Five ways to cut the cost of your credit card

Five ways to cut the cost of your credit card. Most of us dread the arrival of our monthly credit card bill - especially if we're battling with big balances! Here are five top tips for cutting yours more quickly.

If you owe money on plastic, no doubt ridding yourself of credit card debt is pretty high up on your financial priority list.

If so, you're right to be concentrating on ditching your formerly flexible friends. The cost of long-term borrowing on credit cards can be astonishingly high, and since the start of the financial crisis many lenders have increased the APRs they charge existing customers - despite the Bank of England's decision to slash interest rates to an historic low of 0.5%.

As a committed debt detoxer, I know a thing or two about how to handle big credit card balances.

Here are my five top tips for making sure they get smaller, faster!

1. Cut your interest costs

First and foremost, you should try to reduce how much your debts are costing you.

If you can cut the interest rate payable on your balances, they'll instantly become cheaper - and this will make it easier for you to clear them more quickly.

0% balance transfer cards are key tools that have helped thousands of people in their fight against expensive debt. By transferring your balances to a 0% deal, you'll cut the interest rate payable on them to zero for a set period of time - though you will usually have to pay a small balance transfer fee when you shift your debt across to your new card.

Right now, the market's leading 0% offer comes from the Virgin Credit Card, which offers customers an interest break of 16 months in return for a balance transfer fee of 2.98%.

However, it's important to consider the size of your debts and how long it will take you to repay them before choosing a balance transfer credit card. For example: if you know you'll be unable to clear your whole debt within a 0% balance transfer card's promotional period, you may want to consider a long term, low rate credit card instead.

You can read more about your balance transfer options, and the pros and cons of each, in 'The beginner's guide to balance transfers'.

2. Always exceed your monthly minimum repayment

Your monthly minimum repayment (MMR) is - as its name would suggest - the smallest sum your credit card provider will accept every month as payment towards your total credit card balance.

I can't state strongly enough that, if you're determined to rid yourself of debt, only ever paying your lender's MMR is a disastrous way to go about achieving your goal.

This is because credit card providers are clever, and deliberately set their MMRs so low that customers who stick with them will be trapped in debt for years - probably paying expensive interest charges the entire time.

Here's a scary example: if you owed £2,000 on a credit card charging a standard APR of 17% and repaid the MMR of 2% (or £5 plus interest) each month, it would take you more than 32 years to clear your balance! What's more, you'd pay out £3,535 in interest - not far off twice as much as you originally borrowed!

Luckily, exceeding your credit card's MMR by even a small amount each month could dramatically reduce the lifetime - and the total cost - of your credit card debt.

For a full explanation of how overshooting your MMR could help rid you of debt more quickly and cheaply, read 'How £10 a month could save you £2,000'.

3. Play by your lender's rules

This tip is simple, but important. If you don't pay your credit card bill on time, miss a payment completely or do not meet your lender's MMR, you're likely to be hit with a penalty charge of £12.

This charge will also apply if you exceed your credit limit, and will be imposed each time you break your credit card provider's rules.

Therefore, the more often you mess up, the bigger your total credit card balance will become.

What's more, your lender is also likely to use misdemeanours like those above as an excuse to revoke any promotional offers you may be benefiting from. Thus, if you have a balance transfer deal in place and fail to pay your credit card bill on time, you might find your 0% interest rate suddenly swells to 17%!

In order to make sure this doesn't happen to you, I think it's smart to set up monthly direct debits that will pay at least the MMR off all your credit cards.

4. Cancel cover you don't need

If your credit card provider is charging you for payment protection insurance (PPI) or you're paying out for identity theft insurance from your lender, think carefully about how much this cover is costing you - and whether it's worth shelling out for.

While it is sometimes a useful form of cover, PPI often comes with complex exclusions that will prevent certain customers from claiming. You can read more about PPI in Victoria Bischoff's article 'How to protect your pay packet'.

Meanwhile, it's my opinion that identity theft insurance is pretty useless and is rarely worth paying for.

To find out why, check out my article 'Four financial products you shouldn't bother buying!'

5. Stop spending!

Finally, this is the most important - but often the most difficult - step to follow.

If you're really serious about dealing with your credit card debts, it's crucial to get out of the habit of flexing your plastic when you shouldn't.

Put simply, you mustn't use your credit cards to pay for things you cannot really afford. Some people find cutting up their cards or putting them deep in dark drawer is the only way to resist their siren call!

However you make the decision to stop spending, the moment you're committed to this is the moment you can really begin beating down your balances. ( mailcompare.mailonline.co.uk )

Best of luck!