Our Guide to Managing Your Credit Card Debt

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Credit cards are one of the most common forms of debt in the UK- in January 2020, the average household owed £2595 in credit card debt alone.

Although credit cards can be useful for spreading the cost of large purchases, it can end up being an expensive way to borrow….and if you don’t stick to your repayments, will quickly wreak havoc with your credit score and eat into your hard-earned income every month.

If you’re worried about your ballooning credit balances or just want to pay off some of your debt, you’ll need to be proactive.

With credit card debts ballooning below are some ways in which you can manage and clear your credit card debts;

  • 0% APR Balance Transfer Credit Card
  • put together a payment plan budget
  • Pay more back than the minimum
  • Save up and pay it off in a lump sum
  • Use property equity to clear the debt
  • Ask for debt relief
  • Investigate IVAs
  • Investigate Debt Management plans

Read on for our guide to credit card debt and 5 simple strategies to pay it off.

What Is Credit Card Debt?

Credit card debt refers to the total outstanding balance, fees and interest on all of the credit cards you hold.

Credit cards offer a type of unsecured borrowing, which means that you don’t need to provide your lender with any collateral when you take out a card. Instead, the lender looks at your credit score to determine how likely you are to keep up with repayments, and decides your credit limit (the max you can borrow) based on this.

Once you have taken out a credit card and start to use it, you need to make monthly contributions to the account to repay the money, plus interest and extra fees set by the lender.

Your card’s monthly balance is shown on your credit file as debt and so is all of the information about your repayments. For this reason, your credit card debt can have a major influence on your overall credit score.

Here Are Our 5 Ways to Get Rid of Credit Card Debt

1 – Put the Plastic Down

First thing’s first: if you’re planning to pay off your debt, you need to stop spending on your credit cards. Continuing to use them will only increase your debts and make the repayment process even more drawn-out and expensive.

This can hard to do if you’ve fallen into the trap of relying on credit for day-to-day expenses. If that’s the case, you’ll need to prioritize your debts by tackling one card at a time (see the next step).

Try taking your cards out of your wallet so you aren’t tempted to use them and keep them stored somewhere safe at home. If you’re worried about impulse spending (and don’t need your card to make repayments), cut up your cards and throw in the bin.

Once you’ve hit your goals, you can always request new ones from your lender.

2 – Tackle One Card at a Time

If you have more than one credit card, it’s easy to feel overwhelmed by multiple debts and not know where to start. Try to remember that the process of repayment is a marathon, not a sprint.

You are more likely to stick at your payment plan if find a strategy that suits your lifestyle and mindset. This will help keep you motivated to continue chipping away at your debt.

Start by looking at your most recent statements. How much interest are you paying on each card? Which have the most debt?

Once you have a clear picture of how much you are paying to each creditor per month, consider one of these strategies to help you manage your repayments:

Credit Card Debt: The Snowball

Keep making the minimum payment on all of your cards, but overpay on the card with the smallest balance. Once you have paid this off, use the money you were putting towards this to pay off the next smallest balance, and so on.

As you cross each debt off, you will have more each month to put towards the bigger debts until all your debts are paid.

This method leads to lots of small successes early on, which can help keep you motivated when it comes to paying off those bigger debts down the line.

Credit Card Debt: The Avalanche

This is the reverse of the snowball. You keep making the minimum payment on all of your cards, but overpay on the card with the highest interest rate.  Once you have paid this off, use the money you were putting towards that debt to pay off the debt with the next highest interest rate, and so on.

Unlike the snowball, you won’t see results for a long time; but once you have paid off the first debt, he rest will very quickly follow. By tackling the highest interest (i.e. most expensive) debts first, you’ll also pay less than you would with the snowball method.

3 – Pay More Than the Minimum

Did you know the time it takes to pay off the average UK credit card debt using only the minimum payment is 26 years and 8 months?

Thinking about your debt stretching years into the future is no fun. If you can increase the amount you pay each month- even just a little bit- you can become debt-free much sooner than if you just stick to the minimum payment.

Your minimum monthly repayment is usually a combination of lender fees and a percentage of your outstanding balance (normally 2%). This means that as you make repayments and your balance decreases, the minimum repayment on your credit card also get lower.

Great, right? Well, unfortunately not. Although you will be left with more cash in your pocket each month by paying the decreasing minimums, your debt will stick around for much longer and you’ll end up paying more overall.

The good news is that you don’t need to make extreme over-payments to see a big drop in the time it takes you clear your debt.

In fact, by paying the same as the first monthly minimum payment every month (instead of paying smaller amounts as the monthly minimum decreases), it would only take 5 years and 2 months to repay the average UK credit card debt.

A little overpayment goes a long way.

4 – Consider Debt Consolidation

If you have multiple credit cards, one way you can simplify your repayments and potentially save money is by moving all of you debts onto one account.

There are a few ways you can do this:

Credit Card Debt: Balance Transfer Card

It might seem counter-intuitive to try and solve your credit debt problem with another credit card, but if used correctly, balance transfer cards could help.

When you take out a balance transfer credit card, you move all of your credit cards debts onto one account. Most companies require you to have a good credit score to register for a balance transfer card. Still, if you are successful, you can take advantage of an introductory interest-free period (usually 12-18 months).  This can help you reduce or ultimately pay off your debt without being charged interest.

Bear in mind that after the introductory period, you will start being charged interest on your outstanding balance, so it’s important to calculate whether this would actually be a cost-effective method for you before signing up.

Credit Card Debt: Consolidation Loan

If you have good credit, you may be able to take out a loan with a lower interest rate that the one being charged on your credit card debt.

You could then use the loan to pay off your credit cards, and slowly repay the loan with the lower interest rate.

5 – Use Your Home’s Equity

If you are a homeowner, you might consider tapping into your home’s equity to pay off credit card debt. They can be an attractive option to people with poor credit or who can’t afford high payments each month. Because the money you borrow is secured against your house, you don’t need a very high credit score to qualify.

On top of that, equity loan interest rates are often lower than credit card rates and repayment terms are long- meaning that you could drastically reduce your monthly repayments.

However, many equity release loans are ‘interest only’. This means that your repayments only contribute towards the interest on the amount borrowed, so if you want to make a dent in your debt you will need to overpay each month.

You should think carefully before opting for an equity loan. Although it can be a useful tool in helping you conquer your credit card debt, your home could be at risk if you don’t keep up with payments.

Credit Card Debt and Financial Trouble

Brits owe a collective £72.2 billion in credit card debt. That is to say, borrowing on credit cards is extremely common and millions of adults do it every day in the UK. But if you’ve reached a point where the pressure of your debts is climbing, you could be in financial trouble.

While for many people, following the steps above will help them reign in their debt, someone who finds themselves in deep financial trouble might want to consider a debt repayment plan instead.

Think this could be you?

Here are some telltale signs that you could be out of your depth in debt:

  • You’ve started using your credit cards to pay for your  basic needs
  • You’ve maxed out one or more of your cards
  • You spend more on your cards each month than you repay
  • You avoid reading statements
  • You are regularly late to pay your cards

If this sounds familiar, you could try speaking to a credit counselling agency.

They will help you budget for a repayment plan you can afford and propose it to creditors on your behalf.

While this may affect your credit score, it is a positive step towards managing your debt.

Your creditors are not obliged to accept the payment plan, but if they do it could ease the strain on your finances while still helping you pay off your debt.

Once you have settled on a plan, you make a single monthly payment to the debt counselling agency, who will then distribute it to your creditors for you.

How Can Love Debt Free Help?

Here at Love Debt Free, we have partnered with some of the UK’s leading Debt help companies.

They have already helped thousands of people reduce and manage their debts, and they can do the same for you.

If you would like to speak to one of these debt help companies, click on the below and answer the questions.

Len Burgess
Len Burgess
Len Burgess is a successful digital entrepreneur and founder of LBLK Publishing which specialises in Financial content. Len has been writing professionally on financial and business topics for 5 years before starting Love Debt Free.
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