Read Time 5 Minutes, 20 Seconds

This is a comprehensive step-by-step guide to help you pay off your credit card debt.

Within our 5 helpful stages, you’ll be guided through the best ways to clear your credit card debt so you can make those life-changing steps to financial freedom from your credit card.

And what’s the best part?  We won’t bore you with the statistics or lecture you about why you got into debt in the first place.  Instead, we will provide you with simple and actionable ways on to pay off your credit card debt fast.

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It’s time for the first step:

Step 1: Budget Like a Pro

Most of us will have some understanding of our income and what our expenses are, but have you delved deep into finding out what you are spending your money on, how much debt you have and how much you owe?

Making a budget is the first step in taking control of your finances.

Download our personal budget planner and get started by filling out all your income, which includes your wages, benefits etc.

Try and convert your income into a monthly amount as it makes it easier for you to cross-reference and make the calculations.  If you are paid weekly just use this sum below:

Weekly Income x 52 ÷ 12 = Monthly Income

Make a list of all the things you spend your money on.

Make sure you prioritise your bills, such as your utility bills, mortgage or rent.  Then, write down everything you pay in terms of living costs.

Also, don’t forget your yearly costs such as MOTs and of course, the most expensive time of the year to rack up the credit card bill, Christmas!

People often forget that cost when budgeting.  As much as we would like Santa to help with the bills, it is us footing the bill for the festive season (ssshhh…don’t tell the kids that).

Again, for annual expenditure, to make it easier, divide it into monthly payments.

To get an idea of your spending look at your online banking statements, shopping receipts and if you are unsure what debts you owe then check your credit files or other correspondence from your creditors to help you work out the amounts you spend and owe.

Finally, deduct the total amount you spend from your monthly income.

If you have money left over then that is positive as you have a ‘budget surplus’ but if you have less, then you have what we call a ‘budget deficit’ and that is when things start to get difficult.

Step Two: Time to Get Frugal

Once you have done all the hard work in finding out your income and expenditure, use your budget to set aside an amount you can pay back your credit cards using the surplus cash you have.

Resist the temptation of spending that cash by transferring it into a separate bank account.

This is also a move into a healthier way of managing your finances because after you have paid your credit card you can then use that money to build a ‘rainy day fund’.

This can then be used when you need it in an emergency rather than getting yourself into debt with your credit cards again in the future.

However, what happens when you don’t have any cash leftover in the month? This is when you need to start getting a little frugal with your spending.

One obvious way to do this is to reduce your daily outgoings.  I would start with your flexible costs.  Groceries take a big chunk of your monthly spending and are the biggest culprit when it comes to spending unnecessarily. If you have shopping receipts or if you shop online, you can look at cheaper alternatives to food items.

You will be shocked at how much you can save by cutting out on things that you buy purely for convenience.  And if you can avoid it, leave the kids are home!

Pester power always gets the better of us when we are at the local supermarket.

For the fear of a screaming child rampaging through the aisles, we tend to give in and buy them the latest toy to keep them quiet but don’t fall into the trap.

Other things to look at, is reducing your car insurance, home insurance and utility bills.

Scrutinise every aspect of what you are paying for.

When was the last time you looked at your utility bills?  Speak to your utility providers see what alternative deals they have and shop around.

Lastly, make sure you aren’t overpaying on anything.

Every penny and pound counts so take care that you aren’t ‘giving your money away’ unknowingly.

There are laws in place that stop credit card companies from charging you fees on credit card payments, so double check you aren’t being charged for things you shouldn’t be.

Also, for the most expensive time of year, Christmas, look at ways you can budget for it beforehand so you are able to manage the financial stress of it all.

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Step Three: Kick Out the Habit

This might be a difficult one to manage but stop using your credit card even if it is for a short period of time because the more you use it, the bigger the debt will grow.

Credit cards are often attached to very high-interest rates so the quicker you can control the habit, the better it is.

It is really tempting to buy an item you really want and then opt to ‘stick it on the card’ but think before you do it.

This is when psychology comes into play.  Have you heard of ‘out of sight and out of mind?’  Try that with your credit card.

Remove it from your purse or wallet completely and hide it in a place that isn’t very accessible.

Alternative techniques, if you are prone to a spot of ‘window shopping’ especially when purchasing luxury items, is to take up a different hobby that doesn’t involve splashing the cash and spending on your credit card.

Step Four: Prioritise your Bills

Make sure you are on top of your priority bills.

When I mean priority bills, I mean the ones that risk you getting visits from the enforcement agencies or even leaving you homeless.

According to a report published in January 2021, more than 750,000 families were falling behind on housing costs, indicating a significant increase of 450,000 pre-pandemic.

Council tax and any other fines which you have a deadline date to pay, try and start paying them back first as these are the bills you can’t risk not paying.

Look back at your budget planner and find out which of these are priorities.

If it helps, we have compiled a list of some priority debts here, however, there is a more comprehensive list on the budget planner:

  • Rent arrears
  • Mortgage arrears or secure loan arrears
  • Council tax debt arrears
  • Gas or Electricity Arrears
  • Phone and Internet Bills
  • TV Licence Payments
  • Court Fines

Step Five: Get Help and Advice

You are not alone when it comes to debt. At the beginning of 2020, credit card debt in the UK was £72.1 billion and the average credit card debt in the UK was £2,592, so it is not a surprise that people are getting help to manage their debt situation.

With the help of government support packages such as furlough coming to an end in September, it has been revealed that a quarter of 1.6 million people who access the credit deferrals on mortgages and credit cards have said they have missed payments in that time and what is even worrying is that 3 million people have used high-cost credit to cover essential costs.

There are different debt solutions to manage your credit card debt which include Debt Consolidation, IVAs and DMP, however, it is important to pick the right one for you.

Like anything, it is important to consider the benefits and the risks involved when taking out a debt management plan.

Credit card debts are one of the things that can be included in a DMP, but there are some debts that can’t use this debt solution.

There are different debt solutions to manage your credit card debt, you can find details to help you decide which may be best suited to you in our Debt Plan section.

  • Debt Consolidation – Consolidating your credit card debt could mean taking out one debt and consolidating a loan to pay off various others that you may have. This in turn should offer you one affordable monthly payment. Credit card debt consolidation is similar in its concept and usually, you transfer your debt into a lower-interest-paying credit card.

However, debt consolidation isn’t a solution for everyone.

Although it is an alternative option to your current situation it is important to understand the risks involved.

Often if the loan amount is over £25,000 then the company will ask you to secure a loan against an asset.  Be conscious that this is a higher risk for you but better for the lender.

However, they do tend to be easily approved as the creditors have collateral over your assets.

Debt consolidation also includes the unsecured option.

This is better for you but riskier for the lender.

It might sound like an appealing prospect, but the lender is likely to scrutinise your expenditure and also your credit score.  Find out more about the benefits and risks of debt consolidation here.

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  • Individual Voluntary Agreement (IVA) – An individual voluntary agreement is a formal and legally binding agreement between you and your creditors to pay off your loans. The IVA must be set up by a qualified person who is called an insolvency practitioner, however, it is important to take note that this person will charge you a fee to act on your behalf with the creditors.

There are benefits to an IVA, as you work with the insolvency practitioner to make payments, whether it is monthly or a lump sum.

The creditors will then agree to this, which is usually between 5-6 years.  However, if your payments aren’t enough to fully repay your debts then at the end of the IVA you won’t have to pay the rest.

You may have a lot of questions regarding IVAs or you might want to find out more details about IVAs, especially as this might be the best solution for you to clear your credit card debt.

  • Debt Management Plan (DMP) – A debt management plan is an agreement you have made with your creditors to get you out of debt and try and pay them. The agreement is informal, and it is usually negotiated by a third party to lower your monthly payments to your creditors.

The informal part of the plan needs to be considered as this is not legally binding.

Your creditors may still charge you interest and can take legal action. However, In the majority of cases, interest and charges will be frozen on a DMP.

With a DMP it’s your DMP provider that will access your affordability and will then present that to your creditors.

Like anything, it is important to consider the benefits and the risks involved when taking out a debt management plan.

Credit card debts are one of those debts that can be included in a DMP, but there may be some debts that can’t be used for this debt solution. Find out more on how a debt management plan could help you and which of your debts can be included.

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