Can anyone help me sort out the best order in which to pay my debts?

hammies_2

Hi could anyone help me figure out the best order to pay off the following debts?
I have £800pcm available to pay the following debts, how should I do this in order to pay the minimum interest payments?

£3000 on a credit card with 12.9% apr
£750 on a student overdraft with 18.8% EAR
£300 on a non-student arranged overdraft with 19.5% EAR.

Thanks

jd87

Pay off the highest interest first. It's as simple as that. So pay off your overdrafts first.

hammies_2

But surely there is more interest charged to the cc each month, even though it is the least apr, it has the highest balance by a long way, wouldn't I be better paying that first?

fermi

May help................

http://www.whatsthecost.com/snowball.aspx

jd87

No, look at it this way. Take the £800 you are going to be paying in the first month. If you pay it all off your credit card then you will reduce the interest that you have to pay for that month by 800 pound's worth of 12.9% APR interest.

If instead you pay it off your overdrafts then the interest you pay will be reduced by 800 pound's worth of a higher APR interest.

The only thing that matters is the amount that you are paying off. Not the amount that will be left. Imagine if you broke up your credit card into 10 x £300 credit cards each at 12.9%. The amount of interest on each of them will be less than on the £300 overdraft.

hammies_2

Thanks alot to both of you! The website is really good and it gave me the same advice as jd87! :j:T