How to clear your credit card
Clearing your credit card balance can be done in multiple ways and can be done quickly or over a longer period of time. Knowing your options can help you to better manage your finances.
How much of your credit card do you have to pay off?
When it comes to credit cards, you decide how much you want to repay each month.
You can either:
Pay the minimum amount set by your credit card provider
Clear your statement balance in full
Or, set up a direct debit for the amount of your choosing. However, it must be more than the minimum amount.
If you can pay off your balance in full every month we might find that you aren’t charged any interest. But paying in full each month may not be an option for everyone.
If you’re looking to clear your balance quickly, but clearing the balance in full isn’t an option, examine your finances and pay the maximum amount you can afford each month.
Paying back more than the minimum amount will mean you clear the balance quicker and it should mean paying less interest.
Just make sure you are paying the minimum amount each month, failing to do so could result in a missed payment fee and it’ll be recorded on your credit profile.
What is a minimum payment amount?
A minimum repayment amount is set by your credit card provider and it’ll be outlined on you monthly statement.
Just as the name suggests, it’s the minimum amount you can repay that month without incurring a penalty.
It’s calculated either as a percentage of the balance or it’s a set monetary amount, whichever is greater will be the minimum amount provided on your statement.
For example, if your minimum payment is either 3% of your balance or £5 and your credit card balance is £350, you’re minimum payment would be £10.50 (3% of your balance).
Since April 2011, the minimum amount must cover at least interest, fees and charges, plus 1% of your balance. This was introduced to encourage better repayment practice.
Repaying less than the minimum repayment amount can incur charges, such as a missed payment fine.
Missing a payment altogether could result in you:
Losing your promotional offer (like 0% interest)
Having to pay a charge
Having a mark on your credit record for a missed payment. This affects your score and impacts your ability to secure credit in the future
How do you repay your credit card?
There are different ways you can repay your credit card debt.
- Pay online or by phone with your debit card
- Pay in person if your credit card provider has a local branch
- Set-up a direct debit
- Send a cheque to your credit card provider
- Transfer money from your account to your provider via online banking
Choosing to set-up a direct debit has its benefits as you’ll never miss a payment, so long as there are sufficient funds in your account.
Is it possible to save money on repayments?
Yes! You may find you can cut the interest you pay (therefore, the total amount you end up repaying) by doing one of the following:
If you have savings, you could use them to clear your balance. Clearing your balance in full could also mean you end up paying no interest.
You could get a balance transfer credit card and move an existing card balance onto a new card. Getting a balance transfer card with a 0% deal on it would reduce the total amount you end up repaying and it could give you longer to clear the debt.
If you have multiple credit cards and don’t have savings or you don’t want to get a balance transfer credit card, you should focus on clearing your most expensive card first. You’ll still need to pay the minimum amount on any other credit card balances you have. Remember, your most expensive debt might not be the card with the largest balance, it depends on the interest being charged.
Alternatively, you could take out a debt consolidation loan. Some personal loans may offer lower interest rates than credit cards, so it could be a cheaper way to repay your credit card balance.
It’s important to consider your options carefully, and compare costs before committing to another debt product.
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