What should be paid off first?

willstewart

How do you decide which debts ought to be paid off first?

Whilst I have a few cards and loans (car + bank loan), they are at present manageable although I would rather not be paying out loads month in month out.

Say for example I have 3 credit cards.
The first has a balance of £2850, 24.9% APR, and a minimum monthly payment of £66.
The second has a balance of £1500, 29.9% APR and a minimum monthly payment of £56.
The third has a balance of £450, 29.9% APR and a minimum monthly payment of £23.

I was under the impression that paying off the card with the highest interest rate is the first thing to do, but I've noticed with one of my cards in particular, that even after paying a 1/4 off it in the last 3 months, it's knocked only a few £ off the monthly payment.
I've been paying more off the one particular card due to a large increase in the APR and paying mostly above the min payments on the others.

One option I looked at is to target the card with the smallest balance first and then use what money I would have paid on that to increase the payments onto the next card and so on. It gives the impression that I would have more £ available by paying off that card than by paying a little extra on the others.
There is the downside that I will be paying more out in interest in the long term though whilst I concentrate on one card over another. - I do tend to look at what's going out on a monthly basis rather than thinking what I will be paying an extra £xxx in interest.

Also wondering if I pay loads more onto one card with no or next to none transactions and especially if I wanted to keep it, whether this would increase the probability of a sudden credit limit decrease?

The loans are of secondary importance at present. The car loan finishes in Nov next year and the other loan at bit later (although not sure if I can do something PPI related with this).

Numpty_Monkey

The snowball calc is a very usefull tool
http://www.whatsthecost.com/snowball.aspx

tesuhoha

I would get rid of the card with the lowest balance £450 because its more easily achievable and its a very high rate. Once you have paid it off it will be an enormous boost. How much disposable money do you have for debt payment?

As your interest rates are all so high I would explore the possibility of applying for a 0% card, the BT rates are worth paying to achieve 0% for a long period and are usually much less than the interest charged. If you cannot do that then at least look at getting/negotiating a lower rate for your debts.

Tixy

A frequent quandry!

Whilst usually the advice is to pay the highest interest card sometimes, like you have found, if you are struggling to make payments as credit cards minimum repayment percentages vary it can sometimes work to clear a small balance first.
This also gives you the potential to use the empty card for a balance transfer. When a card has been cleared phone up and ask if they have any promotional balanace transfer rates (either at 0% or low life of balance). If they say no then ask again a couple of months later. If the answer if still no then close the account.

willstewart

The interest rates weren't too bad originally - they got increased by a few % and then again by a few % a couple of months later. Obviously, I see this as an illogical way of them not wanting any business so the quicker I get rid of them the better - they seem to be focussing on the short term i.e "Let's make more out of people who can't pay already" rather than worrying about alienating most of their client bases.

One of my tendancies is to occasionally use the cards for bits and pieces.
I don't have a physical card (MBNA) in the case of the one with the £1500 (or £1460 + whatever they add this month) - no idea where it went. Just vanished and never have found it. Therefore can't spend on that.
There is the option of getting a new one but last time I tried that with Sainsburys Bank, they said "no problem, it's in the post" and two weeks later still no replacement card. Rang up and was told "you're not having one" so I paid the £700-800 balance off in one go and (hopefully) got shot of them.

The HSBC one, with the highest oustanding amount, has a mixture of cash withdrawals (from a holiday) and purchases on it and I do use that on occasion online. Been offered a 3.9% BT rate for that, but if I take that, then that will be even more interest on the cash and purchases as they'll be pushed further down the order of payment list.

The smallest card is from Capital One. Easy enough to deal with as it's got a low limit. Just paid £208 (payment due date is the day before I get paid in August) off that so down to £250 now

Have applied recently for a Tesco card with a 0% BT deal but got instantly rejected. Possibly due to be connected to a card I have or have had eg MBNA.
Not really expecting to get one although I don't really want another at present. Ideally want to reduce the number of separate outgoings I have as most weeks there seems to be something going out and having say 4 payments a month instead of 6 is nicer (especially when half of them always seem to fall the day before I get paid or an online payment takes 1 day longer than when the bill is due).

Not sure about the amount of disposable income yet - going to sit down an work out my rough outgoings and what to target efficiently.
Should be able to pay off the Capital One card by next month (or Sept at the latest) if I don't go overboard on spending.

Lemon_Tree

i would go with what has been said before, you have two high apr cards so i would hit them first, and to get one out of the way i'd target the smallest one first, then snowball it's payment onto the next high apr one.
Just re read your last comment, i would also cut up the cards so you can't spend on them anymore, it's not going to help your situation.(which you already know) It's a hard thing to do don't get me wrong but it's does empower you on the DF road