How to crush your credit card

If you're fed up with paying rip-off interest rates on your credit card, then here's a quick and easy way to destroy your debt.

This article was first sent to readers as an afternoon email.

The problem with credit cards is that they are something of a double-edged sword. Use them carefully and you can enjoy interest-free credit (including via 0% cards), cashback and other rewards, plus extra legal protection in the form of Section 75. Use them recklessly and you face yearly interest rates of 15% to 30%, plus extra fees and fines!

Take an interest in your interest

As with any forms of borrowing, including mortgages and personal loans, the biggest expense faced by cardholders is interest. Indeed, the interest charged by credit cards can add up to an enormous amount over time. Although a monthly interest rate of, say, 1.5% doesn't sound like much, it compounds up to 19.56% a year.

At an annual interest rate of 19.56% APR, and making no repayments, your debt will double every four years thanks to interest alone. Even worse, the Bank of England's base rate now stands at a record low of 0.5% a year, making the typical credit card -- at an APR around 18% -- look extortionately expensive.

The menace of minimum monthly repayments (MMRs)

Of course, when faced with such high rates of interest, your best bet is always to repay your monthly card bill in full. The next best thing is to repay your credit-card debt as quickly as you can. The very worst tactic is to pay off your balance using minimum monthly repayments (MMRs), as these can be as low as 2% a year.

Let me show you just how awful MMRs can be. I'm going to assume that your credit record isn't perfect, so you'd find it hard to transfer your plastic debt to a 0% balance transfer or low-rate lifetime deal. In other words, you can't shift your debt to a 0% or low-rate card and, therefore, are stuck with it.

In this situation, the best thing to do is to avoid paying your card's minimum monthly repayment, as your debt could take decades to pay off and cost you a king's ransom in interest. Instead, overpay by adding as much as you possibly can to your MMR. To see how effective overpaying is, take a look at the following table (which is based on a balance of £2,000, an APR of 19.56% and an MMR of 2%):

Source: www.whatsthecost.com

As you can see, adding £50 a month to the usual minimum monthly repayment of 2% of your (slowly reducing) balance makes a massive difference. Your debt-free day moves forward by 37 years and three months to just three years. What's more, your interest bill falls from over five grand to under £500 -- a plunge of more than nine-tenths (90%). How great is that?

In summary

If you want to dynamite your credit-card debt as quickly as possible, but can't arrange a balance transfer to a 0% or low-rate card, then simply hike your monthly repayment to as much as you can comfortably afford. Even adding an extra £20 a month will deduct decades from your debt-repayment period -- and avoid thousands of pounds of extra interest!

Compare credit cards with lovemoney.com

More: Two tasty balance transfer deals | What to do if you can't get a 0% card