How to reduce the cost of your credit and store card debt

By playing your cards right you can pay back your credit and store card debt faster and save a lot of money. Here’s how to do it.

If you’re struggling to pay card debt

If you’re really struggling with your card bills, you should get free, confidential and impartial advice and support from a debt advice organisation or charity.

Ways to reduce your debt

There are several ways you can reduce the cost of your credit card and store card debt.

Pay more than the minimum repayment

Paying the minimum amount each month makes it look like the debt is affordable.

But depending on when you took out your card, the debt could actually increase if you only pay the minimum amount. This is because the interest is constantly adding up. And it’ll take you much longer to pay it all back.

For accounts opened after April 2011:

Minimum payments must cover any interest, charges and at least 1% of the outstanding balance. So you’re always paying off at least some of the outstanding debt.

Even if you only pay a small amount a month on top of your minimum payments it can make a huge difference.

Pay the most expensive card first

If you have store cards, they will likely be more expensive than other credit card debts. Other than doorstep or payday loans, their interest rates are among the highest.

Credit cards also charge different rates of interest. This will show on your credit card statement. Out of all your cards, pay the most on the one with the highest interest rate first.

Make sure you pay at least the minimum payment on all agreements, otherwise you could incur charges.

Then you can move on to overpaying your next most expensive credit card or personal loan.

Get a balance transfer card

If you have a good credit rating you may be able to move your current credit card balance to another credit card offering a low or 0% deal.

There’s usually a fee to pay for this of between 1.5% and 3% of the balance but it can be worth it as the following example shows.

Amount owed £5,000
Monthly repayment £300
Current credit card interest rate 19%
Time to pay off debt using current credit card One year, eight months
Cost of interest over that time £772
New credit card interest rate 0% (for 18 months)
Balance transfer fee on new credit card (3% of amount owed) £150
Time to pay off debt using new credit card One year, five months
Total interest saving by using 0% credit card (interest on 19% card minus balance transfer fee) £622

In the above example, staying with the current deal means paying over £600 in extra interest.

Bear in mind that you need a good credit rating to qualify for the best balance transfer deals. If you have a poor credit rating find out how to improve it.

Work out how much you could save each month by switching using the Which? balance transfer calculator.

Estimate which card will be cheapest using the MoneySavingExpert card comparison calculator.

The risks of balance transfer cards

Top tip

If switching to a 0% deal, make a diary note to pay off as much as you can before the deal ends.

  • When you apply for credit, this is recorded on your credit report. Apply several times in a short period and other lenders might worry you have debt problems. Avoid applying too often.
  • Shop around by looking on websites or phoning different card issuers. If the APR varies on the basis of risk and they need to do a credit reference agency (CRA) check before quoting your APR, ask them to make a ‘quotation search’. This does not leave a footprint. An ‘application search’ does. Don’t apply for a card before you know it’s right for you.
  • There is a risk that you could build up further debts when you move credit cards or consolidate your debts. Remember, your debt problem has not gone away. You’ve just given yourself some time to repay what you owe more cheaply. Close old card accounts and cut up cards to resist temptation.
  • When going for a 0% deal it’s vital to make a note of when the introductory offer deal ends and make sure that you repay as much as you can by this time.

Repay your cards with savings

Always repay your expensive card debts with your savings unless you have more urgent priority debts.

Priority debts are debts that could result in you:

  • Losing your home, for example non-payment of your mortgage
  • Losing your liberty, for example where non-payment of Council Tax could result in imprisonment

You might stop receiving interest on your savings, but you will save much more in the long-term. This is because you’ll pay far less interest on your debt.

Check whether you can claim for mis-sold payment protection insurance

You may have been paying for payment protection insurance (PPI) on your credit cards without realising it or being able to claim on it.

This might have cost you hundreds or thousands of pounds which will be refunded to you if your complaint is successful.

Be careful how you use your cards

With all your credit cards, here are some general rules that will usually leave you far better off:

  • Make at least the minimum repayment every month, even if you have a 0% deal. You’ll pay penalties and lose your 0% deal otherwise. You should ideally make more than the minimum repayment, though. Your card provider will let you make a Direct Debit payment of however much you choose as long as it is more than the minimum payment.
  • Read every statement for important changes, such as an increase in your interest rate, and to check that all the spending is definitely yours.
  • Don’t use your card for cash withdrawals or credit card cheques. You’ll be charged fees and usually higher interest from the day you withdrew the cash or used the credit card cheque.
  • If you have a 0% balance transfer credit card, avoid spending on it. Any purchases you make will usually not be included in the 0% deal offer. So you will be paying interest on those purchases if you don’t pay them off in full during the ‘grace’ period (up to 56 days).
  • Don’t be tempted to start using the old card again – it may be best to close the old account and destroy the credit card.