How to pay off credit card debt
I have spent the past two years paying off £16k of credit card debt. Finally on the last day of April I paid off the final chunk and can finally say I am debt free. A special moment as it is the FIRST time in my adult life that I have been credit card debt free. And I intend to stay this way.
Read my debt free post here with a summary of my story. And click on the floating form on my website to get a completely FREE copy of my E-Book where you can read diary entries of my debt journey. The ups and downs. The times where it very nearly unravelled and the good times where I focused and paid off big chunks. Its a roller-coaster story.
The Steps – How to pay off credit card debt
I wanted to summarise in this post the clear steps that I went through to clear my debt. This is my process, copywrite Mrs Mummypenny! It is slightly different to some of the well-know strategies of debt clearance. Differences based on my logical, mathematical mind and prioritising my mental health. It will work for you too.
Here are the steps you need to take to clear that debt.
Step 1 – Face Up to your Debt. Write is all down
You have already taken the first step by reading this post! You realise you have a problem and you need to sort it out. Congratulations. Now it is time to get the credit card and loan details of everything you owe. Call them up for an up-to-date balance and interest rate.
Write it all down and face that reality of how much you have in debt. It might be £1000, £10,000 or £50,000. You need to face up to the reality of that debt. It is not your money, it belongs to Barclaycard or MBNA or Virgin Money. It must be paid back.
Step 2 – Get rid of the cards. Cut them up/freeze them get rid!
Obviously record the important information, card numbers and contact numbers. And then destroy the cards. Do not spend on them again. You do not want these cards to go up in balance through extra spending. You could freeze them in a block of ice if you cant bare to destroy them. But once they are gone, you cannot spend on them.
Step 3 – Come up with a plan
Well done for steps 1 & 2. They are tough. Now to come up with a plan. You can do this by yourself, but it will help you immensely if you can talk it through with someone else, particularly someone who will not judge and who is good with money. I did this with Faith from Much More with Less back in 2017.
Work out some basics. For each debt, what is the balance, what is the monthly minimum payment and what is the interest rate. If interest free, for how long?
For example, back in April 2017 I had worked out this.
- I had £7,500 on a Barclaycard; interest free for another 3 months
- £1,000 on a foreign currency spending Halifax card. Interest rate of 18%
- £1,500 on Barclays Business card. Interest rate of 19%
- £5,500 on a Virgin Credit Card. Interest free for a further 18 months.
- Total of £15,500 but let’s say £16k to round it up.
My total minimum payments were around £200 per month. Which is a minimum payment that I could afford to pay. But at that rate the debt would take 78 months to repay, 6.5 years. WOW.
If you cannot make the minimum repayments, then you have a more serious debt issue. Please, please go straight to the Citizens Advice, CAP or Step Change. Three amazing and FREE places for debt advice. If you need an online resource, my good friend Sara from Debt Camel has everything FREE on her website too.
Step 4 – Restructure any debt if you can
My first priority was to find a longer interest free deal on a new credit card to move that Barclaycard balance that was just about to become interest chargeable. I found a deal with MBNA, interest free for 42 months. With a hefty 3% transfer fee of £225. But it would give me breathing space and I would not be paying the standard rate of 18/19% in three months’ time.
Do this if you have a credit rating that allows you, most credit card companies will let you check your eligibility without doing a full credit check on you. Money Saving Expert is a brilliant website to find the best credit card 0% deals, hopefully with a lower fee than 3%!
Step 5 – Start to pay off the debt that is costing you money in interest FIRST
I differ here to the debt snowball method (which would advise to pay the smallest £balance first). Clear the horrid debt with high interest first!
In my case the Barclays Business and Halifax were cleared within a couple of months. They both had 18/19% interest being added to the balances.
After the interest charging cards were cleared, I was left with two large balances on 0% cards. This is when you work on the card with the smallest balance first. I worked on clearing the Virgin card first with a balance of £5,500, it was also the shorter interest free period. The aim here being a mindset challenge to clear the balance and have the mental satisfaction that it has been cleared.
I set a monthly minimum payment at what I knew I could afford, £200 per month was being paid off the Virgin card and the MBNA card was set at min payment, starting at £80, and this reduced as my balance reduced.
Every month this minimum would be paid along with anything else I could afford. Some months this was the basic £270ish per month, but other months I was able to pay more towards the debt. Even if its an extra £50 its worth paying it towards the debt and getting closer to being debt free.
Do everything you can to save money and make extra money. My website is packed full of ideas to save on household bills, groceries as well as making money. Go search through the Money Saving and Money Making sections of my website.
Step 6 – At the same time build up an emergency fund
Big point here, at the same time as paying off your credit card you should also be putting money into an emergency fund.
For every extra £100 I was paying into my debt I was also putting £100 into my emergency fund, this gave me a huge peace of mind that if I did need money then I could dip into my emergency fund to pay for that emergency if needed. And we are talking emergencies here, a new dishwasher or the car breaks down. Not a holiday.
I kept doing this until my emergency fund got to a level I was comfortable with. This was a three months of expenses for me, but might be more or less for you, a personal decision.
Step 7 – Keep going until the debt is gone
It might take you two years, or it might take you five years but keep going. Keep making those monthly payments until the debt is gone and you are free. Expects ups and downs. Expect to feel like the journey may never end, but you will get some glimmers of hope and the light at the end of the tunnel does get brighter. And then suddenly you reach the day when you are debt free.
I slipped, a couple of times. The summer holiday always get me, higher living expenses and lower income. You may well slip, but don’t beat yourself up too much. Every day, week, month is new month and you can re-set positive intentions to get that debt to £0!!!
Step 8 – Love and Gratitude
I am sending out love and gratitude to everyone who read my debt free post on here and on social media. Every message means the world. Love and gratitude of course to everyone who helped me. Express gratitude to those who helped you out with your debt journey, whats goes around, comes around.
Don’t forget to get your FREE copy of my diary E-Book, just pop your email on the box that floats on top of this post to claim your copy.