How to pay off a credit card

In this guide, we’ll dive into the details of credit card repayments and talk through a few different strategies you can use to pay down your balance. Read on to learn more about credit card debt and how you can incorporate smart habits into your routine.

Understanding your credit card

Before you can start paying off your credit card, it's important to understand the details and how different factors impact your balance.

Two main tools that can help you do this are your credit card statements and your credit card balance.

Understanding your credit card statements

Your monthly credit card statements give you an overview of important aspects of your credit card balance, including:

Your interest rate and how much interest you’re paying on your existing balance.
Minimum payment requirements, so you know where to start from each month.
Your overall balance, so you know what you’ve spent on each individual card.

This information will help you prioritise your repayments. For example, if the interest rate on one of your cards is much higher than the others, it’s a good idea to pay that one down first and then move on to the card with the next-highest interest.

How to calculate credit card balances

If you’re trying to pay off multiple credit cards, you can use your balance as a starting point for building your repayment plan.

Add up your full balance to get a clear picture of what you owe across all your credit cards. While it may feel daunting, it’s important to have a clear picture of what you owe.

Once you have a number to target, you can start creating a budget.

Creating a budget

It’s important to have a clear understanding of income, outgoings, and overall spending habits. Creating a budget that covers all of this will help you manage your finances so you can dedicate funds towards paying off your credit card debt.

How to create a budget

A simple budget should track your incoming money and outgoing spending:

Start by listing your monthly sources of income, such as salary or wage payments, benefits, and any other regular money you receive each month.
Next, make a list of your regular outgoings, such as your rent or mortgage, bill payments, insurance, and any other monthly expenses.
Review your spending on groceries, entertainment, and other lifestyle costs over the last 3-4 months and determine an average for each of these categories.

This should give you a fair picture of your current financial situation.

From here, you may be able to identify areas where you can cut down on costs (such as spending less on entertainment or cancelling a service that you don’t use).

You will then be able to work out how much you can afford to dedicate to paying off your credit card each month.

How to pay off credit card debt

There are a few different ways you can approach your credit card debt and create a plan for paying off your balance. We’ll talk you through some of the most popular credit card repayment strategies below.

The Snowball Method

Identify which of your cards has the smallest balance.
Create a budget that allows you to pay off that balance first, while making minimum payments on your other cards.
Once you have cleared off the smallest balance, move onto the next smallest and repeat the process.

The Avalanche Method

Identify which of your credit cards has the highest interest rate.
Create a budget that allows you to pay off that balance first, while making the minimum payment on the other cards.
Once you’ve paid off the card with the highest interest, move onto the card with the next high interest and repeat the process.

Balance transfer credit card

Consider applying for a balance transfer credit card, which allows you to carry over your existing credit card balance to a new card with a low or 0% promotional interest rate.

Transferring your debt to a balance transfer credit card means you can stop paying high interest on your credit card balance for a set period of time, which can make it easier to pay it off at a faster rate.

Before you apply for a balance transfer credit card, make sure you are aware of any potential transfer fees that your existing and new credit card provider may charge.

It’s also important to have a very clear understanding of how long the low-interest promotional period lasts before the regular interest applies to any remaining balance.

Find out everything you need to know about what balance transfer cards are and how they work.

Debt consolidation loan

If you have multiple credit cards and you want to simplify your debt, consider applying for a debt consolidation loan. This allows you to combine multiple sources of debt into a single loan with a potentially lower interest rate.

Before choosing this option, make sure to research the terms of the loan and check that you can afford to take on the interest rate, repayment period, and any fees that might apply.

Managing your debt repayments

Whichever strategy you choose to use to repay your credit card debt, you’ll need to start making consistent repayments and build healthy financial habits to reduce your current balance. Doing this will also help to keep your credit card in a manageable state going forward.

Make more than the minimum payment

Set your budget up so that you can make more than the minimum repayment each month. This will help to reduce your overall balance faster so you’re paying less interest over time.

Set up direct debit repayments

Make your repayments automatic by setting up a direct debit. This will help to make sure you’re making repayments on time, so you won’t get stuck with late or missed payment fees.

Pay more frequently

If possible, up your repayments to every few weeks to help reduce your monthly interest charges.

Keep your regular monthly direct debit repayment while also making repayments in between, as and when you can afford to or after making large purchases.

Avoid new debt

Try to avoid spending on your credit card or taking out a new form of debt while you’re working to pay off your existing card balance. Lean on your budget to help you create smart spending habits in the meantime.

Monitor progress

Keep checking in with your balance and your budget to make sure your repayment plan is still working for you.

If you are struggling or something changes, think about how you can make adjustments to your strategy so that you’re still working towards paying off your balance.

Speak to a professional

If you have questions, concerns, or you just want a bit of advice, reach out to our team to set up a chat. We’ll take a look at your circumstances and give you personalised support for paying down your credit card debt.