Which CC should I clear first?

ElJayco

Hi All,

I have been slowly reducing my debts for a few years now but have only been able to afford the minimum payments up until recently.

I now have the luxury of having extra money each month and that amount will increase as I reduce my credit card debt faster.

I can't get any new cards for 0% though could probably move some of the debt around on current cards to reduce the APR but obviously there would be charges for that.

My question is how do I work out which is the best card to target first based on the following criteria.

The one with the highest debt, the one with the highest APR, the one with highest minimum payment, the one with the lowest % of the monthly payment versus interest added, ie on one I paid £25 last month and then they added £24 interest so in reality only reduced the debt by a £1.

Or is it a combination of all the above.

Maybe I should just target the one with the lowest debt so I can get cards cancelled quicker?

Regards, Jason.

Fitzer2000

Hi El, If you post a Statement of Affairs (SOA) I'm sure there will be lots of advice about which to pay first. It really depends on the amount of interest you're paying. Welcome to the board and well done for posting!

ElJayco

I can post them if they are needed but it was more of a general question as I am sure there must be guidelines that would apply to anyone based on what I have asked?

InDeepDebt

I would have thought that the highest APR one first as that's the one that you're paying most interest on.

However, sometimes the heart rules over the head and getting a card with a small balance out of the way simply gives you the feel good factor and then instead of having (say) six cards with balances you have five. Gives a big motivation boost.

I'm assuming that you're not on a DMP or anything and your credit record is good.

Jim

SusieT

Generally you would pay the one with the highest interest rate first so that you pay the least amount of interest possible. Some people may clear a small balance first to get the boost of having one less to pay.

There are snowball calculators that will show you how much faster you can pay them off and how much less interest you will pay.

Triggles

I have to agree the sensible thing is most likely to pay off the one with the highest interest rate first, however, for ours we will be paying off the lowest balance ones first, simply for the motivational boost. The remainder are then all about the same, so we will then push on with the highest interest rate first. But that's just because we want the morale boost. LOL

Numpty_Monkey

You can try the snowball calc http://www.makesenseofcards.com/snowcalc.html
;)but sometimes its worth paying off the ones with the small balances first,

and after a few months asking them about lower APR balance transfers
and then you get into all the "stoozing and card tarting" thing which Martin has tools for:money:

ElJayco

Thanks all, I will do some more calculations.

I guess the other factor is card A with say 7k and an apr of 15% APR and card B with say 3500k but 30% APR and what to do in those situations.

I will try the calculator though and fiddle with the min payments to see what works out best.

Poosmate

Hi Eljay, well done on reducing your debts and congrats on posting.

I know what you mean about those pesky cards who's minimum payments are only pence over the interest charged. I have one of those - it's a low life of balance interest rate. It's my lowest debt at just under £650 and it guilles me to think that it will take 3 years to get the balance down to £599! It's done my head in so much that I've upped the minimum payment by almost £1 just so it will make me feel just a little bit better about it even though that £ would be better spent paying off the higher interest rate card.

Still, at least I'm paying less interest on it atm freeing up some extra cash to pay more off the higher interest cards. At the end of the day, it's all debt and all accruing interest and the quicker I can pay the higher interest ones the quicker I can pay the low life of balance one.

The snowball calc tells me I'll have paid my debts in just over 8 years but that's only if I, don't take in a lodger, get a payrise, get a part time job, don't win any cash, don't pay more than I am now, interest rates fall (lol) or move my debt to lower interest rate cards. Adversley, it could take longer if interest rates go up or am forced to add to my debt. The latter is likely as I need to replace my car any time soon, although I am working on damage limitation.

To me, the important thing is knowing the circumstances you are in and using the snowball calc as a, hopefully, worse case scenario. Also, being aware of external events (rate rises) and how they will affect your finances and knowing, when push comes to shove, what else you are prepared to give up to reduce your spending.

Hope that helps

Poo

DVardysShadow

ElJayco wrote: »

I can post them if they are needed but it was more of a general question as I am sure there must be guidelines that would apply to anyone based on what I have asked?

In general, as others say, you pay them down highest APR first. But that rule does not always apply. Sometimes you need to pay down the smallest cards first, just to generate some slack in a tight budget.

That is the reason for asking for a Statement of Affairs - so that the guidelines are intelligently applied.

Poosmate

ElJayco wrote: »

I guess the other factor is card A with say 7k and an apr of 15% APR and card B with say 3500k but 30% APR and what to do in those situations.

This one is not as simple as saying you'll pay the same interest because the rate is double on half the debt. You need to check how your minimum payments are made up.

For example, my low life of balance minimum payment is made up of the interest plus 0.25% of the balance. Another card is interest plus 2.5% of the balance. So I am paying off the debt on the second card (with the higher interest rate) 10 times quicker than the one with the lower interest rate.

So it's dependant on the rate at which you pay off the debt rather than the interest rate. If it's going to take 10 times longer to pay off a debt by paying reduced interest it's a false economy, you'll pay more interest in the long run.

As I said earlier, I'm using mine to free up extra cash now to pay off the higher rate cards even quicker.

Please check how your minimum payments are made up, don't just assume that because the interest rate is lower you'll be paying less interest.

Poo