How to manage credit card debt

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It’s time to think before you buy. When it comes to managing your credit card debt a little planning can go a long way. If you want to reduce the amount of debt you’re carrying around courtesy of that piece of plastic in your pocket, here’s what you need to know.

1. Paying more vs paying the minimum

Paying more than the minimum can get you on the road to clearing your credit card debt that little bit faster and ultimately reduce the overall amount that you owe (less time in debt the less interest you’re paying on top of it). Paying the minimum may make leave you better off in the short-term but it can have an impact on your credit report.

Lenders may see someone who consistently only makes minimum repayments as someone who is high-risk and who can’t afford to manage any more than the lowest limit. Equally, the longer you’re only meeting minimum repayments, then the longer it will take you to clear the debt and the longer you’re stuck paying interest.

Work out how long it will take you to repay in full the balance on your credit card, and what the total cost will be with the Which? repayment calculator.

2. Always pay promptly vs making late payments

Setting up a direct debit to repay your credit card bill every month is an easy way to ensure that your bill is paid on time so that you won't incur any late fees.

Paying on time shows that you’re responsible when it comes to handling debt and credit. Not only do you take steps to clearing your debt faster but you’ll also get brownie points from future lenders for your punctuality.

All this considered, it makes sense to say that late repayments put you in creditors bad books and may hurt your chances of securing an affordable deal in the future. Plus, depending on your credit card provider you could be facing fees, penalties or a raise in interest rate as a result.

3. Transfer your balance vs staying put

Keeping an eye on the market and transferring your balance from one card to another one offering a more competitive, lower APR can help you save on interest. Keep an eye out for any transfer fees that may eat into the savings you make. If you stay put with your credit card provider then be alert to any potential rate increases or changes in terms and conditions. It’s never good to be surprised when it comes to credit and could set you backwards on your path to clearing your credit card debt.

4. Thrifty vs spendy

If you have a tendency to use your credit card for everyday expenses then try to set yourself a daily budget. It’s all too easy to think of your credit card like Monopoly money until the bill lands on the doorstep at the end of the month. If you reserve your credit card for big purchases then consider what the repayments for this item will mean for your lifestyle, will you need to cut back on anything to accommodate for it?

The dangers of shopping 'til you drop unfortunately mean you’re at risk of hitting your credit limit and leaving yourself limited options if an emergency expense comes along. If you consistently max out your credit limit, lenders may get a little concerned about your spending habits and hike up the interest rate and it could also affect your credit score.

What now?

Shop around - If you're thinking that transferring your balance is the best option for you then shop around for the best deal before switching. Comparison sites like MoneySuperMarket have good oversight of the market and can help you find the best deal to avoid debt in the future.

Money saving apps - Money saving apps could help keep track of your day-to-day spending and keep control of it. This might help to stop credit card debt getting away from you.

Debt consolidation - If you find yourself in serious debt then consolidation through another loan could be the answer. If the debt is particularly serious then talking to a debt advice service like PayPlan can be really beneficial.

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