Paying off credit card debt

As credit cards are covered by the Consumer Credit Act, your provider may be able to get a country court judgment against you or use a debt collection agency if you don’t pay. But there are ways you can avoid this, and we’ll talk you through them in this guide. 

So that you can tackle your credit card debt effectively, first make sure you know exactly how much you owe: 

• List all your credit card balances and their interest rates. 
• Add it all up to see the total debt you have. 

If you’re struggling to pay off your debt, stop using your cards right away. Building up more debt will only make things worse. 

It’s also a good idea to tell your card providers that you’re struggling as you might be able to agree on a manageable payment plan.

Interest rates

Credit card interest is the fee you pay for borrowing money when you don’t pay off your balance in full each month. 

The interest rate is usually given as an annual percentage rate (APR). The higher the interest rate, the more you’ll pay back if you don’t pay off your balance in full each month.

High interest rates can turn a small balance into a big problem:

• Credit card interest rates are usually higher than with other forms of borrowing e.g. personal loans or mortgages.
• Interest builds up on your balance every day. The longer it takes to pay off your debt, the more interest you'll pay.
• Making minimum payments may help you manage your money in the short term, but it will keep you in debt for longer and cost you more overall.

Minimum payments

Although your card provider will set a minimum payment each month, it’s wise to pay more if possible to avoid extra interest.

Minimum payments often cover little more than the interest and fees, so your balance hardly goes down. This means it’ll take you longer to repay what you owe and you’ll end up shelling out much more in interest. 

If you’ve been making minimum payments for over 18 months, your credit card company will probably reach out about your ‘persistent debt’ and encourage you to increase your payments.

Once you know how much debt you're dealing with, you can look at your options for paying it off. 

Create a budget

Start by making a budget. This gives you a complete picture of your income and expenses. Look for ways to cut back on non-essentials to free up money for repaying your debts. 

Prioritise your credit card debt

If you have several credit cards, focus on the one with the highest interest rate first. This is the debt avalanche method. It saves you the most money in interest over time while you make minimum payments on the others.

Consider a balance transfer

If your credit score is good, look into balance transfer credit cards with a 0% introductory APR. This allows you to move high-interest debt to a new card and pay it off interest-free for 12-18 months. Just be sure to clear the balance before the interest rate jumps.

Speak to your credit card company

If you’re struggling to make repayments, you should always speak to your credit card company. Try asking for a lower interest rate or a payment plan. Credit card providers have a responsibility to help people experiencing financial hardship. Be honest about your situation; you might be surprised at how willing they are to help.

Consolidate debts

If you have multiple credit card debts, it might be worth consolidating them – combining them so you only have one payment to make.

There are different ways to do this, including:

• a personal loan with a lower interest rate
• formal debt solutions, like an IVA 

If you’re thinking about consolidating your debts, get free, impartial debt advice first to see which option is suitable for you.

If your credit card debt has got out of hand, ask for help from a free debt advice service.

We’ll go through your income and expenses and work out what your options are.

Our online debt advice is available 24/7 so you can access it at a time and place to suit you – or you can call us on 0161 518 8285.