To pay off your credit card debt, you should pay back as much as you can afford each month. Keeping on top of your debts can help keep your credit score intact and save you stress and anxiety in the long run. This blog will detail how to get yourself out of debt.
There are several benefits to using a credit card for your spending, from earning cashback to the additional reassurance of the legal protections. However, for all the positives, some people can find paying off credit card debt difficult.
This blog will talk you through how to reduce your debts, the best ways to pay off credit cards and provide a framework for taking control of your finances.
What are credit cards?
A credit card is a card issued by a bank that allows you to borrow funds, or credit, to pay for goods and services. Similar to a debit card, you can use a credit card to pay for things in a chip and pin device, online or via contactless payment options. The only difference is that you don’t have the money yourself – you are borrowing it.
If you don’t pay the borrowed money back by your billing date, it will roll into the next month with added interest. It’s important to note that credit cards typically have higher interest rates compared to secure loans due to the risk involved.
Why do people get credit cards?
Credit cards are a convenient payment method. Rather than saving up or waiting for payday, a credit card lets you make a purchase on borrowed money instantly. It can also help to boost your credit score – as long as you use it responsibly.
Other credit card benefits include:
- Help spread out the cost – if you are planning to make a big purchase, a credit card allows you to pay for it over several months.
- Opt for interest-free – some credit cards have an interest-free period, so you can borrow for free (without interest added) for a certain amount of time.
- Convenient – spread out the cost of large purchases until payday.
- Purchase protection – with a credit card, purchases between £100 and £30,000 are protected. You can claim your money back from the card provider if there’s a problem.
Signs you may be struggling with credit card debt
Overuse of credit cards can make it easy to fall into debt by spending money that you don’t have. Overspending can easily spiral into debt if you use your credit card beyond your means.
Some warning signs that you may have a problem with credit card debt include:
- Having difficulty paying bills on time
- Start receiving past due notices or collection calls
- Living in your overdraft
- Lose sleep worrying about your debts
- Allowing bills to stack up
- Spending more than your income allows.
With the cost-of-living crisis putting an even bigger strain on household finances, it’s even more important to know how to pay off credit card debts. That’s why we’ve put together a list to help you learn the best way to get out of debt for you.
How to get yourself out of debt
There are many different strategies you can try to get out of debt. Depending on your situation and personal circumstance, some may feel more realistic than others. From using savings and setting a budget to seeking external support, here are some ways to get out of debt.
Set a budget
Ideally before you get into debt, identify a realistic spending budget. This could be per day, week or month – whatever works best for you. Consider bills and any other expenses that you have to pay and see what you’re left to work with.
Set a realistic spending budget that still allows you to buy all the essentials and enjoy things modestly. Keep to this target to avoid overspending. This will also make it easy to spot where you are going overboard, and where you can cut back.
The money you save can be allocated to paying your credit card debt.
Work out how much you owe
It’s helpful to have some clarity over how much you owe. Total up everything that you owe on a credit card to get an understanding of how much you need to pay back. Compare this with your income to see how much you will realistically be able to pay back each month.
Pay off your most expensive debts first
This is relevant if you have more than one credit card. If you have multiple credit cards, list your debts – with the highest interest rate at the top. Aim to pay off the credit card that costs you the most first.
While you’re paying off your most expensive cards, don’t forget about the others too. You’ll still need to make the minimum payments on all your cards.
Set fixed monthly payments via direct debit
Set up a direct debit for your credit card payments to make sure that you never forget to pay your bill. Scheduling the money to be sent automatically removes the risk of being charged for a late payment fee if it slips your mind.
While taking money out of your savings is not ideal, it may help towards alleviating some of your credit card debt. In most cases, savings interest is a lot less than credit card interest, so you may be better off using your savings to pay the card in full instead.
Get a debt consolidation loan
A debt consolidation loan is a way to bring your finances under control. This type of loan will consolidate all of your loans under one plan, so you will only need to pay back one lender.
In some cases this can mean that you actually pay less than short-term loans. It also means that you may be less likely to get confused or overwhelmed when paying back your debts. Having all your debts in one place will make it easier to keep track of your finances.
Consider a debt management plan
A debt management plan (DMP) could help you to pay back your non-priority debts and get on top of your outgoings. It’s an informal agreement with your creditor and is managed by a DMP provider.
You pay back your debts in one monthly payment, which is divided between your creditors. The DMP provider acts as a buffer between you and the creditor and can help to negotiate lower interest rates and smaller monthly payments.
It can help to have a middleman between you and your creditor – especially if you are being chased for payments. Having this support could help alleviate some of the mental strain.
Debt management plans may help you to get out of debt, but they can damage your credit score. Carefully consider the right option for you before entering a debt management plan.
Find out how to get help paying credit card debt
There is support available if you need help paying your credit card debt. You can ask for support from debit charities and advice bodies including Citizens Advice, StepChange and National Debtline.
Paying off credit card debts can be a long, daunting journey. But learning how to get out of debt and implementing manageable steps to improve your finances is a good way to start. The sooner you start paying off your credit card debt, the faster you will be debt-free.
For more information about debt management strategies, take a look at the Norton Finance KnowHow blog.