I've got £20,000 of credit card debt – how can I clear it?

Facing a significant amount of credit card debt can be daunting. One reader in their late twenties is seeking advice after accumulating £20,000 of debt, initially starting in university to cover essential expenses. This individual has since relied on credit cards for daily costs and larger items, leading to escalating balances despite attempts to manage interest rates by switching cards. Now, with a recent pay raise, they are determined to tackle this financial challenge. This article provides expert advice on the best strategies to clear credit card debt and regain financial control.

Expert Advice on Tackling Credit Card Debt

Many individuals find themselves in similar situations, struggling with credit card debt. It’s a common challenge, with nearly one in ten households facing arrears on their credit card payments. The average household allocates £216 monthly to debt repayments, excluding mortgage obligations.

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While accumulating debt may begin with the necessity to manage everyday student expenses, it can easily become unmanageable, especially when spending extends to non-essential items.

To provide guidance on eliminating credit card debt, we consulted two financial experts.

Utilize Balance Transfer Cards

Andrew Hagger, a personal finance specialist and director at MoneyComms, suggests that the reader is aware of the steps needed to repay their credit card borrowing. However, continued credit card usage has hindered progress.

Zero percent balance transfer cards offer a cost-effective method to reduce borrowing. Discipline is crucial to maximize repayments each month and resist future spending on the card.

Transferring the entire £20,000 debt to a single 0% card might not be feasible. Instead, aim to transfer as much as possible to one or more new 0% deals, prioritizing the cards with the highest interest rates.

If a balance transfer card fully clears an existing account, consider closing that account to avoid the temptation of further spending.

Although a balance transfer fee is applicable, it roughly equates to one and a half months of interest, representing a minor cost in the long run.

Success requires determination and willpower. Tracking monthly balance reductions can provide encouragement to persevere in the coming months and years, preventing a relapse into previous spending habits.

Current 0% Balance Transfer Card Options

Currently, leading 0% balance transfer offers include:

• Barclaycard: Offers 32 months at 0% with a 3.15% transfer fee.
• MBNA: Provides 0% for a specific period with a 3.20% transfer fee.
• Tesco Bank: Features a 0% period with a 3.19% transfer fee.

Create a Budget and Prioritize Repayments

Sarah Coles, head of personal finance at Hargreaves Lansdown, emphasizes the significant cost of escalating debt. Overcoming detrimental debt habits can lead to substantial financial benefits.

Develop a detailed budget to identify areas for reducing non-essential expenditure. Reallocate these funds to debt repayment, focusing on debts with the highest interest rates first.

Setting up a direct debit ensures consistent, timely repayments each month.

As debts decrease, interest charges diminish, allowing for greater principal repayments.

Consider Debt Consolidation

Explore opportunities to consolidate debts at a lower interest rate. Individuals with strong credit scores might qualify for 0% balance transfer credit cards, minimizing interest payments and accelerating debt reduction.

However, it is imperative to commit to responsible borrowing habits and prevent further debt accumulation when utilizing balance transfer options.

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