2 minute read

How to manage credit card debt

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 payment required on your monthly credit card bills can get you on the road to clearing your credit card debt a 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 leave you better off in the short-term, but can have an impact on your longer-term credit health.

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 your credit card balance in full, and what the total cost will be, with a credit card repayment calculator like this one.

2. Paying on time 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 don'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 toward paying down 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 affordable credit in the future. Plus, depending on your credit card provider, you could be facing fees, penalties, or a higher interest rates as a result of making late payments.

3. Transferring 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 pay attention to any 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 paying off your credit card debt.

4. Thrifty vs. spendy

If you have a tendency to use your credit card for everyday expenses, 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 your 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?

Buying things you can’t actually afford usig your credit card puts you at risk of hitting your credit limit and leaves you with limited options if an emergency expense comes along. If you consistently max out your credit limit, lenders may get concerned about your spending habits and hike up the interest rate, and it could also affect your credit score in the long run.