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Beat your credit card debts

The amount owed on credit cards has grown at its fastest rate since before the recession. The latest figures from industry group UK Finance shows the total amount owed in February 2018 was 8.3% more than a year ago – with a whopping £9.6bn spent over 12 months.

In part that’s down to the increase in contactless payments over cash, but there’s also a growing concern at just how much people are borrowing on credit cards – and if they can afford to clear those debts.

One sign people don’t have the money available to pay off their debts is if they plan to move their debts elsewhere – and other research this week shows a decent number will. One in 10 UK adults could take out personal loans to consolidate other debts this month according to Sainsbury’s Bank, with its customers borrowing on average £12,000 when doing so.

So if you’ve got credit card debts, what can you do to make sure you clear the borrowing as fast and as cheaply as you can?

How to clear your credit card debts

Use savings if you have them

Unless you’ve got priority debts that also need clearing, it’s worth putting your savings towards your credit card debts. That’s because the interest you’re charged on credit card borrowing is far higher than any interest you’ll earn on savings. So overall you’re be better off.

Pay as much as you can

There’s a common mistake that’s easy to fall for with credit card debt. It’s often referred to as the minimum repayment trap. This is when you only repay the minimum required by the card company each month. Though this avoids getting hit with extra charges, the end result is it takes a long time to pay off all the money owed. And that costs you more too.

Here’s an example: If you owed £2,000 on a credit card with an APR of 18%, just paying the minimum would take you 34 years to clear and cost you £3,983 in interest.

But if you pay as much as you can afford each month – say £40 – and the example becomes very different. You’ll now clear the debt in seven years and two months, and pay a total of £1,438 in interest.

Set up a Direct Debit

However much you are paying off each month – even if it’s the full amount – it’s worth setting up a regular payment so you don’t forget. Try to time this for when you know there’s money in your account, such as just after payday.

Clear the most expensive debt first

If you have multiple credit and store cards, it’s worth paying the most on the one with the highest interest and clear it first. Then move on to the next one. Do make sure you cover the minimum on the others though to avoid charges.

Move it to a 0% card

To save even more money, and if you have a decent credit rating, you can apply for a 0% balance transfer credit card. Here you move your debts to a new card where you aren’t charged any interest for a set period.

This can often be for a number of years, giving you some help to clear that debt without it getting bigger each month. You usually have to pay a transfer fee, a small percentage of the overall debt, so use a calculator to make sure this isn’t going to be more than the interest you’ll owe (though this is normally just for very small balances).

Again, follow the rule above by paying back as much as you can afford each month – and try to avoid new spending on the card.

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