Create A Plan To Repay Your Credit Card

Featured No Annual Fee Credit Card

If you plan to settle your credit card bill in full every month then you can be rewarded with no fee with the HSBC Credit Card which features a $0 annual fee for the life of the card plus 55 days interest free on purchases. This means it will cost you nothing to use this card provided you keep up with your good financial habits

• $0 annual fee
• 16.99% p.a. on purchases
• 0% p.a. for 6 months on balance transfers
• Cash Advance Rate of 20.75%
• Minimum income requirement of $20,000 to apply

Click here to read the HSBC Credit Card terms and conditions

Amazingly, thinking about how to repay a credit card debt is akin to quantum physics for some people. You know it exists but you really don’t want to go there.

But reality bites, as they say. The day of reckoning cometh, and it is only the very clueless who will not formulate some sort of plan to deal with it. In fact, with credit cards, there is a day of reckoning every month, and you really should know how you are going to repay a credit card debt you have built up, and have a rationale for your explanation. A plan to pay nothing more than the minimum amount each month for the lifetime of the debt does not rate as a plan at all. If you are twenty years old with a $2,000 debt at an interest rate of 20%, and your plan is to pay off that debt at just the minimum 2% each month, you will be sixty years old when that debt is eventually settled, and it will have cost you $7,000 with the interest. That plan lacks rationale.

Clearly, the best way to repay a credit card debt is to settle the bill in full every month. Therefore your plan with that would be not to spend more in the month than you can pay off.

However, as life has a habit of throwing curve balls at you when you least expect, even the most frugal of individuals can wind up with a credit card debt at the end of the month that is beyond their resources to completely pay off. So when that happens, you need to consider how best to attain a zero balance for the following month.

Your answer is to repay your credit card debt as fully as possible so as to leave a smaller amount for next month. This is crucial because, despite your best efforts to avoid using your credit card again, it may still be called into action the following month. So you can see what’s happening here. Debt is building, little by little, and paying it off will become harder and harder. When thinking how to repay a credit card, your focus should never be on the minimum amount requested by the credit card company, but rather on the maximum amount it is possible for you to pay.

One calculation you should be able to make with ease is how much interest will be applied to your account should your debt not be paid off in full. This means understanding your APR – Annual Percentage Rate.

Remember that percent means per cent, as in per hundred. So a 15 percent APR on your card means you would owe $15 on every $100 of debt if you kept that debt for the whole year. However, because credit card interest has to be worked out on a daily basis you need to make a small calculation.

To calculate a 15% APR on a daily basis, you divide 15 by 365 (days in the year). 15/365 = 0.0410958. That means you would pay 0.0410958% interest each day of the year on $100. If you owed interest on 30 days, you would simply times that by 30, so the calculation would be 0.0410958 x 30 = $1.232874, which would be rounded down to $1.23 interest.

If the amount you owed was $200, you would times that amount by 2: £1.23 x 2 = $2.46.

If the amount you owed was $70, you would times that amount by 0.7: $1.23 x 0.7 = $0.86

Such calculations may seem boring, but if your intention is to repay your credit card as quickly as possible, you should understand how interest can accumulate on your debt. That may scare you into making a better plan.

• Comparison of Top 10 Credit Card Offers

Editor's Choice: Our Top Credit Cards

Credit Card	Card Details	Interest Rate (p.a.)	Cash Advance Rate (p.a.)	Balance Transfer Rate (p.a.)	Annual fee	Interest free days (up to)
HSBC Credit Card	Editor's Choice: 0% for 6 months Balance Transfer & No Annual Fee Featuring a $0 annual fee for life, and 0% p.a. balance transfer for 6 months, the HSBC Credit Card was voted the Best Transactor Credit Card for 2010.	16.99%	20.75%	0% for 6 months	$0	55
Suncorp Clear Options Standard Visa Card	A great 12 month balance transfer offer, combined with a low annual fee and a good interest rate on purchases.	12.24%	17.99%	1.9% for 12 months	$39	0