Demolish your credit card debt in six steps

If your credit card debts are stacking up and getting out of hand, follow these six easy steps to eliminate your debt once and for all...

These days it's so easy just to whack everything on your credit card and worry about paying for it later. However, if you're starting to find that your credit card debts are spiralling out of control, take a look at these top tips:

1) Budget

If you're struggling with the amount of debt you have to repay each month, one of the first things you should do is sit down and work out exactly what your monthly outgoings and earnings are. A great way to do this is by using a statement of affairs calculator or this budgeting calculator from the FSA.

Once you've done this, you'll have a better idea of where all of your money is going. See if you can make cutbacks anywhere - could you socialise less often or lower your food bills? Perhaps it's time to switch your energy supplier, or get a better broadband/mobile phone/insurance deal - tasks like these can really help you to save the pennies.

Any savings you make, start putting towards your debts. Read How to budget in five simple steps for more tips.

2) Get a 0% balance transfer deal

Another thing to cut is your interest rate! If you've got a hefty amount of debt on your credit card and it's earning a chunky rate of interest, transfer that debt to a 0% balance transfer credit card.

The Virgin credit card, for example, offers an interest-free period for a whopping 16 months - giving you plenty of breathing space and time to sort out your finances. By using this card, you will pay off your debt far quicker because whenever you make a payment, 100% of it will go towards clearing your debt. By contrast, on a normal, interest-bearing card, a good chunk will go straight into the card provider's coffers.

Just be aware you'll need to pay a balance transfer fee of 2.98% of your outstanding balance.

Don't forget, you can review the Virgin card and others in our new customer reviews section.

3) Or a lifetime deal

If you do transfer your debts onto a 0% balance transfer card, you'll need to watch out when the interest-free period expires. Once that time is up, you'll be hit with a hefty interest rate (16.6% APR in the case of Virgin) and that's going to hurt.

Of course, you could transfer that debt again onto another 0% balance transfer card. But not only will this need some organisation, but you'll probably have to pay yet another balance transfer fee of around 3%.

So if you know it's going to take you a long time to pay off your debt and you don't want to keep moving your debt around, your best bet is to apply for a lifetime balance transfer deal. This means you'll be offered a low rate of interest until you pay off your debt in its entirety.

For example, the Barclaycard Simplicity Visa offers a low interest rate of 6.8% - and you'll keep that rate until you've paid off your debt in full. What's more, there's no balance transfer fee! The downside is that you need an impeccable credit record in order to get this card and the interest rate is variable, so it could change at any time. Review this card

Another option you could consider is the NatWest Gold credit card which pays a slightly higher rate of 8.9% fixed for the life of the balance transfer. Again there's no balance transfer fee. Woo-hoo!

4) Minimum monthly repayments

Most credit cards have a minimum monthly repayment that you must make every month or you'll be hit with a £12 fine.

This typically set at 2% to 3% of your balance or £5, whichever is the higher amount.

It's always a good idea to set up a monthly standing order for your minimum monthly repayment to ensure you remember to make a payment each month. One slip and you could be charged a fee, or if you're on a 0% balance transfer deal, you'll probably have to kiss that deal goodbye - and get hit with a chunky interest rate instead.

However, be warned that minimum monthly repayments are usually set at ridiculously low levels. So if you only stick to this amount it can take a long time to pay off the debt. Therefore if you can afford to make more than the minimum monthly repayment each month (hopefully by doing some budgeting you will be able to), do so - this way you will pay off your debt far quicker and you won't have to pay as much in interest.

For example, if you had a balance of £1,500 on a typical credit card, charging 17.9% APR, and paid the required minimum of 2% of the outstanding balance each month,* it would take you more than 30 years to pay back the balance in full. Yet if you set your monthly payment at £60 a month, your debt would be clear in under three years - and you'd save yourself more than £2,500 in interest.

5) Snowball your debt

If you have a lot of different debts to pay off, a great way to tackle them and pay them off faster is by 'snowballing'. To do this, you need to work out which of your debts is charging the most interest because that's the debt that will be growing at the fastest rate.

You'll need to set up standing orders for the minimum monthly payments on all of your borrowings. Then, if you have any leftover cash, put it towards the most expensive debt. Once you've paid off this debt, put the extra cash towards the next most expensive debt, and so on. Any interest-free debt you have can be paid off last.

This method of snowballing will help you to clear your debt far quicker.

6) Watch out for negative payment hierarchy

Negative payment hierarchy is a sneaky trick that's been adopted by the majority of credit card providers, and if you're not aware of it, you can easily get caught out.

In a nutshell, negative payment hierarchy allocates any payments you make on your credit card towards the cheapest debt first - while the most expensive debts get paid off last.

So say you transfer £3,000 to a 0% balance transfer card which offers an interest-free period for 12 months, but charges 16.9% APR on new purchases.

You then go out and spend £500 on your credit card. Then you make a £500 payment to the card.

You might think you're fair and square. But in fact, that payment you've just made will clear £500 of your interest-free debt - i.e. the debt you transferred using 0% balance transfer offer. You won't be allowed to start clearing the £500 you've just spent, until you've paid off the £3,000 you transferred in full. And until you do that, you'll be racking up interest at 16.9% on that £500 you spent! Ouch.

So if you want to avoid negative payment hierarchy make sure you cut up your a 0% balance transfer card as soon as it arrives. Do not, under any circumstances, use it to make purchases. Get a 0% purchases credit card instead! This way you will completely minimise the amount of interest you will have to pay, and you will clear your debts faster.

Once you've got to grips with all six of these steps you should find paying off your credit card is much easier to do - and much quicker. Good luck!

* Or a minimum cash payment of £5, whichever is the greater

Don't forget to check out our pay off your credit card debts goal

More: 15 cracking credit cards |Beware of bad balance transfers