Take control of credit and stay ahead of debt

The minimum payment trap – what you need to know

What’s a minimum payment?

A minimum payment is the smallest amount you need to pay on your credit card each month to avoid late fees. It’s based on your balance and interest rate, which means it changes as your balance goes up or down. Your credit card statement will show the minimum payment and how much interest you’ve been charged.

Why paying more than the minimum matters

Paying only the minimum might seem more manageable, but it can cost you much more in the long run. As interest adds up, it will take longer to clear your balance.

Paying more than the minimum has its benefits:

• You’ll pay less interest – the more you pay, the less interest builds up.
• You’ll clear your balance faster – paying extra helps you clear the balance sooner.
• You’ll have more financial flexibility – a lower balance gives you more control over your credit.

If you’re using a large chunk of your credit limit but only making minimum payments, lenders may see this as a sign you’re struggling, which could impact your credit score.

We’d recommend using the Barclays Minimum Payments Calculator to see how increasing your payments could make a big difference to what you pay back overall.

Stuck in your overdraft every month?

Overdrafts can be a helpful tool for managing short-term cash flow, but if you’re always relying on one, it might be a sign of a bigger issue.

Ask yourself:

Am I always in my overdraft, even after payday?

If your balance stays in the red even after your wages or benefits are paid in, it could mean your income isn’t stretching far enough to cover your outgoings. This could be a sign that you need to rethink your spending or budgeting habits.

Am I using my overdraft to cover essentials like food and bills?

Overdrafts are designed for short-term borrowing, not everyday expenses. If you’re relying on yours to cover everyday costs, it could be a sign your budget needs adjusting to prioritise essentials.

Are overdraft fees making it harder for me to get ahead?

Some banks charge daily or monthly fees for using your overdraft, plus interest. If these fees are eating into your income, it can feel like you’re stuck in a cycle of just staying afloat.

How to break free from the overdraft cycle

It can feel overwhelming to feel stuck in your overdraft, but there are steps you can take to regain control. Here’s what to do:

Assess your budget

Start by reviewing your income and expenses. Look for areas where you can cut back – even small changes can free up cash to put towards reducing your overdraft.

Talk to your bank

If overdraft fees are making things harder, speak to your bank. They may offer temporary support, like reducing fees or adjusting your overdraft limit.

Consider switching to a no-overdraft account

If you’re having trouble managing your spending, switching to a basic bank account without an overdraft facility could help. This removes the temptation to dip into your overdraft and can encourage better budgeting habits.

Get debt advice

If you’re struggling to make ends meet, expert advice is available. A debt advisor like PayPlan can help you explore your options and create a budget. You don’t have to face this alone – support is out there to help you take back control.

Juggling repayments with everyday essentials – getting the balance right

Managing repayments alongside daily expenses can be stressful. Many people find themselves cutting back on essentials – like food, heating or self-care – just to stay on top of payments. While this might feel like a short-term fix, it’s not a sustainable way to live.

Ask yourself:

Are you skipping meals or cutting your food budget to make ends meet?

Reducing your food budget too much can harm your health and wellbeing. It’s important to make sure you’re still eating properly while managing repayments.

Are you leaving your heating off during colder months to save money?

Going without heating might seem like a way to cut costs, but it can lead to health issues and extra stress. You deserve to live in a warm, safe home.

Are you neglecting your wellbeing or self-care to save money?

Cutting back on essentials like toiletries, healthcare products or even rest can take a toll on your mental and physical health.

What can you do about it?

If this is a short-term challenge, small changes to your budget and some money-saving tips might help. But if these sacrifices are affecting your wellbeing, it’s important to take action sooner rather than later.

When cutting back isn’t enough

If you’re making your monthly payments and still managing essentials, you’re doing well. However, if you’re struggling, there are ways to better manage your repayments. The key to moving forward is understanding how much interest you’re paying. This will help you prioritise and could save you money over time.

Step 1: Find out how much interest you’re paying

• Look at your credit card statements, loan agreements and bank apps or websites to find interest rates.
• Your credit report might also include some interest rate information.
• It’s important to check all available statements to understand the full picture.

Step 2: Prioritise the balance with the highest interest rate (The Avalanche Method)

The Avalanche Method helps you reduce the total interest paid by focusing on the highest-interest balances first.

• Once you know the interest rates on each of your balances, focus on paying off the one with the highest interest rate first.
• Keep making minimum payments on the rest, but use any extra money to pay down the high-interest balance.
• Over time, this will reduce the total interest you pay, allowing you to clear your balances faster.

Example: If you have a credit card at 20% interest and a personal loan at 12% interest, you’d focus on paying off the credit card first.

Another option – Pay off the smallest debts first (The Snowball Method)

The Snowball Method works well for people who need motivation during the repayment process. Instead of focusing on the higher-interest balances, you pay off the smallest ones first. Once you clear one balance, you move on to the next smallest, building momentum with each step.

It’s important to continue making the minimum payments on all your balances to avoid penalties.

Example: If you have a credit card with a £1,000 balance with 20% interest and a £5,000 loan with 10% interest, you’d pay off the credit card first and then the loan.

0% Balance Transfers

If high-interest credit cards are holding you back, a 0% balance transfer could help. These cards let you move your existing balance to a new card with 0% interest for a set period, giving you time to pay it off without building up more interest.

Just be mindful of balance transfer fees and ensure you can pay off the debt before the 0% period ends.

Understanding your credit score

Your credit score plays a significant role in managing your finances. It impacts everything from loan approvals to interest rates.

A good credit score opens doors to better financial products, while a low score might limit your options.

How credit reports work

Your credit report is a detailed history of your borrowing and repayment activities. It shows your credit accounts, payment history, outstanding debts and whether you’ve missed any payments. Lenders use this to assess your reliability as a borrower.

Where to access your credit report for free

You can request a free credit report from several providers. Checking for errors in your report can help you address potential issues before they impact your score.

Factors that impact your credit score

• Your payment history – Timely payments improve your score.
• How you use credit – Try to keep your balances below 30% of your available credit limit.
• The age of your credit – The longer your credit history, the better.
• New credit – Opening many accounts in a short period can damage your score.
• Credit mix – A variety of credit types can improve your score.

By regularly checking your credit report and understanding the factors that can affect your score, you can improve your financial health over time.

Where to go if you need extra help

If you’ve missed a payment, it’s important to reach out to your lender as soon as possible. You could face late fees, added interest and a mark on your credit file. Some lenders can offer a short grace period, so getting in touch could help you catch up without any major penalties.

If you’re struggling to keep up, PayPlan offers independent debt advice to help you take back control.