Owing money on your credit card can sometimes be stressful. Here's how to pay it off faster, save money and reduce your money worries.
If you're having trouble making repayments, there is help available. Contact your lender and talk to them about applying for financial hardship.
Pay on time
Check your credit card statement for the due date and make sure you pay on or before that date. By doing this, you'll avoid paying extra interest or late fees and also help keep your credit score healthy.
An easy way to pay is by direct debit or automatic transfer from your bank account each month. Set it for the day after your pay goes in, so you have enough money to cover it.
You can also set up a reminder to pay in your calendar.
Pay as much as you can each month
If you can make higher repayments each month, you will pay off the debt faster and save money.
If you only pay the minimum, you'll pay a lot of interest and it will take years to pay off your debt in full.
If you're finding it hard to pay the minimum amount, contact your bank or credit provider straight away or talk to a free financial counsellor. Taking action early stops a small money problem from getting bigger.
Cut back on your credit cards
If you have multiple credit cards, plan to reduce the number you have.
Try setting yourself a goal to pay off one card at a time. Start with either of these:
- Smallest debt
Paying off the card with the smallest debt first helps motivate you to keep going. Once you've paid that off, move onto the next smallest debt. - Highest interest rate
If one of your cards has a much higher interest rate, consider paying off that one first. Then pay off your other cards one by one.
Whichever option you choose:
- Keep making the minimum payments on all your cards.
- Use only one of your cards, and try to keep it just for emergencies.
- Cancel each credit card once you've paid it off.
Reduce your credit limit
To avoid the temptation to overspend on your card, ask your credit provider to reduce your credit limit. You can do this online, by phone or by visiting a branch. In most cases, it takes between one and two business days.
If you need to increase your limit to buy something special, aim to pay it off quickly. Then reduce your limit again to a manageable amount.
Get a better deal
See choosing a credit card for tips about how to get the best credit card deal for your situation.
Consider the pros and cons before getting a credit card balance transfer with a lower (or zero) interest rate.
Keep track of your spending
Take charge of what you owe by keeping track of money coming in and going out. If you know what you're spending, it's easier to keep up with bills and credit card payments. You can track your spending in a few different ways.
For most people, credit scores are a mystery; even credit experts don't know every last thing about how credit scores are calculated -- and what makes them change. If you pay off credit card debt, for instance, will your credit score go up -- or down? Here's what you need to know.
If I pay off my credit card, in full, will my credit go up?
Yes. (Usually.)
Here's a short chart showing different methods of paying off credit card debt and how they usually impact your credit score.
Cash or check | Boost in score |
Personal loan, debt consolidation loan | Boost in score |
Cash-out refinance | Boost in score |
Line of credit, HELOC | No change |
Balance transfer credit card | No change |
Note: Depending on your circumstances, you may not see these effects on your credit score. We'll explain more about how your credit score is calculated below so you can take all factors into account.
What goes into my credit score calculation?
Every consumer's credit history is unique. And most credit scoring agencies don't publish their formulas.
However, FICO -- the most commonly used credit scoring agency -- does publish what types of data it considers, and how much it weighs each factor.
Here are FICO's official scoring factors:
- Payment history (35% of score)
- Amounts owed (30% of score)
- Credit history length (15% of score)
- Credit mix (10% of score)
- New credit (10% of score)
To understand your credit score, ask yourself these five questions:
- Do you pay all your debts on time every month? (Payment history)
- Are you maxing out your credit cards? (Amounts owed)
- Do you have a solid history of paying back debt? (Credit history length; older is better)
- Do you know how to manage a variety of types of debt? (Credit mix)
- Have you applied for several new loans, credit cards, or other forms of credit recently? (New credit)
What is my credit utilization rate?
When companies are deciding your credit score, they compare how much you've borrowed compared to how much credit you have available. The comparison of how much you could spend on credit vs. how much you do spend on credit is your credit utilization rate. It factors into the "Amounts Owed" category of credit scoring.
Here's an example:
$500 | $500 | 100% | Bad |
$500 | $1,000 | 50% | Bad |
$500 | $2,000 | 25% | Good |
FICO looks at your utilization across all of your credit cards, but they also consider the individual utilization of each card. For a good credit score, try to keep your credit utilization at about 30% or less.
Since lower utilization is better, reducing your utilization typically increases your credit score. This is the main part of your score affected when you pay off credit card debt.
How much will credit score increase after paying off credit cards?
The amount your credit score improves depends a lot on how high your utilization was in the first place.
If you're already close to maxing out your credit cards, your credit score could jump 10 points or more when you pay off credit card balances completely.
If you haven't used most of your available credit, you might only gain a few points when you pay off credit card debt. Yes, even if you pay off the cards entirely.
TIP
Don't close your credit cards
Because your utilization is a ratio of how much you owe versus how much available credit you have, it's important to keep your credit cards open. $0 owed on a card with a $1,000 limit is impressive. $0 owed when you have 0 credit cards doesn't pack the same punch.
How long after paying off credit cards does credit score improve?
You should see your score go up within a month (sometimes less).
Your credit card issuer typically sends an updated report to the credit bureaus once a month when your statement period ends. A new credit score is calculated every time your credit is pulled, and the new score uses the latest balance information. So you should see the results of these payments as soon as your credit card balances update on your credit reports.
This is pretty fast compared to other methods. Some ways of boosting your credit can take months, or even years.
Why did my credit score go down when I paid off my credit card?
In general, the only time you should see a decrease in your credit score when you pay off credit card debt is if you also close your account. Why? Once again, it mostly comes down to utilization.
As we saw, your credit utilization decreases when you pay off credit card balances. But this only works if your total available credit stays the same.
When you close a credit card, you lose access to that credit line. This means your total available credit decreases. If you have balances on your remaining credit cards, a decrease in your total available credit can cause your utilization rate to rise.
To avoid this, you may want to pay off credit card balances without closing your accounts. Of course, if you have problems using your card responsibly or the card has an annual fee, it may be worthwhile to close the account despite the potential impact to your utilization. In this case, try to pay off all of your credit card balances to keep your overall utilization low.