How to pay off a credit card

If you’re struggling with credit card debt, there are strategies you can use to clear your debt. This step-by-step guide offers straightforward advice to help you pay off your credit card quickly.

Step 1. Gather all your debt information 

To devise the best strategy for tackling your credit card debts, you need to have an in-depth understanding of your financial picture.

First, gather up statements for all your credit cards. You should also note down any other forms of credit you have, such as loans and overdrafts. Write down how much you owe on each one, and the interest rate you’re paying. Add up all the outstanding amounts so you know exactly how much debt you have.

Step 2. Make minimum repayments

Each credit card you have will have something called the minimum monthly payment. This will vary from lender to lender and is usually either a small percentage (e.g. from 1% to 10% of your total debt) or a fixed fee such as £10. 

Failing to pay this - or paying it late - will negatively impact your credit score. It could also result in fines and losing advantageous interest rates. If you regularly fail to pay on time, you could even get a County Court Judgment or see your debt sold to a debt collection agency. You could end up in a court and with a blemish on your credit record that lasts for years.

That’s why it’s crucial to ensure you are making at least the minimum repayment on all outstanding debts. Set up a monthly Direct Debit to ensure you’re paying any credit cards or loans you have on time each month.

How to understand credit card charges

Step 3. Transfer the debt

Once you’ve listed all your debts, take steps to reduce the interest rates you pay. 

Start by seeing if you qualify for a 0% balance transfer credit card. These charge zero interest for a set introductory period. You’ll have to pay a fee to move debts across (often around 3%), but all other payments will go towards clearing what you owe rather than paying interest to the bank. 

Ideally, you should pay off the balance on 0% cards within the introductory period, before the provider switches you to a higher rate. If that isn’t possible, make a note of when the offer ends, so you can switch again to the lowest rate available.

If you don’t qualify for a 0% card, check for low-interest loans or credit cards. Make sure the amount you will save is lower than any transfer fees.

If you’ve moved your debts, immediately set up a new Direct Debit to clear the monthly minimum payment at the least. Missing a deadline can mess up your credit score, but it could also mean you lose your 0% offer.

Best 0% balance transfer cards

Step 4. Consider using savings to reduce debts

If you have savings, consider using them to reduce or clear your outstanding debts. While having money stashed away is important in case of emergencies, it’s likely you’ll be paying more in interest on your debts than you’re earning on your savings. 

Reducing your debts as much as possible will improve your financial situation. Once the debt is paid off, you can funnel the money you were spending on repayments into your savings to re-build your nest egg. 

Step 5. Choose the best strategy to pay off any remaining debt

Once you’ve made sure you’re paying the lowest possible interest rate on all your debts and have cleared as much as you can with savings – you need a strategy to tackle the remaining debt. 

Try to pay more than the monthly minimum repayment on at least one credit card each month. Go through your spending with a fine tooth comb to see where you can free up cash to boost repayments.

Clearing your credit card debts faster means paying less interest overall, saving you significant sums. Even small overpayments will make a huge difference. It will also put you on a sounder financial footing and can dramatically improve your credit rating.

If you’ve got more than one debt with different providers or terms, think about the order in which you tackle them. The right approach for you will depend on your attitude to money.

Pay off the highest interest first

The most cost-effective way to tackle your remaining debts is to pay off the highest interest rates first (sometimes known as avalanching). This approach means you’ll pay less interest overall. Remember, you still need to make minimum monthly payments on all your other debts.

Once the debt with the highest rate of interest is cleared, set your sights on the next highest. Redirect the payments you were making to pay off the old debt towards your new target and keep going till debt number two is paid. Continue doing this until you’ve cleared everything you owe.

Pay off the smallest debt first

Another popular method, sometimes called snowballing, is to start by paying off your smallest debt (in terms of the total outstanding balance). Often, this isn’t as financially savvy in terms of interest paid, but it’s a winner in psychological terms. Choosing the smallest amount means you’re likely to pay it off quickly, and seeing debts quickly shrink and then vanish can help motivate you to tackle larger debts. 

Should you close a credit card after paying off debt?

If you can trust yourself not to get into debt again, it might be wise to keep your cards open. Closing them can reduce the total amount of credit you have available. If you have outstanding debts elsewhere, this can increase your credit utilisation, which can impact your credit score.

For example, imagine you have just finished paying off a credit card with a £2,000 limit along with another card with a limit of 1,000, on which you still owe £750. At the moment, you are using £750 out of your total £3,000 available – or 25%. If you close the cleared credit card, you will be using £750 out of £1,000, or 75%. This matters because if you use over 30%, it can harm your credit score.

Once you’ve cleared all your debts, you may want to reduce the number of cards you have to just one. This could be the one with the best rate, or the account you’ve held the longest. Having some credit available is good for your score.

You don’t have to use a card just because you have it, but it can be a great way to boost your credit rating. If you can commit to paying off a credit card in full every month, this helps show creditors that you are a reliable borrower.

Learn more about credit cards

What happens if I can’t pay my credit card debt?

If you’re struggling to keep up with your repayments call the bank, building society or provider straight away. They may be able to offer you a payment holiday or help you work out a payment plan.

You can also get help for free from a debt charity. Speak to StepChange, Citizens Advice, or National Debtline for advice on how to manage your situation and the options available to you.

Learn more about credit card dangers