How to clear your credit card debt quickly
Credit cards offer maximum convenience and instant access to money but it’s easy to let a financial molehill quickly turn into a mountain of debt. With annual interest rates often set at unspeakable levels, a credit card balance can prove tricky to shift, eating into your disposable cash and reducing the amount of money you have to spend on utility bills, food and travel. However, with a little patience and persistence, clearing a credit card debt quickly is possible.
If you have more than one credit card, deciding how to repay your debts can be confusing. Consequently, many people simply make the minimum payments across their cards, unaware that high interest charges mean the balance will be virtually untouched. Snowballing is an effective way to target the card that costs you most.
Compile a list of your debts and their annual interest rates. This can vary enormously between credit cards. Target the card that is costing you most in interest first, paying off as much as you can financially afford every month. On the other, less expensive credit cards simply pay slightly more than the minimum payment. This will avoid having successive minimum payments logged on your credit record which might adversely affect your ability to obtain credit in future.
As soon as the most expensive card is cleared, move onto the next highest interest rate and so on. This approach can save hundreds of pounds in a short space of time.
Hunt out interest free deals
A credit card that charges you exorbitant interest is hard to clear in a hurry because every payment you make is diluted by the monthly interest fee. It really can be a case of two steps forward, one step back. Many lenders will sign you up for an interest-free credit card to which you can transfer your balance, meaning that you’ll avoid paying any interest for a set period (sometimes for as long as 36 months). You’ll usually pay a fee for the transfer – 3% of your balance is not uncommon – but you’ll easily recover that money if you’re not paying interest.
If you’re able to pay more than the minimum payment on an interest-free credit card, you’ll chip away at the debt even faster.
Credit card companies love customers who only make minimum repayments each month because it means they earn more interest. Making overpayments is one of the most effective ways to clear a credit card debt quickly.
If you don’t have large amounts of disposable cash, it’s worth sitting down with your monthly bank statement and analysing your spending. Add up the cost of every non-essential purchase, from on-the-go lunches to iTunes downloads. If £75 a month of luxuries doesn’t seem that much, bear in mind that over a year this is nearly £1000 that could service your credit card debt.
If you can sell unwanted personal possessions to raise additional capital, consider doing so as this could help to reduce your debt more quickly. Don’t bank any money you save or raise, as you’ll be tempted to dip into it for other purchases; pay it straight onto your credit card and you’ll also reduce your interest in the process.
Remember, even small extra payments will go towards paying off your credit sooner. The more payments you can make, the quicker the debt will become a thing of the past.