“I have three credit cards, all maxed out.
I am only paying the minimum amounts each month as I can’t afford more.
What are my options as this will take forever and cost a lot in interest?”
A lot of people are in this situation in 2023, with cost of living price rises leaving you with no spare money to make overpayments. This also applies to store cards and catalogue accounts.
And many cards have been increasing their interest rates. That makes the minimum payments even larger and your position harder.
Your options depend on how good the rest of your finances are.
Worst case – you can’t really afford the minimums
It can be difficult to see the big picture when you are juggling incomes, bills and debts at different times of the month.
If you have energy debts or it’s hard to pay the rent/mortgage, then the interest on these maxed-out credit cards may be annoying but you have a much bigger priority debt problem.
A good way to check that the minimums are affordable is to stop using the cards completely for a couple of months:
- leave them at home;
- remove them from Google Pay and Apple Wallet
- take them off Amazon, Paypal and any other online shopping sites;
- don’t use any other credit in this time – no Klarna or other Buy Now Pay Later.
If you can only manage this by getting behind with some bills or going deeper into your overdraft, then the minimums are not affordable.
You could look at making payment arrangements with the cards, but a simpler alternative may be a Debt Management Plan. A DMP has the same effect on your credit record as payment arrangements.
I suggest you talk to a good debt adviser now about all your options. The sooner you do this, the more options you may have to choose from. Delaying may mean you get deeper into debt.
Middle case – you can afford the minimums
Paying a credit card, store card or catalogue off at the minimum amounts takes a very long while – 15, 20 years or more. And costs a fortune in interest.
So how can you speed this up if you can’t pay large amounts off the cards?
What I am going to suggest only works if you can stop using the cards. Completely. If you can, do these two things.
1) fix the payments to the cards
When you pay the minimums, they drop by a tiny amount every month. Not enough for you to enjoy feeling you have extra money, but enough so that you are kept trapped in debt for much longer. See the Credit card minimum payment trap for details about this.
You can escape from this trap by paying a fixed amount every month.
So set up a standing order for each of the three accounts. Make this for the minimum payment on the account rounded up – £32.10 up to £33 say. If you think you can push that to £35 even better!
By doing this the cards will get cleared years sooner and you will pay astonishingly less in interest.
It also makes it easier to think about your budget as you are paying the same amount every month.
And soon the cards won’t be maxed out anymore. Your credit score will start improving as your credit utilisation drops.
2) start using a stealth savings app
A stealth savings app such as Plum looks at your bank account and quietly takes a few small amounts several times a month when it can see that you won’t need that money.
By the end of the month, you may have a small amount saved up without noticing it. It’s a painless way to save. See 2 apps to help you save money easily for details of these apps and how they work.
Then at the end of every month, you can pay the amount saved off one of the cards. Go for the highest-interest account. Or if they are all much the same, the account with the lowest balance.
This payment is in addition to your normal standing order, which is covering all the interest. So this extra money is all coming off the amount owed.
If you have a difficult month, then there may not be any money saved this way. But being able to do this most months can really help clear those credit cards, store cards and catalogue accounts fast.
Best case – with a great credit score
With maxed-out credit cards, often this will be tricky, because a high credit utilisation affects your credit score.
But if you still have a great credit score, then look at getting a 0% balance transfer card. This will mean your monthly payments are all clearing the debts, not just paying interest.
MoneySavingExpert has a guide to 0% balance transfers with an eligibility checker. It’s important you don’t just apply for a great-sounding offer and then get rejected – that just makes the next application a bit harder.
Balance transfer cards aren’t as easy to get as they used to be. You may only be given one with a short term. Don’t think of this as “free money” but try to clear as much as possible, so you don’t then have a problem when the 0% ends.
For other tips about these deals and how to make them work for you, not the card lender, see Getting a 0% balance transfer.
You could also look at getting a consolidation loan. But unless you can get a very cheap bank loan, the monthly repayments can be more than the minimums on the cards… so then you may struggle to afford the loan. And with rising mortgage rates, getting a secured loan to consolidate debt in 2023 looks dangerous.
If you do consolidate these credit cards, you must close the accounts, or soon you will probably spend on them and have a lot more debt.
Also… have your credit limits been set too high?
It’s worth stepping back and looking at your situation and how it has arisen.
If your problems came when you lost your job or had a baby so childcare costs now take up a lot of your salary, then this isn’t realy the credit card lenders fault if they gave you the large credit limits before your problems.
But if you have been given credit limit increases at a time when you were only making the minimum payments, and the limit is now just too high to be manageable, then look at making an affordability complaint. If you win a complaint you will get some interest refunded which will reduce your balance. And this doesn’t hurt your credit score.