Tackle your debt with these 5 payoff strategies

By Benjamin Salisbury

If you have a multitude of cards with outstanding balances, it can be all too easy to get overwhelmed and fall into debt denial.

Mark Carney, governor of the Bank of England, warned about the high level of debt in the UK in late November 2016, as he presented the newest figures in the Bank's Financial Stability Report that show credit card debt reached a new record high, at £65.7 billion.

If you find yourself with a load of credit card debt, it is vital to take financial control and work out a repayment strategy at a rate that is manageable and lets you make some tangible progress (rather than just paying minimums).debt-free

"If someone finds themselves in credit card debt, it's really important to first work out how much they owe, who to and how much it will cost before looking at their budget and deciding on a strategy," Edward Ware, spokesperson for StepChange Debt Charity, said in an emailed response to questions. "Making continuous minimum repayments can take years to clear."

There are a range of approaches for tackling debt.

"The right strategy depends on individual circumstances and what is affordable, after budgeting for essential living costs," Melanie Taylor, debt expert at the Debt Advisory Centre, said in an emailed reply to questions. "It is important to find the approach which is right for your circumstances."

Consider these five popular methods for paying down your debt:

1. The snowball method.
This involves paying off the smallest debt first in order to have a "quick win." The feeling of starting to make a difference will help inspire you to keep going and help you build momentum as you pay off larger and larger debts - much like how a snowball gets bigger as you roll it.

This debt payoff method is best for those who are fuelled by instant gratification. Once your smallest debt is paid, start with the next smallest, and so on until all your debts are cleared.

2. Tackle the most expensive debt.
This method involves paying off the balance with the highest interest first. When you look at the cards you have, one or two are likely to have higher interest rates (APRs) than the others.

The card with the highest interest rate is the one that is most likely to become unmanageable, as the interest charges on the remaining debt will cause the balance to grow quickly. It pays to make your high-interest debts a priority.

With this tactic, you will aggressively tackle the debt with the highest interest, while paying minimums on your less expensive obligations. Pay more than the minimum and make extra payments where possible until the debt is cleared. Then, start on the next-highest interest debt.

This method works best if you are motivated by delayed gratification and like to see hard work pay off in the long run.

3. Make extra payments and overpayments.
You don't have to wait to pay until the end of the month when your statement arrives. When you have some extra cash, put it toward your various debts throughout the month.

"If you can afford to overpay, then it makes sense to try to clear the most expensive debts first," said Taylor. "Be sure to keep up with the minimum monthly payments on all your other debts, though."

4. The consolidation method.
If you have several cards and are finding it difficult to keep track of all the payments, you could cut your costs and simplify your finances by switching to a balance transfer card with a 0% interest deal. Many UK credit cards offer interest-free balance transfers for up to two years or longer.

"If you can access a credit card with a 0% period, this may save you money, but it is important not to use this card as well as your old one, as building up more debt will only add to the problem," said Ware.

Another thing to watch out for: these cards may not charge interest, but they do charge a transfer fee, typically 2% to 3% of the balance you are transferring. This debt is added to your overall credit card debt.

Unlike savings rates and mortgage deals, which have hit rock bottom lows after the Bank of England cut interest rates to a record low of 0.25% in 2016, credit card interest rates have been rising. This means many borrowers could save money by using balance transfers - as long as they are disciplined enough to manage their interest-free borrowing carefully.

"Paying no interest means all your repayments go toward clearing your debt - so you'll be debt free much quicker," Taylor said. "Plan to clear all your debt by the time the interest-free ends." If you don't, you could be facing even higher interest than you had to begin with.

If you doubt your ability to remain disciplined, consider cards with low, fixed interest rates for balance transfers. That will prevent you from getting hit with a high APR if you still haven't paid off your debt when the 0% period expires.

5. The negotiation method.
Finally, if you really cannot see a way out of your credit card debt in the short- to medium-term, it's time to speak to your lender to try to renegotiate the repayment terms. This might mean an interest rate freeze, or an interest-free period to help you get back on track.

If you can't afford to keep up with the minimum monthly payments on your debts, then you can either negotiate directly with your lenders or ask a debt advisor to negotiate on your behalf, said Taylor.

"If you are in financial difficulties, then your lenders may be willing to freeze further interest and charges on your accounts," she said.

Whichever debt-payoff method you choose, the key is to create new, good money management habits and find ways to motivate yourself to continue.

"If the amount owed has become unmanageable, or someone is worried about their debts, they may need free debt advice, and StepChange can provide this for anyone who needs it," said Ware.

See related: How to manage debt on an unpredictable income, Extreme, creative ways to clear debt

Updated: 7 December 2016