Slash your credit card debt in four simple steps

We highlight four ways to help you tackle your credit card debt this year...

Paying off your credit card debt is your top financial priority for 2010, according to our recent research of more than 1,000 lovemoney.com readers. Mind you, it was also the top priority for most of you last year - but sadly, only 16% of you said you successfully managed to do this in 2009.

So to help more of you achieve your goal in 2010, here's how to slash your credit card debt in four easy steps.

Reduce the cost of your debt

If you've got a lot of debt sitting on your credit card following Christmas, and it's racking up a lot of interest, the first step you should take is to transfer that debt onto a 0% balance transfer credit card.

The top card to use at the moment is the Virgin Credit Card, which offers an interest-free period on all balance transfers for 16 months. So this means you've got 16 months to start making progress tackling your debt without worrying about paying interest.

Bear in mind that you will need to pay a transfer fee of 2.98%. You also need to try your best to pay off your debt in full by the time the 16 month period has come to an end - otherwise you'll be hit with an interest rate of 16.6%.

If you can't pay off the balance in full by this point, you need to switch to another 0% balance transfer credit card - but don't forget that this means you'll need to pay another transfer fee of around 3%.

However, if you have a lot of debt on your credit card and you know it's going to take a long time to clear, you could take a look at a lifetime balance transfer credit card instead. These handy pieces of plastic promise to offer a low rate of interest, for the life of your debt.

So this means you don't need to worry about constantly switching your debts about, because the deal won't expire until you've paid off the debt in full.

For example, the MBNA Platinum Credit Card Visa offers a market-leading interest rate of 5.9% fixed for the life of the balance transfer. So you can transfer over a balance from your existing credit card and be safe in the knowledge that you will only have to pay an interest rate of 5.9% until you've paid off your balance in full.

Just remember that you are still paying interest, so it's important you clear your debt as quickly as possible. And bear in mind you will need to pay a transfer fee of 2%.

Alternatively, if you'd prefer not to pay a transfer fee, you could plump for the MBNA Platinum Low Rate Visa. However, the interest rate is slightly higher at 6.7% and this rate is variable, so it could change before you've paid off your balance in full. You can find out more about this card in Use this credit card to slash your debts.

It's worth noting that all three of the credit cards mentioned above allow you to carry out money transfers as part of the deal - so you can transfer money from your credit card straight into your current account. You can then use this money to help pay off an overdraft, or a personal loan, for example.

Finally, it's a good idea to set up a monthly standing order for your minimum monthly repayment to make sure you don't forget to make a payment each month. If you do, you could be charged a fee, lose your 0% deal, and possible get a black mark on your credit record.

Get budgeting

If you're struggling to pay off your debt, the most obvious way to tackle it is to throw as much money towards it as possible.

But if you're feeling a little strapped for cash, this might seem slightly daunting. So a good idea is to sit down and draw up a budget. To do this, work out exactly what your monthly outgoings and earnings are by using a statement of affairs calculator or this budgeting calculator from the FSA.

Make sure you're really honest when you're doing this, and don't leave anything out. One way to do this is to register for online banking right here at lovemoney.com. This will allow you to log into all your bank and credit card accounts at once, and see all your transactions at a glance. You can then categorise your transactions so you know exactly what you are spending your money on.

You should then be able to work out whether you can make any cutbacks anywhere - could you reduce how much you spend on your food bills or socialising, for example? Or why not shop around to see whether you can get a better deal on your gas and electricity tariff? Adopt our goal to get help on lowering your household bills.

Once you've done that, start putting any savings you make towards your credit card debt. Read How to budget in five simple steps for more tips.

The snowball effect

If you can't manage to get all of your credit card debts onto interest-free deals, you need to adopt the method of 'snowballing'.

To do this, simply work out which of your credit card debts is charging the most interest - this is the debt that will grow at the fastest rate, so it's the one you need to concentrate on.

Keep paying the minimum monthly payments on all of your borrowings, but put any spare cash towards your most expensive debt. Once you've paid off this debt, put the extra money towards the next most expensive debt, and so on. Leave your interest-free debt until last.

By adopting this method, you'll find that you clear your debt far quicker.

Pay more than the minimum

As I mentioned earlier, it's important to remember to pay the minimum monthly repayment (MMR) on your credit card each month. However, minimum monthly repayments are usually set at a ridiculously low level - often as low as 2% of your total card debt.

This means it will take you a long time to pay off your balance - typically more than 15 years on £1,000 of debt. This also means your debt becomes much more expensive, as you'll be paying a lot of interest over that period.

So it's a good idea to set up a direct debit and pay a fixed amount on top of the minimum monthly repayment each month. That way you will pay off the debt far quicker and you won't have to pay as much in interest. You can find more about minimum monthly repayments in The dangers of minimum payments.

Don't forget, if you'd like further help paying off your credit card debt, lovemoney.com can help. First, adopt this goal: Pay off credit card debts. Next, watch this video: The cost of credit card debt. Finally, why not have a wander over to Q&A and ask other lovemoney.com members for advice?

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