Does it pay to overpay?

One bad thing about credit card debts is – that you can repay them slowly! It can be tempting to make just the minimum payments, which can mean it takes a lot longer than necessary to get the debt repaid. It can also mean it costs far more in interest than necessary.

How to overpay your credit card debts

So, when you can afford it, it just makes sense to put more than you have to towards your credit card debts.

However, it's vital you do this carefully. There's no point putting more than you can afford towards a credit card debt: things like mortgage / rent payments, food bills and essential transport costs have to come first.

This is where a budget can really help. If you track your income and expenditure, you'll have a much better idea of how much you can realistically expect to put towards your debt every month.

If you have several different credit card debts, you should probably focus on clearing the one with the highest interest rate first, as this is the one that'll be growing the fastest.

Having said that, a lot of people prefer the 'snowball method', which involves paying off the smallest debt first. This can help you stay motivated, since it should be easier to see the progress you're making on your debts.

How to simplify your credit card debts

You might find you could repay your debts more easily if you consolidated them.

You could do this with a consolidation loan – a new loan that's big enough to repay all your debts in one go, leaving you with a single debt to repay. Debt consolidation loans are often secured loans, so you should think very carefully before you secure any debts against your home, as it may be repossessed if you don't keep up payments on any debt secured against it.

Taking out a debt consolidation loan also gives you the opportunity to think about your repayment schedule. You might be able to arrange to repay your debt more slowly, which can reduce your monthly payments – although it can also increase the total amount you'll repay, since it'll be gathering interest for longer.

On the other hand, you might choose to arrange a shorter repayment period, which could increase the size of each monthly payment – but cut the total cost, since interest wouldn't be accruing for as long. If you'd like to find out more about debt consolidation loans, the Debt Advisory Centre could help you.

Alternatively, you could consolidate your credit card debts with a balance transfer credit card. Many of these cards come with a substantial interest-free period, so if you can repay the debt entirely in this period, you'll pay no more interest on the debt at all – although there will be a balance transfer fee to take into account.

This article was provided by the Debt Advisory Centre.