III. 5 Tips for Paying Off
Accumulated Credit Card Debt
Do you feel overwhelmed with your outstanding
credit card debt? Has your accumulated balance
spiraled out of control that you are now having
difficulty paying it off? Below are 5 tips to help
you manage your credit card debt level and regain
control of your finances.
5. Stop Using the Card
Keep the card out of your wallet so you are not
tempted to use it. Paying cash for purchases helps
in making you conscious about your spending.
If the problem is severe and if you are falling behind
your bills, you may negotiate with your bank or
creditor to be able to settle your obligation.
1. Set a Goal
Establish realistic goals for paying off your
accumulated balance to a manageable level.
Monitor your progress (in person, through phone
or online) regularly to keep you on track.
2. Create a Spending Plan
Create a spending plan (weekly or monthly) for your
income. This will help you live within your means and
will give you a timeline on when you can reduce your
outstanding balance.
3. Trim your Expenses to Free Up Some Cash
Keep a record of and categorize your spending to know
where your money is going. Review your record and
look for opportunities to cut your expenses (i.e., dining
out, watching movies, etc.). This will free up some cash
that you can use to pay off your outstanding balance.
4. Pay Off First the Card with the Highest Interest
Rate
If you have outstanding balances with multiple credit
cards, maximize payments on the credit card with the
highest interest rate. Once fully paid, pay off the card
with the next highest interest rate. This will save you on
interest payments and help you settle your debts faster.
Developed by the Financial Literacy and Advocacy Division
Financial Consumer Protection Department
contact information
Financial Consumer Protection Department
Financial Supervision Research and Consumer
Protection Sub-sector
Supervision and Examination Sector
Bangko Sentral ng Pilipinas
5th Floor Multi-storey Building
BSP Complex, A. Mabini St., Malate
1004 Manila
Contact Details:
Direct Line: (02) 708-7087
Email Address: [email protected]
Financial Education: Building Block for a Stronger Economy
Paying only the minimum amount due
on your credit card bills look so easy on
your budget, since you only have to pay
a seemingly small amount. However, if you
take into consideration the interest due,
the amount you are actually paying may not be so
insignificant at all.
Below
are
different
payment
scenarios
showing how much it will cost if you
pay only the minimum due every month
and how paying a little more than the minimum
amount due can impact both the interest due and
the payoff period.
II. Different Payment Scenarios
ASSUMPTIONS
Total Outstanding Balance
(Principal)
Interest Rate
=
₱5,000
Scenario 1: Maria pays only the minimum amount due every
month.
Total Outstanding Balance = ₱5,000
Monthly Interest Rate = 3.5%
Monthly Payment = ₱500
No. of months to pay off debt = 13 months
Total Interest Paid = ₱1,263.27
Scenario 2: Pedro pays the minimum amount due plus ₱200
every month.
Total Outstanding Balance = ₱5,000
Monthly Interest Rate = 3.5%
PEDRO
Monthly Payment = ₱500+₱200
No. of months to pay off debt = 9 months
Total Interest Paid = ₱856.54
Scenario 3: Julia pays the minimum amount due plus ₱500
every month.
Total Outstanding Balance = ₱5,000
Monthly Interest Rate = 3.5%
JULIA
=
3.5% / month or
Payoff Period
No. of months to pay off debt = 6 months
Foregoing illustration shows that paying only the
Total Interest Paid = ₱596.12
Total Outstanding Balance = ₱5,000
Monthly Interest Rate = 3.5%
Monthly Payment = ₱500+₱1500
=
₱500
Interest
Monthly Payment = ₱500+₱500
minimum amount due would result in paying a
Scenario 4: Juan pays the required minimum amount due
plus ₱1,500 every month.
42% / annum
Minimum Amount Due
MARIA
(in ₱)
I. Paying the Minimum Means Paying Interest to the Maximum
No. of months to pay off debt = 3 months
Total Interest Paid = ₱331.14
JUAN
significant amount of interests over time. Hence,
doubling, or even tripling the costs you paid for the
things you bought using your credit card. However,
additional payments of at least ₱100 can significantly
reduce the total interest to be paid, as well as the
period of repayment.