Credit card debt rises

The latest data from UK Finance shows that credit card spending and transactions increased in August just gone.

Consumers made 381 million transactions on their credit cards, up 1.3% on the year before.

And they spent £20.9bn in total, 1.9% more than during the same period in 2023.

Outstanding balances on credit cards also grew by 7.4% in the twelve months to August, with nearly half (41.9%) of users paying interest.

With two-thirds of Brits set to use some form of credit to pay for Christmas this year, we look at the best ways to reduce your credit card debt so you won’t be weighed down in the new year.

Understand your debt

Start by listing all your credit cards, their balances, interest rates, and minimum monthly payments. Understanding where you stand is the first step in creating an effective repayment strategy.

Create a budget

Develop a realistic monthly budget that covers your essential living costs, such as housing, utilities, and groceries. Then identify areas where you can cut back and allocate the extra savings toward paying off your debt.

Prioritise high interest debt

High interest rates can significantly increase the total cost of your debt. Use what’s known as the avalanche method where you prioritise repaying credit cards with the highest interest rates while continuing to make minimum payments on others. This approach saves money on interest in the long run.

Consider the snowball method

If you work better when you’re motivated, try using the snowball method instead. Pay off your smallest balances first, regardless of interest rates, to help build momentum. The sense of accomplishment from clearing a debt can help to keep some people more focused and motivated to keep going.

Pay more than the minimum

Minimum payments keep you in debt longer because you accrue more interest. Commit to paying more than the required minimum whenever possible. Even an extra £10-£50 a month can significantly dent your outstanding balances.

Use windfalls wisely

There is no better surprise than suddenly finding you’re owed money. Any tax refunds, work bonuses, or unexpected financial windfalls you receive should be directed toward your credit card debt. You should resist the urge to spend this money and use it to reduce your balances instead. It's easier said than done, especially if you haven’t treated yourself for some time.

Speak to your credit card issuers

Call your credit card companies, tell them you’re struggling, and see if they can offer a solution. They might be willing to reduce or pause your payments depending on your situation. They’ll do this if you have been paying off your debt for 36 months or more.

Never ignore letters or emails from your credit card provider if you’ve fallen behind. Doing so will only lead to more charges, and your lender could even take out a county court judgment (CCJ) or send a debt collection agency to recover the money.

Consolidate your debt

Consider consolidating multiple high-interest credit card debts into a single loan with a lower interest rate. This can simplify payments and reduce the overall cost of your debt. Your options could include personal loans or balance transfer credit cards with introductory 0% APR offers.

Stop adding to the debt

Avoid using your credit cards while paying off debt. Switch to cash or a debit card to stop your balances from growing further.

Set clear goals

Having a clear goal, such as paying off a specific card by a certain date, can keep you focused. Use tools like online debt payoff calculators to estimate how long it will take and track your progress.

Seek free debt help

If your debt feels unmanageable, speak to us for free. We can help find you the best solution to your debt problem.