How to Pay Off Credit Card Debt QuicklyLearn about the ways you can pay off your credit card debt fast to make your debts cheaper and more manageable.
Paying off credit card debt can be difficult, especially if you have more than one credit card account. When you take out a credit card, you probably intend to pay it back straight after using it, but financial circumstances can change quickly and leave you wondering if you can meet your monthly repayments.
Don’t stick to minimum payments
When you open a credit card account, they’ll give you a minimum payment amount. Usually, this is at least 1% of your outstanding balance, but it depends on your provider. If you make that minimum payment each month, your credit card provider will be happy. However, if you can afford to pay than just the minimum requirements, it is in your best interest to make larger repayments. This helps to keep the accumulating interest charges low.
Credit card companies make more money by implementing high-interest rates, so, unsurprisingly, the minimum required payments are low so that people can continue to accumulate interest fees.
if you take out a credit card with a 12 months 0% interest-free period and borrow £2,000, the minimum payment will still be 1% of the outstanding balance (£20), so you end up paying interest. However, if you paid £167 back per month, you’d have used the credit without ever paying interest. Therefore, paying off as much of your credit card debt as you can afford each month is more beneficial.
If you’re spending small amounts on your credit card each month, it’s good practice to pay off the entire credit card balance.
if you’re using your credit card to build a good credit rating, it’s best to use it consistently. Spending £100 on your card at the beginning of your month and repaying the entire balance by the end of the month. This shows lenders that you’re a responsible borrower.
Pay by Direct Debit
One common mistake people make is thinking they’ll remember to pay their credit card bills. But life moves quickly, and if you miss your monthly payment by accident, it has the same effect as missing it on purpose.
We recommend you pay off your debt by direct debit or standing order to make sure you never miss a monthly payment. You can set up the payment to come out of your bank on payday so that it’s sorted out with no effort.
Budget is key
Budgeting is essential if you’re dealing with persistent debt. Even if you feel like you’re on top of things, writing down your incomings and outgoings could show you where you could save money and pay back your debts quicker.
You can find online budgeting tools to help you when doing this.
Try the Avalanche Method
The Avalanche Method is a method for managing credit card payments if you have multiple accounts. It could help you repay your debts if you decide which credit account is the priority.
To do this you should look at which account has the highest interest rate and is, therefore, costing you the most money. You make the minimum payment on all your credit accounts and then put any leftover money into the account with the highest interest rate – to focus on paying this off first.
Once that account has been paid off, you repeat the method with the next highest interest rate.
Try the Snowball Method
The Snowball Method is like the Avalanche Method but focuses on your smallest debt. With this method, like before, you pay the minimum amount on each credit card account and then pay any leftover money into one specific account, but this time it’s the account you owe the least on.
This payment plan means you’re paying off your accounts quicker, but there might be better methods overall, as you’ll still be charged interest on your other accounts.
Before starting any of these debt repayment methods is important that you do your research and choose the best solution for your circumstances.
Take out a Debt Consolidation Loan
If you’re struggling to meet your minimum payment amount and have more than one credit card or other debt, you might want to consider taking out a Debt Consolidation Loan.
A Debt Consolidation Loan allows you to borrow enough money to pay off your credit card balances and other unsecured debts, meaning you are just left with one debt to your debt consolidation loan provider.
It can enable you to reduce your monthly payments, which is helpful if you’re struggling to meet your minimum payment amount or are dealing with a very high-interest rate.Apply for a Debt Consolidation Loan
Get a 0% Balance Transfer Credit Card
If you only have one credit card account with debt and a high-interest rate, you might be able to pay it off using a 0% balance transfer credit card.
Balance transfer cards usually have an interest-free period when you open your account, meaning you can pay off your credit card debt in one go and start fresh with a new 0% interest account.
How do balance transfers work?
Balance transfer cards allow you to transfer money into a credit account to pay off the outstanding balance. Then your high-interest credit card debt is paid off, and you pay back your 0% interest rate balance transfer card company instead.
This means you’re paying less interest which could result in paying off credit card debt faster.
01. Does paying off your credit card debt early hurt your credit score?
Contrary to the myth, paying off your credit card debt early doesn’t hurt your credit score. However, there might be better ways to build your credit rating. If you want to build your credit score, making monthly credit card repayments could be a better way to do it. If you’re meeting your minimum payment on time and in full each month, it shows lenders you are a responsible borrower.
Why is this better than just paying off your credit card balance in full? Because it gives you longer credit history, showing lenders you can borrow larger amounts of money over longer periods.
02. Does a balance transfer credit card hurt your credit score?
Any kind of credit will affect your credit score. But it will only significantly hurt your credit score if you’re missing your minimum monthly repayments. If you don’t pay the minimum amount, it will show as a missed or late payment on your credit file.
03. How much will my credit score go up if I pay off my credit card?
There’s no way to calculate how much your credit score will go up if you pay off your credit card. Your credit score might remain stagnant even if you pay off your credit card, as you won’t be adding to your credit report.
04. What happens when you pay off your credit card?
The account will remain open even if you pay off your credit card, which means you will still have easy access to this type of credit. This is because cred cards are a revolving line of credit.
Key points to take away:
- Don't just pay back the minimum amount
- Set up a direct debit
- Make a budget
- Research repayment options
- Always seek debt advice from professionals if you are unsure of what to do
If you have multiple credit cards or unsecured debts that are causing you stress, we may be able to help. A debt consolidation loan can help you to pool debts together into one affordable monthly payment.
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