While using a credit card responsibly can help you to build up your credit score, protect you from fraud, and give you additional consumer rights, letting the debt get out of control can damage your credit rating and cause stress and anxiety.
If you’ve spent a little more than you can manage, here’s a five-step plan to kill the debt quickly.
Step 1: Face the facts
When we get into debt, we tend to avoid reminders, like credit card bills. You need to assess the situation before tackling it.
For each card, check these three things:
- Current balance
- Interest rate
- Minimum repayment
Step 2: Prioritise your payments
There are different ways of prioritising your debts. Some people like to repay the smallest first, as the sense of achievement can act as a motivator. Some prefer to tackle the largest first, so the job feels easier as it continues.
The most cost-effective strategy is to prioritise the card with the highest interest rate. This way, you’re minimising the amount of interest that can accumulate while you pay off the various debts.
Tip: Consider a balance transfer
Some credit cards charge 0% interest (or a low interest rate) on balance transfers for a certain period. If you’re eligible for one of these, you can transfer the balance from one of your existing cards, giving you a bit more time and breathing space.
Step 3: Streamline your spending
Now you need to find the funds to make the repayments. Look at your outgoings from the last few months and calculate your spending across different categories, e.g. utilities, groceries, takeaways, travel costs, entertainment subscriptions, clothing, etc. Then consider any possible reductions.
Here are some ideas:
- Switch your mobile, broadband, or TV services to a cheaper supplier
- Avoid using the car for journeys you can cycle or walk, or carpool with neighbours
- Delete food delivery apps from your phone
Step 4: Manage your money on your mobile
There are various mobile apps available to help you with different aspects of money management. PocketGuard helps you track debt repayments and avoid overspending. You Need a Budget (YNAB), Mint, and Snoop can all help you with budgeting and finding new ways to save.
Step 5: Cut up your cards
Once you’ve finished repaying the highest interest debt, cut up the credit card (and delete it from your phone’s wallet).
This will:
- Reduce the temptation to spend again
- Lower your total borrowing threshold
- Help you track how much you owe
- Improve your credit rating
It’s fine to keep one or two lower-interest cards to use responsibly, once you’re back in control.