than 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?

According to a study from Compare the Market, 21% of young people aged 18-24 rely heavily on credit cards for their everyday spending. However, almost a third (32%) don’t manage to pay off their credit card balance at the end of the month, putting them at greater risk of mounting debts.

Pay off your credit card debt with a debt consolidation loan

A debt consolidation loan lets you turn multiple debts into one convenient monthly payment. Debt consolidation loans typically charge less interest, so could be a good idea if you have high-interest credit cards and other debts to pay off.

Just be aware that if you take out a secured debt consolidation loan, you could risk losing your car or home if you can’t keep up with the repayments.

Use savings

Consider using any savings you have to pay off your credit card balance, rather than paying the minimum each month as part of your monthly spending.

Interest rates earned on savings are extremely low at the moment. So, for example, if you owed £2,000 on a credit card that charged 20% APR, you’d pay £400 a year in interest. If you have £2,000 in a savings account earning, say, 1% a year, you’d only be making £20 in interest.

Set yourself a monthly budget

Setting yourself a monthly budget is a great way to take control of your spending. It also gives you a chance to see where you can tighten your belt and make savings.

By making small changes to your monthly outgoings, you could use the money you save to help pay off your credit card debt.

Pay off the most expensive card first

If you have more than one credit card, concentrate on paying off the card that charges the highest amount of interest. Just remember to keep paying at least the minimum monthly payment on the other cards.

Pay by direct debit

By setting up a direct debit to pay your credit card, you won’t have to worry about missed or late payments. Just make sure there’s enough money in your account to cover the payment each month.

Our top tips for managing your credit cards

We’ve rounded up six ways to be smart and sensible when it comes to managing credit cards.

1. Beware low introductory rates

A card with 0% or a very low rate on new purchases, for example, can help spread repayments over a number of months. While this may seem like the answer to that pricey electronic gadget you were planning to buy, it only makes sense if you’re able to pay off the balance before the higher interest rate kicks in. Shopping around for a good credit card deal is never a bad thing; just remember to read the small print and always make sure you’ll be able to meet any repayments.

2. Avoid taking out cash on your credit card

Cash can still be convenient – and sometimes it might be the only way you can pay. But if you take out cash on your credit card, be aware that your provider is likely to charge you a high rate of interest on any withdrawals. Either put the purchase on your credit card – keeping in mind the importance of clearing any interest incurred on outstanding balances as soon as you can – or take out cash with your debit card.

3. Try to limit how many credit cards you get

While there can be benefits to taking out separate cards for different types of purchases, generally speaking, the more cards you have increases your exposure to fraud. Also, each new credit card application you make leaves a trail on your credit report history, which can make it more difficult to take out other types of credit in the short term.

With more cards, you’ll be exposed to more lines of credit and the overall amount you could borrow will be higher, meaning a bank might be less inclined to want to extend this further. The knock-on effect means it could be tough when you’re looking to borrow for bigger things, such as taking out a mortgage.

4. Be smart when paying off credit card debt early

It might sound counter-intuitive, but you need to be careful not to pay your minimum fee too early – as you could risk being charged a late fee for doing so. Let’s say you get a credit card statement asking you to make a payment by 28 June and you pay off the minimum amount owed on 20 June. On the 27 June, you might decide to pay off a bit more than is owed, rather than worry about making a payment next month.

As you’ve made two payments before the due date, the credit card company sees that you overpaid in June but didn’t pay anything in July. This sort of well-meaning miscalculation will result in a late fee and could have an impact on your credit score. So make sure you’re clear on the exact payment dates of your credit card.

5. Set yourself a percentage of your total credit limit

Banks advise on keeping a ‘credit utilisation ratio’ of under 30%. In plain English, this means that if your credit card has a limit of £10,000, then you should aim to keep your balance under £3,000. Sticking to this could help keep your credit score healthy.

6. Your balance and your credit limit are different things

It’s all too easy to view your credit 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 really in debt. In the longer term this may be unsustainable, as you could spend many months (or even years) paying back what you’ve spent.

Struggling with your credit card repayments?

If you’re having difficulties paying back your credit card, speak to the card provider as they may be able to help. You can also get free, expert debt advice. Find a list of free debt advice services on the Money Advice Service website.

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