Top Eight Tips for Clearing Your Credit Card

Though credit cards can be an extremely useful source of credit when you need it, if you don’t use them carefully interest can grow on your balance at a dizzying rate. Soon what started out as a relatively small balance can become an amount that’s difficult to pay off.
So how can you go about clearing your credit card quickly and with the minimum amount of fuss? We share our top eight tips.

1. Pay more than the minimum
Of course you will need to make repayments on your credit card in order to clear the balance, but paying only the minimum amount every month will mean your balance will take much longer to return to zero. The longer you carry a balance on your credit card, the more interest it will accrue – meaning that a small debt can quickly turn into a large one.
For example if you had a credit card balance of £1,000 at an APR of 16.9%, it would grow by £169 a year. If you only paid the minimum requirement of 3% (or £10, whichever is lower) back per month, it would take you around 9 and a half years to clear the balance – in which time you would have accumulated around £710 in interest. Clearly this would not be an effective way to rid yourself of your credit card debt.
Instead you should put as much spare cash as possible towards clearing your credit card balance each month, ideally by setting up a direct debit from your savings or current account to do this automatically. If adopting this method you’ll need to make sure you have enough funds to cover the repayment in your debited account, and settle on a reasonable amount to pay back each month that is more than the minimum but at a level you can still afford.
The quicker you repay your balance, the less interest that balance will accumulate and the less your credit card spending will cost you overall.

2. Don’t withdraw cash on credit
Unless you are in dire emergency and have no other way of getting cash, you should never withdraw cash using your credit card. This is for the simple reason that withdrawals (or ‘cash advances’) made on your credit card are more often than not charged at an extremely high rate of interest.
It’s also worth noting that a cash withdrawal will usually start accumulating interest from the minute you take it out of the cash machine, and generally won’t benefit from the interest-free period that some standard purchases do. This means your cash will cost you even more than you anticipate.
Therefore although most credit cards will allow you to make cash advances, it’s usually best to avoid using them for this purpose because the interest charges will far outweigh the benefit of having instant cash in your wallet.

3. Always pay on time
When you sign up for a credit card, every statement you get will specify a date by which you must make at least a minimum repayment. Although it can sometimes be tempting to leave your repayments until you have more cash available to pay off your balance, doing so can mean you have even more to pay back when you do get round to making your payment.
If you don’t make your repayment on time you’ll usually be charged for late repayments, which not only will mean more debt for you to clear but could also damage your credit rating.

4. Get a lifetime balance transfer card
If you have quite a large balance on your credit card and are paying over the odds in interest each month, it can be a worthwhile idea to look at moving your existing balance to a life of balance transfer card. Many of these cards come with a low interest rate, which generally will stay fixed for as long as it takes you to clear the balance you have transferred completely. This can be an effective way to pay off a large balance because you will cut the amount of interest being added to your outstanding balance, and so the process should be a lot quicker and a lot cheaper.
However it’s worth noting that even when your balance is on a low-rate life of balance card, you should still try to clear the debt as soon as possible rather than only making minimum repayments.

5. Get a 0% balance transfer card
If you have a relatively small balance that will take months rather than years to clear, it’s possible to make your debt interest-free for a temporary period of time while you focus on paying it off. You can do this by moving your credit card balance to a 0% balance transfer card, which is a card that comes with a temporary interest-free period. This means that while you are working to clear your balance, no interest will be added to it.
However these are only really a viable alternative if you are sure you will be able to clear the balance within the interest-free period (usually in the region of 6 to 18 months). If you still have a balance to clear after the interest-free period is over the card will revert to the standard APR, meaning you would then have to transfer your balance elsewhere to avoid large amounts of interest being applied.
It’s also worth noting that transferring your balance to a card such as this will involve a handling fee, usually around 3% of your balance. Before transferring your balance, make sure to work out how long it will take you to repay the sum, and go for a card that will give the longest time to repay without charging you too high a handling fee.

6. Don’t add to your balance
This particularly applies if you are taking advantage of an introductory or low rate offer on a balance transfer credit card. If you simultaneously use this card for purchases, it’s likely that your new spending will accumulate interest at the card’s standard APR – which defeats the point of moving to a 0% balance card because you’ll have to pay interest on your balance after all.
Usually the way in which credit card balances are cleared is by the default method of the card provider, which is something called the negative order of repayment. This works by automatically allocating any repayments you make to the transactions on your balance earning the least interest, so that those transactions that are sitting on your balance accumulating interest at a higher rate (such as cash withdrawals) are left to accrue interest for longer.
So by adding to your balance with purchases, those transactions earning the least interest will be allocated repayments last, making your credit card debt cost even more.

7. Pay off the most expensive debt first
If you are carrying balances on a number of credit cards or other debts such as overdrafts and don’t want to switch them to a cheaper alternative, it can be cost-effective to allocate your repayments to your most expensive debts first. This can help to get rid of the ones that are totting up the most interest, freeing up more money to continue applying repayments to your balance until it is cleared.
Remember though that this kind of method will require a significant amount of willpower, as you will have to keep up repayments on your most expensive debt plus minimum repayments on your other debts until you are debt-free.

8. Once it’s cleared, don’t build it again
The important thing to remember once you’ve cleared your balance is that when you spend on your credit card again, try not to carry your balance from month to month. If you can discipline yourself to pay off your balance every time you get your statement, credit cards are not always bad news – they come with benefits too.
As well as providing you with credit when you need it, they can also provide security for online spending and protection on purchases between £100 and £30,000 under Section 75 of the Consumer Credit Act. You can also get cashback or other rewards on your spending with a cashback credit card.
The problem only occurs when a balance is carried from month to month and left to grow indefinitely – if you can clear your balance with each statement, credit cards can be a useful way to spend.

By: Sally Darby

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