Credit cards allow you to purchase items using credit. The credit you use becomes a debt that you owe to the credit card provider. When you apply for a credit card, the provider will consider a number of factors, such as your income and credit score, when deciding whether to give you a card.
When your card application is accepted, you are given a credit limit - that is, a maximum amount of credit that you can spend - along with an interest rate you will pay for borrowing money on the credit card. The interest rate can vary a lot depending on your financial situation and history.
The higher the interest rate, the more you will be charged for the credit that you use. Interest will be added to the amount that you owe the credit provider, with rates that can often be extremely high. Be aware that interest rates are often variable and can increase during the term of your credit card.
To pay off your credit card in less time, there are a number of steps that you can take to reduce the cost of your credit card and speed up the repayment process.
Taking control of your money is the first major step towards paying off your credit card more quickly and managing your spending habits better. By putting a clear plan in place, you can begin to understand how much money you have coming into your bank account, and how much you spend on a monthly basis. Here are a few tips on how you can take control of your finances:
Budgeting is one way to get a clear picture of where your money goes each month. Having a budget will allow you to identify areas where you can save more money, which in turn can help you to reduce your spending and put more money towards paying off your credit card each month.
Take some time to review all of your monthly spending. This includes everything from your gas and electricity bills and your grocery shopping, to any monthly subscriptions and your gym membership. Go through all of your outgoings and highlight any areas where you can make changes to reduce your spending.
Look through your bank statements and keep an eye out for any unused regular payments. You may find regular payments that you have forgotten to cancel, which are still active, such as out-of-date insurance or subscription services. If you no longer use anything you pay for, be sure to cancel the payments.
When it comes to household bills, check that you are on the lowest tariffs and consider switching providers if you are paying more than you need to for your utility bills. For services that you pay for on a monthly basis, such as Sky TV, broadband and phone contracts, call your provider before your contract expires and negotiate a lower payment or use a Price Comparison Website such as Uswitch.
If you are paying interest on a credit card balance at the same time as having cash in a savings account, consider using your savings to pay off the credit card balance. Unless your savings are earning more interest than the rate you are paying on a credit card, you can use your savings to reduce your credit card debt and pay less interest in total.
Any amount that you can save, however small or large, can help you to pay off your credit card more quickly, and with less money paid in interest.
Credit card debt is expensive, however, one way that you can reduce the cost by moving your credit card debt to a card with a lower interest rate. Shifting your credit card balance to a lower rate can reduce the amount of interest you pay overall. This means that you can allocate more money towards paying off the balance at a quicker speed. This is known as a balance transfer.
Before you consider a balance transfer, check that your credit report is up to date and accurate. You can access your credit report for free online.
When you apply for a new credit card, the card provider will check your credit history and any inaccurate data can harm your chances of the application being approved.
Carry out an eligibility check before you apply for a new credit card, in order to see if you are likely to be accepted by the card provider. This can avoid a rejected credit card application which can damage your credit score.
There are likely to be a range of balance transfer options available, so look for the most suitable card for your circumstances. If you are looking to apply for a card with a 0% interest rate, consider how long the 0% interest promotional period will last. Think about whether you are likely to be able to pay off the full card balance during that period.
Note that balance transfer cards do usually have a fee attached, which will most likely be a percentage of the full balance that you move to the new, lower rate card.
There are a number of available cards which offer 0% interest on balance transfers for a specified period of time. Moving your outstanding balance to a 0% interest card can help you to concentrate on reducing your credit card balance quickly, without making any interest payments during the promotional period.
Always aim to pay off the balance by the time the 0% period expires. Take note of the length of the 0% period when you first receive the credit card and remember the promotion expiry date to avoid unwanted charges - the interest rate can be steep following a promotional period.
If you need a substantial period of time to clear the outstanding balance on your credit card, and there are no suitable 0% interest cards available, consider a balance transfer to a low interest rate card. You will continue to pay interest on the outstanding balance, however, a lower cost of borrowing will speed up the repayment and help you to pay off the outstanding balance more quickly.
With all credit cards, you must make a minimum monthly payment. The minimum monthly payment is typically a specified percentage of your outstanding card balance. The more money you pay towards the balance each month, however, the quicker you will clear the credit card debt. Here’s what you need to know about minimum payments:
Fail to make the minimum monthly payment and you can end up paying costly charges or penalties. This could potentially have a negative effect on your credit score. Your credit score is important when you look to borrow money in the future, whether that’s a credit card, mortgage or a loan.
The minimum card payment is usually a percentage of the outstanding balance on the card. When you spend on the credit card or pay off a lump sum, the outstanding credit card balance changes and the minimum payment amount will also change. Therefore, always make sure that you are aware of the minimum payment required.
Credit card providers often set low minimum monthly payments and as your outstanding balance decreases, the minimum payment amount decreases too. This means that it can take several years to pay off your balance in full, and you can end up paying thousands of pounds in interest over the period.
If you can afford to pay off the full credit card balance each month, you can avoid paying interest on the credit card completely. If you cannot afford to pay the balance in full, aim to pay off as much as you can each month. This will speed up the time it takes to pay off the card in full.
Use automatic payments for your credit card to make sure that you never forget a repayment. You can set up a direct debit to ensure that you don’t miss a payment date. A missed payment will not only cost you a penalty fee, but can also harm your credit score, which will be marked on your credit report.
If you have a 0% interest card, most cards will specify in their terms and conditions that you will lose any promotional 0% rate if you miss a payment. Setting up a direct debit is one way that you can protect your 0% rate for the full promotional period.
Aim to repay the full credit card balance if possible. You can set up a direct debit to repay the full outstanding balance each month, which means that balance will be cleared and no interest will be charged.
If you cannot afford to repay the full balance each month, you can set up an automatic payment for any amount that you choose. Then you can make additional repayments as and when your finances allow. Every additional payment that you make will decrease the amount of interest that you pay to the card provider overall, and reduce the time to pay off the balance in full.