Credit cards can be a lifeline when you need to make an emergency purchase or build up your credit score to access better loan and mortgage rates. However, failing to manage your credit cards effectively can lead to debt and the many accompanying worries.
Regardless of your credit card debt, a well-thought-out plan can help you regain control of your finances and reduce the amount you pay each month.
In this guide, we’ll show you how to pay off credit card debt using various strategies and explore how you can avoid falling into the same trap again.
What is credit card debt?
Credit card debt is the outstanding balance on accounts you have yet to repay. When you don’t have available cash in your bank account, you can use your credit card to borrow money from the issuer—but it’s also essential to pay off your balance as soon as possible.
Your balance will accumulate interest if you don’t pay the debt monthly. Over time, this interest continues to increase, which makes it harder to pay off your debts.
Unfortunately, credit card debt is a common problem in the UK:
- The average household in the UK has £2000 of credit card debt (The Mirror).
- 3.3 Million people in the UK are in persistent debt (Financial Conduct Authority).
- In 2020, five million people had loan and credit card debt that exceeded £10,000 (Credit Connect).
Is it possible to deal with credit card debt?
Yes, it’s absolutely possible to reverse your credit card debt and improve your financial prospects in the future. Some people might feel it’s best to get a Debt Relief Order or file for bankruptcy, but these solutions also appear on your credit file for six years and can make it hard to borrow money in the future.
Instead, you should focus on implementing strategies to help you gradually reduce the debt and get your finances back on track.
The following strategies are the best ways to pay off your credit cards.
Create a debt repayment plan
First things first, you need to know exactly how much you owe. Look at your debts and the interest rate on each credit card, including the minimum payments.
Doing this lets you evaluate where you’re wasting money each month and whether transferring some of your outstanding balance to a card with lower interest rates is a good idea.
Set your goals
Specific and achievable goals are crucial for debt repayment. Determine the amount you can realistically pay each month and set a target date for becoming debt-free. Think of it as a roadmap, with each stop representing a payment and the final destination being debt free.
Create a budget and stick to it
To accelerate debt repayment, create a detailed budget and determine where to reduce your spending. Allocating more funds towards paying off credit card debt while still covering essential costs means you can increase your monthly payments.
For example, if you order takeaways regularly, cut down to just one a month and use the money for your credit cards. It’s the same with TV subscriptions and any luxuries you don’t need because a small sacrifice could move you further towards being debt free.
Use the snowball or avalanche method
The snowball and avalanche techniques are two time-tested methods for repaying existing credit card debt. Each has its distinct advantages, and many people can pay their debts quickly and learn how to budget effectively at the same time.
The snowball technique
With the snowball method, you first arrange your credit card balances from low to high and focus on the lowest balance. For example, if you have three credit cards with balances of £1000, £500 and £250, pick the smallest balance first and increase your payments.
Once you pay the smallest debt off, you can move on to the next one until you clear all outstanding balances. People love this method because it makes a noticeable dent in their finances, making them more likely to stick with it.
The avalanche technique
The avalanche method is more effective, focusing on first paying off accounts with higher interest rates and then moving through each account. When you use this method, you reduce the overall interest you’ll pay and tackle your most important debts first.
However, the avalanche technique requires more discipline as the effects are more subtle, but it’s worth exploring if you want to reduce your repayment obligations.
Both methods have their merits, and the right choice depends on your financial situation and personal preferences. Consider factors such as emotional motivation and interest paid to make an informed decision.
Negotiate with your creditors
Contacting your credit card company might seem like a daunting prospect, but they might be able to help you create a more realistic repayment plan. Credit card providers want to recover their money, so don’t hesitate to pick up the phone and explain your situation.
Be honest about what you can afford
When you speak to your creditors, ensure you’re honest and transparent about your situation. Some providers will give you a payment break or even waive late fees if you need extra support.
It’s also worth seeing if you’re eligible for lower interest rates, as they significantly reduce the amount you need to pay back. Don’t be afraid to ask your credit card company for a lower rate, especially if you have a good payment history.
Explore debt consolidation options
There are plenty of ways to consolidate your debts into a single monthly payment. The great thing about debt consolidation is it also makes managing your finances easier because you don’t need to worry about handling multiple repayments.
However, you also need to consider whether you’ll be able to avoid spending on other cards, as doing so will result in further debt.
Debt consolidation loans
A debt consolidation loan combines multiple debts into a manageable loan with a lower interest rate. Most people are eligible for these loans, and they’re easy to manage. Personal loans usually have a repayment term of up to five years, but this depends on the provider.
Balance transfer credit card
Balance transfer credit cards offer an introductory period with low or no interest on transferred balances. Transferring high-interest debts to such cards can provide temporary relief, but you must also pay off the outstanding amount before the interest rates increase.
Stay on track
When it comes to credit card debt, paying it off as soon as possible will ensure you avoid further issues and can recover your finances. Some people struggle to stay on track, but following these steps will ensure you retain your motivation.
Get professional help
If you need help managing your credit card debt, it’s worth speaking to a debt charity, as they can negotiate lower interest rates with most credit card providers. Most importantly, you can avoid filing for bankruptcy or securing a debt relief order.
Maintain discipline
Paying off credit card debt requires discipline and perseverance, so stick to your budget and debt repayment plan, even when faced with financial challenges. It’s always a good idea to think about what you’re working towards, as this will ensure you don’t lose your motivation.
Celebrate milestones
Sticking to a monthly budget and paying off your debts instead of spending money on other things deserves a reward once in a while. So, whenever you pay off a credit card, treat yourself to that takeaway or anything else you enjoy.
How does credit card debt accumulate?
Credit card debt accumulates when you carry a balance on your credit card from one billing cycle to the next and don’t pay off the total amount owed. Let’s look at how some people find themselves in a cycle of debt.
Making Purchases: It’s easy to get carried away when you have access to a credit card, and making multiple purchases means you’ll have more debt to pay each month.
Minimum Payments: Minimum payments are a small amount of the overall balance on your card. However, while making small payments means you won’t get into trouble with your issuer, your interest will continue accumulating.
Compound Interest: Credit card interest is often compounded, meaning you’re charged interest on the original balance and any previously accrued interest. Compound interest causes the debt to grow more rapidly over time.
Continuous Use: If you continue to use the credit card for new purchases while carrying a balance, each new purchase will add to the existing balance, and interest will apply to the new charges.
Poor Utilisation of Credit: When you use your credit card balance to make purchases and don’t pay it back each month, you’ll have a high credit utilisation. A utilisation of over 30% can harm your credit score.
Debt Cycle: Without a concerted effort to pay down the debt, credit card debt can become a cycle where the balance keeps growing, making it increasingly difficult to get back on track financially.
Avoiding debt in the future and rebuilding your credit score
Once you’re finally on track and have a solid repayment plan, you can focus on removing the rest of your outstanding debts and avoiding future debt.
Build an emergency fund
An emergency fund can provide a financial safety net, reducing the need to rely on credit cards for unexpected expenses. Putting away just 10% of your take-home pay ensures you have funds to pay for car repairs, boiler replacements and anything else.
Use your credit wisely
Credit cards can be highly beneficial, so don’t feel you need to avoid them altogether. Instead, focus on learning from your previous mistakes and always pay your bills on time.
Rebuild your credit
Also, consider rebuilding your credit score once you get to grips with your credit card repayments. Some people choose to do this by taking out a credit builder loan, which allows them to remove any outstanding debts and gradually increase their score.
In the long term, credit builder loans make you a more viable candidate to lenders and help you recover your credit report from the adverse effects of debt.
The impact of credit card debt
Credit card debts are a serious issue that many people in the UK deal with. While the financial implications are clear, getting into a cycle of borrowing can also impact your mental health and well-being. To understand the true effects of debt, we need to explore the adverse effects in more detail.
The cycle of borrowing
If you can only afford to make the minimum payment each month or are balancing multiple credit cards, you’ll probably get into a cycle of borrowing. Some people might dip into their bank account to pay off their credit card bill but borrow money again when paying for household expenses.
Getting into a cycle of borrowing can be disheartening because you make a dent in your credit card bills but then have to use the cards again.
Lower credit score
Credit cards can help you build your credit score—when you know how to use them properly. However, the key to building a good credit rating is paying off your monthly balance and showing you’re a responsible borrower.
In contrast, a high balance can lower your score. If you miss payments or continue applying for new cards, your score might decrease quickly.
Stress and anxiety
Unfortunately, debt worries can also impact your mental health and lead to long-term anxiety. A study published by the Mental Health Foundation shows that almost half of adults with debt struggle with anxiety and stress.
Getting help can reduce the effects, but some people might also be diagnosed with depression or another mental health condition.
Get a credit builder loan with Believe Money
Getting into debt with credit card companies is no joke, but many people are in similar situations. The key to recovering financially is to prioritise paying off your outstanding debt and building your credit score again.
If you’d like to discuss your options, Believe Money is a dedicated loan broker specialising in helping people with bad credit get the right borrowing solution for their needs.
We offer all clients a free, zero-obligation consultation too. Contact us today to discuss your eligibility for Credit Builder Loans.
How to consolidate credit card debt with a loan
Step 1.
Fill in the simple online application form with a few details
Step 2.
We search our panel of lenders to find the right debt consolidation loan for your circumstances
Step 3.
When you confirm your chosen deal, we get your application moving
Step 4.
The money lands in your bank
account – usually within two weeks