You can pay back your credit and store card debt faster and save a lot of money. Here’s how to do it.
If you’re really struggling with your card bills, get free, confidential and impartial advice and support from a debt advice organisation.
If you only paid the minimum payment on an outstanding balance of £2,000 with an APR of 18%
It would take you 34 years to pay it back
You would pay £3,983 in interest.
Source: Totally Money – 2015
Paying the minimum amount each month makes it feel like the debt is affordable.
If you’re struggling with money, you can talk to someone today, online, by phone or face to face. We have specially trained advisers who can help you start sorting out your financial problems.
But this can be a really bad idea. If you are on a 0% rate for an introductory period, paying only the minimum each month will make only small inroads into your debt – and it could take ages, and cost a lot, to repay the balance, even if you don’t carry on spending.
And if you took out your card before April 2011, the debt could actually increase.
Also, if you make only minimum repayments, this will show up on your credit file, and other companies might assume you’re struggling and will be more reluctant to lend you money.
This could even affect your chance of getting a mortgage.
Always try to repay as much as you can. Even if you only increase it by a small amount each month, it can make a huge difference.
Use this credit card reality checker to find out how long it will take you to pay off your balance
If you have store cards, they will probably be more expensive than credit card debts, so make sure you pay them off first.
Credit cards also charge different rates of interest. This will show on your credit card statement.
Out of all your cards, pay the most on the one with the highest interest rate first, depending upon what kind of balances you have on the card – whether purchases, balance transfers or cash withdrawals.
Make sure you pay at least the minimum payment on all your cards, otherwise you will incur charges.
If you have a good credit rating you might be able to move your current credit card balance to another credit card offering a low or 0% deal.
There’s usually a fee to pay for this of between 1.5% and 3% of the balance transferred, but it can be worth it as the following example shows.
|Current credit card interest rate||19%|
|Time to pay off debt using current credit card||One year, eight months|
|Cost of interest over that time||£772|
|New credit card interest rate||0% (for 18 months)|
|Balance transfer fee on a new credit card (3% of the amount owed)||£150|
|Time to pay off debt using new credit card||One year, five months|
|Total interest saving by using 0% credit card (interest on 19% card minus balance transfer fee)||£622|
Staying with the current deal means you would pay £622 in extra interest.
You need a good credit rating to qualify for the best balance transfer deals. If you have a poor credit rating find out how to improve it.
Work out how much you could save each month by switching using the Which? balance transfer calculator.
Estimate which card will be cheapest using the MoneySavingExpert card comparison calculator. Some cards don’t charge a balance transfer fee.
If you switch to a 0% deal, make sure you pay it off- or pay as much as you can before the deal ends.
Use your savings to repay expensive card debts unless you have more urgent priority debts.
You might lose interest on your savings, but you will save much more in the long term.
This is because you’ll pay far less interest on your debt.
You might have been paying for payment protection insurance (PPI) on your credit cards without realising it or being able to claim on it.
This might have cost you hundreds or thousands of pounds which will be refunded to you if your complaint is successful.
With all your credit cards:
This article is provided by the Money Advice Service.