Clear debt faster with a small increase in the monthly payment

Debt, on a credit card for example, can add up quickly, particularly if you only pay off the minimum repayment each month. Clear the debt faster with a small increase in the monthly payment made.

Credit card and other debt can creep up and grow before you realise it.

Your monthly credit card bill can be daunting and paying off just the minimum direct debit amount each month means it can take a long time to clear the debt.

As Peter Harrison, credit card expert at moneyspupermarket.com says ‘Most banks will allow you to set your direct debit at the minimum repayment amount or more, if you opt to increase your repayment amounts you will reduce your debt and the interest paid significantly.’

He adds ‘Even if you are with one of the few lenders that won’t allow you to set your direct debit higher than the minimum repayment, you can set up a standing order at a larger monthly amount.’

You can of course usually add to your payments on a one-off basis when you have more cash available.

The key is to pay off as much of your debt as you can reasonably afford, to reduce the outstanding debt and reduce the interest you are paying.

As an example, if you have a credit card with a 16.9% APR and a balance of £1,000, paying off at the minimum amount of 2% for 12 months, you’ll pay over £150 in interest and only reduce the balance by about £80.

In contrast, upping the monthly payment to 5% or £50 for 12 months, means you’ll only pay around £120 interest and critically you’ll reduce the balance by almost £400.

Clearly you have to assess what you can afford but if you are able to add a small increase to your monthly repayment you will clear the debt faster.