How to choose order to pay debts when 0% deal ending

steviedebtfree

I am currently working on reducing our debt mountain which is currently around £14000 but whilst it makes sense to pay off debts with the highest pecentage first, I am finding it difficult to figure out the best course of action when 0% deals are going to end. It might be best to outline what is currently outstanding and when the deals end:

MBNA: £1465.00 at 14.9% and £1014 at 8.69% Life of Balance
LLoyds TSB: £4153 at 9.9% and 927 at 0% until April 2012 then 9.9%
Natwest: £5467 at 0% until August 2012 then 18.3%
First Direct: £757 at 5.69% life of balance.

I have £670 allocated to clear these so based on that the MBNA debt at 14.9% will be cleared before any deals end but I am not sure if at that point I am better off allocating the biggest chunk to Lloyds TSB which at that point will be the debt with the highest interest rate or to Natwest which will be the most expensive debt when the 0% deal ends. I have used the Make sense of cards snowball calculator but all that does is allocate to the highest interest rate debt after a deal ends so in this instance it puts the big chunk onto Natwest instead of MBNA.

I have had a play with other calculators but I just end up with a headache so I thought I might see what you DFW experts might have to say on this.

mildredalien

Hiya,

from a brief look it seems like it would be best to tackle the MBNA debt as a priority until at least August 2012. Then (depending if it is paid off or not) you could switch to the Natwest debt if you are unable to switch to another 0% deal as that will be the highest interest rate debt. So for example -

- overpay to MBNA til August 2012
- overpay to Natwest from August 2012 IF 0% deal ended and you can't move it
- overpay to Lloyds once MBNA is paid off IF Natwest deal still at 0%
- overpay to FD last as lowest interest rate.

Good luck!

steviedebtfree

Sorry if I didn't fully explain what I meant in my first post but basically my current plan would be to pay the high interest portion of MBNA first (this would be cleared by March 2012) then Lloyds TSB until Natwest deal ends in August 2012. What I really would like to know if there would be a benefit to choosing to go for Natwest next so that when the deal ends the 18.3% is on a much lower balance (about £2500 instead of £4500). As I mentioned the traditional online calculators make it difficult to figure the result.

DVardysShadow

The answer to this is not straightforward. So the online calculators won't necessarily yield the correct answer. Given what you say, I suspect that the makesense of cards snowball does not make the optimum choice for cards with introductory offers [ie your 0%]

A lot depends on how much you can pay off monthly. If you can pay it all off relatively quickly, then a period of 0% followed by an APR of 18.3% will effectively be a lower APR than 14.9%. Given that you have 5 months of 0% followed by 18.3%, as a rough calc, the average APR is 14.9% at 22 months. So if it would take you longer than 22 months to pay this one off, starting now, this will be your highest APR debt. But if it would take you less, then the 14.9% is your highest APR debt.