If you are having problems with credit card debts
or if you simply want to make a move to pay off what you owe here because you want to stop having to pay interest then there a series of measures that you can take to improve the way that you pay off your cards.
Most people who do have credit or store card debts will actually hold more than one card. This can actually have an adverse effect on them paying off their debts in the most efficient way because they don’t know whether to treat all the card debts in the same way or to keep the majority ticking over whilst they concentrate on paying off one card.
- The fact is that not all credit cards and the debts that you have on them will be the same. Some will come with higher rates of interest and you’ll have larger debts on some cards than on others. So, the measures you take to prioritise your debts with credit and store cards may be different according to your circumstances.
The first thing you should do in all cases is to stop spending on your cards. It is far harder to pay back what you owe if you keep adding to it. If this is not possible for you because you need to use your cards to simply get by every month then you may not find a solution here and you may need to talk to a debt counsellor to find a more formal way of sorting out your debts.
If this is possible for you, however, then you next need to look at whether any of your cards is offering a balance transfer deal. If you have a gap between your debts and your credit limit on this card then you could look at transferring a balance from another card with high(er) interest rates on to this one. This will cut down on the interest you’ll be charged from the start.
Next you need to look at what you actually owe on your cards. You will then need to work out how much interest you are being charged on each credit/store card. In some cases your interest charges may all be around the same level in which case you will use your actual balances as a priority measure.
For the sake of example, let’s say that you have three credit cards that charge more or less the same interest rates. Your first balance stands at £3,000 (minimum monthly payment of £70), your second at £1,200 (minimum monthly payment of £40) and your third at £750 (minimum monthly payment of £20). You have £250 to spend each month on servicing your debts.
There are two ways you can prioritise your payments here.
The one you choose will ultimately be up to you and the way you want to clear your cards.
- Aim to pay off the lowest balance first. Here, you make only minimum payments on the two higher balance cards and concentrate all your efforts on paying off the lowest one first. This is often referred to as snowballing. Once you’ve paid off the first card, you will then have more cash spare to put towards paying off the second one and then you can concentrate on the last one. This can be a useful solution if you would feel happier seeing more immediate results.
- Aim to pay off the highest payment first. Many people prefer this route as it addresses the higher interest being added to the higher debt. So, you basically reverse the process from the first solution and only make minimum payments on the cards with lower balances and throw everything you have left over at your first debt. Then you can move on to repaying the second and the third.
If you have a significant difference in interest rates then this is the way you should consider repaying what you owe. The card with the highest rates of interest is the debt that will grow most quickly. So, in this scenario your priority should be to repay that card first, making minimum payments on the other two. Then move on to the next highest before concentrating on the lowest rate card.
Taking this kind of priority route often suits a lot of people better as it can be a quicker way of paying off what you owe and you can see immediate benefits. If you simply split your payments equally between cards without thinking about what you owe and what interest rates you are being charged then you may take longer to pay off all your debts and it will take a long time before you see your balances go down.