8 tips to clear your credit card debts

We go back to basics with solid tips to clear your card debts quicker!
As I wrote here, the less debt interest you pay, the more stuff you'll be able to buy in your lifetime! To that end, I'm going back to the basic, yet essential, ways to reduce and pay off the 'devil's debt' - credit cards.
Fix a budget for reducing your debt
If you meet just the minimum repayments, it can take more than 30 years to clear a £5,000 debt, paying more than £5,000 in interest at the same time! Of course, you'll probably get more money in before then to enable you to clear the debt sooner. But before that happens, you'll pay vast amounts of interest on a debt that barely budges.
So work out how much money you can afford to pay towards your debts each month and set up direct debits to pay that fixed amount. £200 per month to clear a £5,000 debt will take three years, not 30!
Pay off the debt with the highest interest first
You don't have to spread repayments evenly. From your debt repayment budget, pay the minimum on each credit card except the one with the highest interest rate. Throw the remainder of your budget at that card. When you've paid that off, you then have even more money to throw at your second-highest interest rate, and so on.
By tackling the higher rates in this way, you'll massively reduce the amount of interest you pay and the time it takes to clear all your debts.
Reduce your interest rates
You get the same result by reducing your interest rates. Transfer your existing card debt with the highest interest rate onto a 0% balance transfer card if you can. You'll be charged a small fee for this, but you won't have to pay interest on the transferred debt for a set period. This will again mean you pay less interest, clear your debts much faster, and can buy more stuff in your lifetime.
Cancel PPI
The insurance you buy with your credit cards to protect your payments in the event of accident, sickness or unemployment is vastly over-priced, adding maybe £400 a year to a £5,000 debt.
Cancel your payment protection insurance (PPI), so that you can pay off your debts faster. If you really feel you need the insurance, search the internet for a stand-alone provider, which will be about 80% cheaper and will likely have better terms - just ensure you're aware how PPI policies can be riddled with catches.
Many people have been mis-sold PPI. Read whether you're eligible to get your premiums back in An easy way to reclaim your rip-off premiums.
Clear your debts before saving
The interest rates on savings accounts are much lower than credit-card interest rates - other than very special card deals. This means that you'll be debt-free a lot more quickly and cheaply if you clear your card debts before you save.
There are, however, three arguments for having a small pot of savings before you've cleared your cards:
- It helps you build a savings habit.
- If your lender is constantly reducing your credit limit as your debt goes down (a rare occurrence) then you will have no quick access to cash in an emergency. You'll therefore need some savings.
- It makes you physically sick to have to keep borrowing to pay for small emergencies and big-ticket items.
Limit your treats
If you spend a lot on clothes, alcohol or whatever, start budgeting a sensible amount. Once you've spent your budget for the week or month, the rule is that that is it till next time. Spend your money wisely and build up your willpower!
Don't miss payments
Missing payments can be unbelievably expensive. You'll get a penalty fine and interest, you'll lose your introductory cheap interest rates, and you'll get a bad mark on your record meaning borrowing will be more expensive for you in future. If you're on a tight budget it's easy for fines and interest to snowball until it gets a little bit scary, and a big bit expensive. Set up direct debits.
You should certainly not miss payments because you've been buying luxuries!
Budgeting
I've read thousands of messages from debtors over the years, so I know that the only way that you're going to reduce your debts is when you accept you need a realistic weekly, monthly and annual budget. It takes time to develop one that works, and it's ever-changing like your income and your needs, but it's essential to keep at it. Once you've got it right, your debts will come down quickly.
Read How to budget in five simple steps for more advice.
If your debts are out of control, get advice from the two free and impartial debt resources that have by far the best feedback: National Debtline and The Motley Fool's Dealing with Debt discussion board.
More: Four top credit card rip-offs | Credit cards that make you money
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I to have a Thomas Cook credit card ( Issued June 07 ). which I am in the process of cancelling. I obtained the card 1 for the interest free balance transfer 2 to allow me to book their holidays without incurring a fee. I set up the DD for minimum payment. For some reason they gave me £10000 credit limit which I never requested £4000 acceptable for holidays. I have used TC.for quite a few holidays because of this. I recently used the card whilst abroad Dom Rep. ( 10/06/09-25/06/09 )to book trips. I rec a letter on 2/07/09 dated 23 /06/09 advising me my credit limit as been reduced from £10000 to £260. (Even though I have a good credit record and never defaulted on payments. If any one can tell me where I can get a Holiday for one let alone two for £260 please tell me.I phoned the Number given as is the norm they cannot not do anything about it.They did confirm my balance outstanding was £370 which was incured whilst on hoiday booking TC trps).I made it clear that I was not happy with the card company reducing my limit by such an amount plus allowing me to overspend. I dont expect to face penalty charges through no fault of my own. He said he would insure this wouldn't happen. I sent the full payment plus a letter cancelling this card and strong views about this.Other off spin cards have sent me through simuliar letters and I have duely cancelled these cards. My research shown from all these letters is if you have too many cards with high credit limits. get rid of most of them and try to reduce your credit limit to a lower amount yourself. Back to TC. I will not be using them again and look forward to them trying to penalty fee me. let the battle begin. PS they are rip of merchants with their 15K luggage allowence.
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I've also had a similar bad experience with Thomas Cook Credit Card. I too took it out to pay for my holiday to avoid the hefty credit card fee they would charge using any other credit cards but there's. The card wasn't authorised there and then in the shop and I paid a deposit for the holiday via a debit card. Months later I got the final holiday bill and I paid the holiday off in full once I got the statement. However because the 3 month interest free period had finished, I was charged interest from the moment the purchase was made until I received the statement and paid it off (£11.50). I called them about this and complained that with every other credit card company, as long as you paid the balance off in full once your received the statement, then there was no interest charged. They just kept saying that the interest free period had finished so I was charged interest from the date of purchase. Despite escalating to managers level, no one would do anything about the interest charged or the threat of loosing a customer. I had to pay the interest and am now trying to cancel the card (I need to go through there T&C's to see whether they will come after me for the credit card fee I saved in the first instance). I feel strongly that Thomas Cook mislead their customers over the credit card details, and are basically money grabbing £$^*)~@ Well Thomas Cook, you made £11.50, but you lost a customer for your credit cards, and I will never go another TC holiday again. Plus I will make sure that anyone who speaks about holidays / credit cards, knows what a conning company you are. Your business plan really rocks!
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With regard to getting a new credit card and missing a payment, make absolutely certain of when the due date for the first payment falls. Last year I booked a holiday with Thomas Cook, and was told that I would get a discount - rather than a 2.5% charge, together with three months interest free credit - if I used the Thomas Cook credit card. I didn't have one, but with the discount was 'persuaded' to get one and pay for the holiday on the spot. This I did on August 22, and waited for the first statement to arrive towards end of September. Instead, towards the end of September, I got a 'coeurtesy' phone call enquiring as to why I had not made the first payment!! Apparently Thomas Cook Credit Cards had decided that August 8 was due date, and as I hadn't paid I had a 'Late Payment' fine of £12.50p slapped on the account! Then it turned out that the three momths interest free period still meant that the minimum payment had to be made every month! After some further 'phone calls and emails had sorted out the late payment fiasco I realised that if I took the full three months interest period I would be between payment dates and would then have to wait until the following payment date, which would then place me beyond the three months! It was more by luck than anything else I found this out and I regard as a mean and very nasty 'welcome' to a credit card company, and I was extremely lucky that I managed to sort it all out without incurring any chages. What I could't avoid, however, was the fact that Thomas Cook Credit Card recorded a late payment against me on Experian, after I have spent many years of paying our credit card bills on time. Not only have I not used the Thomas Cook Credit card again, but I will not use Thomas Cook again, ever.
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03 July 2009