It’s good to get by. But we want you to thrive.
Whether you're making the minimum payments you need to get by, or you’re looking to free up more of your money, we want to give you the tools to know how to pay off your debit card debt quickly. Together, we can build the foundations to improve your financial wellbeing so you can go beyond simply getting by.
We want to put you in charge of your finances. So, in this guide, we’ll be looking at how to pay off credit card debt and the following areas:
- Reasons for Credit Card Debt
- How To Pay Off Debts Quickly
- Peer To Peer Loans: Advantages
- Key Takeaways
Reasons for Credit Card Debt
A credit card is a valuable tool. When it is being used to build credit or take on bigger, unexpected purchases and not relied upon, a credit card is good. Unfortunately, credit cards are commonly overused and will take the hit when you run out of money. Minimum payments are made to delay the inevitable and the interest adds up. Worse still, repayments are missed, fees are applied, and the card that is supposed to ease your finances becomes the source of stress.
There are various reasons why you might suddenly find yourself in credit card debt. These are the most common factors.
Even if you’re managing your bills and making minimum payments, the high-interest rates of credit cards make it incredibly hard for you to actually make a dent in your debts. The average interest rate on credit cards is 19%, which can drastically increase the total amount you have to pay. If you have more than one credit card it can become incredibly difficult to find the extra money to pay them off.
Most people are vulnerable to financial shock. If you’re living paycheck to paycheck, or within a strict budget, credit cards often aid an unexpected cost.
Becoming unemployed, having your car break down, having to pay a deposit before moving into your new flat. If you haven’t budgeted additional costs into your finances, a credit card can feel like your only option.
Another reason for credit card debt is major life events. Events such as birthdays, holidays and celebrations can all come at an unexpected cost. Weddings, divorces and funerals can be particularly expensive, regardless of whether they are expected.
Managing these high-cost events with a credit card can seem like the best option at the time. However, the high-interest rates make it difficult to pay off entirely or increase the cost.
We all know budgeting is really important. We know it, but that doesn’t mean we do it. In one survey, 77% of UK residents stated that they were stressed about money with 20% of those surveyed too scared to look at their bank balance.
The ostrich effect, where you choose to ignore a problem, can often lead to overspending. If you do not know how much money is in your account you’re more likely to spend more than you have. Budgeting is an effective way to be clear with yourself; if you don’t have the money - don’t spend it. If you don’t have the money - do not put it on your credit card.
Poor Debt Management
Poor budgeting or simply not budgeting at all can lead to problems beyond overspending. Being unaware of the extent of your debts, or how much they cost to repay could be eating away at your income unnecessarily. Even if you’re making the minimum payments each month.
Having multiple debts, or credit cards with high-interest rates could lead you to miss repayments which is both costing you money and ultimately damaging your credit score. Coming up with a debt management plan can free up your money so you can do more of what you love.
Around one in four adults in the UK experience mental health issues. This can be a number of experiences, including anxiety and depression. Although having a mental health condition does not mean that you are unable to be responsible with money - research shows that 50% of adults struggling with debt, also have a mental health issue.
Many people with mental health problems report that their spending patterns and ability to make financial decisions change significantly during periods of poor mental health. In a survey from Money and Mental Health Policy Institute, they reported that:
- 93% spent more than usual
- 92% found it harder to make financial decisions
- 74% put off paying bills
- 71% avoided dealing with creditors
- 56% took out a loan they would not have otherwise taken out
How To Pay Off Credit Card Debt and Improve Financial Wellbeing
Now we’ve looked at the common realities of credit card debt, it’s time to focus on what you can do to improve your financial wellbeing.
There’s no one quick-fix solution for how to pay off your credit card debt quickly, but you can make changes in your life to help reduce the level of debt that is monopolising your finances. These are our tips on how to pay off your credit card debts:
Consider a Peer To Peer Loan to Streamline Your Debts
Whether you have credit card debt or multiple outstanding loans, you could be better off by combining them into one affordable monthly payment.
A peer to peer loan can offer you repayment rates that are at the same level or lower than what you currently pay. Streamline your debts and pay off your credit cards to free up more of your money, for you.
Create and Stick To A Budget
Take control of your finances and make sure your income covers your outgoings. If things don’t quite add up, then it’s time to make a plan on how to make sure all your repayments are actually being paid to avoid additional costs.
Find A Side Hustle
This isn’t going to be an option for everyone, but if you have the time and a schedule that can allow a little flexibility, it’s worth looking into a side project. Whether that’s picking up some evening shifts at your local pub, turning a crafty hobby into an eBay shop, or freelancing your skills - turn your spare time into money to help pay off your debts or additional fees.
Sell Items You Don’t Need
Gone are the days of having to get up at 5am on a Sunday to sell your belongings at a car boot sale. Thank you, internet. Use services like Depop, eBay, Etsy and even ASOS to sell your unwanted possessions.
The money earned from selling your belongings could be put aside for socialising and the unexpected payouts that you’d previously relied on your credit card for. Now, the bulk of your income can be put towards paying off your credit card debts.
Negotiate Lower Bills
The best prices are generally offered to new customers. So, more often than not, you’re rewarded for switching providers. Whether it’s TV, internet, mobiles, gas or electric, utilise comparisons to find yourself the best deal possible or simply haggle yourself a better price.
The MoneySavingExpert reported that 88% of those who haggled for a better deal with AA were successful. 84% of people who negotiated with Sky over TV and broadband were also successful. The more money you free up from household bills, the more money you can put towards your monthly credit card repayments.
Credit Card Debt Vs. Peer to Peer Loan
Using a peer to peer loan is a simple way to streamline your credit card repayments.
With lower interest rates, a P2P loan can make your monthly repayments easier. It may also mean you will have more money left over to put towards paying off your credit cards so you can get out of debt quicker.
However, before you use the funds from a personal loan to pay off credit card debt, you will want to consider not only the interest rate but also the length of the loan. Payments may be lower, but depending on the terms of the loan, it could take you longer to repay the debt.
Lower interest rates but a longer repayment term could cost you more in the long run, but it could also help you protect your credit history.
Advantages of refinancing:
- Reduced admin: If you have several debts spread across different lenders, debt consolidation will reduce your administration.
- Clear budget: Having one monthly repayment might make it easier for you to stick to a monthly budget.
- Potential savings: If your new rate of borrowing is lower than your original rate, you could reduce the overall amount you have to pay back.
- Potential to boost credit score: Streamlining your bills might reduce your chances of missing a repayment, and therefore have a positive effect on your credit score.
- Be rewarded: At Leap Lending, we want to keep you on track. With our Dynamic Rate, we will assess your payment behaviour to try and lower your monthly repayment. So you’ll get extra money in your pocket.
Disadvantages of refinancing:
- If you’re not careful, you might agree to a much longer term, which would mean you would ultimately pay more interest.
- If you are considering a debt consolidation loan, you need to take into account any consolidation fees or administration fees. At Leap, there are no penalties for making larger repayments or paying off your loan early.
- You are expected to pay off all the debts you have listed. Failing to do so would mean taking on additional debt which will increase your monthly outgoings.
Will Refinancing Affect Your Credit Score?
If you miss a repayment on any of your debts, it will have a negative effect on your credit score. Debt consolidation means you only have one repayment to keep up with, rather than several.
Having only one repayment to keep track of might reduce the chances of you missing a repayment, so could have a positive impact on your credit score.
Applying for a consolidating P2P loan will create a hard check on your credit report. If you apply for several consolidation loans in a short space of time, this will have a negative effect on your credit score.
This is because it might lead a lender to believe that you are overly reliant on credit, and therefore a higher risk borrower.
What Is The Best Way To Pay Off Credit Card Debt: Key Take Aways
- What is credit card debt? Unexpected costs, life events and high-interest rates all have a part to play in credit card debt. Because of the interest rates, you are paying more and taking longer to get debt-free.
- Credit Card Debt Consolidation: Taking out a P2P loan is a simple and effective way to streamline your monthly repayments and free up more of your money to pay off your debt.
- How To Pay Off Credit Card Debt Quickly? Make a budget, streamline your monthly outgoings and search for the best rate so your money can go further.