Snowball tells me to pay off 0% first - is this right?

DominicJ_2

I'd do
4 for three months
Then pay off 1 in the next three months.
Then BT as much of 4 on to 1 as you can
Clear the rest of 4 in months seven to nine.
Balance Transfer 3 to 4
Clear Card 1 in months ten to twelve
Balance transfer 3 to 1 - Everything should be 0% by now
Clear Card 2 in months thirteen to fifteen.
BT anything thats still interest, there might be a few squiggles.

The_Boss

Don't worry about doing more digging for the actual minimum payments.. Plugged in the figures and it does work out better to pay off the 0% first even with a monthly minimum repayment of 1%

When you are back, please list the cards along with the credit limits and lender names. You may be able to shuffle things around a bit.

aleph_0

The tool you're using (and all other snowball tools I could find) always seem to go with a strategy of "pick a card to pay off, pay it off, pick the next card, ignoring any promotional rates". I gave it a simple example where there was a 0% promotional card which could wait for the interest-bearing card to be paid off, and it still chose the wrong setup.

As you've realised, in your case it's better to pay down one of the 19.9% cards until the 24.9% card 1 starts charging interest (*). Once it starts charging interest, focus on clearing it, and then focus on a 19.9% card again, until card 2 starts charging interest.

I hope that sounds like an easy strategy - each month, you just focus on paying off the card *currently charging* the highest interest rate.

You can trick the snowball calculator to roughly show you the workings for this by splitting card 4 into two 'cards' - 4a with a balance of £1,450, and 4b with a balance of £3,450, and then selecting pay by balance order. This gives a total interest of £4,533, rather than the £4,804 quoted previously.

As others have suggested, it might be a good idea to look into balance transfers - shuffling around the debts. I'll leave it to others who are more knowledgable to discuss this once you've posted your credit limits.


(* This isn't always the case - for others, it might make sense to start paying the 0% card earlier, but doing some hand-waving, since the 'extra' interest is 5%, and you are saving 19.9%, I think it makes sense to wait the 6 months)

Pantera_Fan

sophie.christie wrote: »

Card 1 is £1500 at 0% for 6 months then 24.9%
Card 2 is £1800 at 0% for 15 months then 24.9%
Card 3 is £6700 at 19.9%
Card 4 is £4900 at 19.9%

This is the order it's telling me to pay them off in, is this right?

When selecting interest rate order the snowball calculator orders debts by the standard APR and only takes account of promotional offers on how much interest you pay back in that order.

In your case the standard APRs are highest on the cards which have 0% deals so it is recommending paying them off first. If you were to amend the standard APRs on these two cards to 18.9% for example they would be put last. Or you could amend the standard APR to the promotional rate on both these cards. In both scenarios follow it until the deal ends in 6 months time and then redo the calculation.

Skinnylatte

Thanks for your help Boss, all the cards a near their max, so I won't be shuffling any for a while.
Aleph_0 & Pantera Fan, your stategy makes much sense, I will throw as much as I can at the highest rate card, which ever one that'll be at the time.
Thank you !!

matttye

sophie.christie wrote: »

Card 1 is £1500 at 0% for 6 months then 24.9%
Card 2 is £1800 at 0% for 15 months then 24.9%
Card 3 is £6700 at 19.9%
Card 4 is £4900 at 19.9%

This is the order it's telling me to pay them off in, is this right?

Pay off 3/4 in any order as they are the same interest rate so it doesn't matter. Then just make sure you have enough time to pay off the 0% ones before they end.

Personally I'd do this:

- £250 on 1, £250 on 3 for 6 months. This pays off 1.
- £200 on 2, £300 on 3 for 9 months. This pays off 2.
- £500 on 3 for 5 months. This pays off 3.
- £500 on 4 for 9 months then £400 on 4. This pays off 4.

This reduces the interest on 3/4 while making sure the other cards are paid odd before the 0% deal ends.

Skinnylatte

matttye wrote: »

Pay off 3/4 in any order as they are the same interest rate so it doesn't matter. Then just make sure you have enough time to pay off the 0% ones before they end.

Personally I'd do this:

- £250 on 1, £250 on 3 for 6 months. This pays off 1.
- £200 on 2, £300 on 3 for 9 months. This pays off 2.
- £500 on 3 for 5 months. This pays off 3.
- £500 on 4 for 9 months then £400 on 4. This pays off 4.

This reduces the interest on 3/4 while making sure the other cards are paid odd before the 0% deal ends.

I still have to pay the minimum payments on the others, I don't have £500 on top of minumum payments, just £500 available in total.

matttye

sophie.christie wrote: »

I still have to pay the minimum payments on the others, I don't have £500 on top of minumum payments, just £500 available in total.

What are the minimum payments on each?

aleph_0

matttye wrote: »

- £250 on 1, £250 on 3 for 6 months. This pays off 1.
- £200 on 2, £300 on 3 for 9 months. This pays off 2.
- £500 on 3 for 5 months. This pays off 3.
- £500 on 4 for 9 months then £400 on 4. This pays off 4.

This reduces the interest on 3/4 while making sure the other cards are paid odd before the 0% deal ends.

Whilst, intuitively, I can see what you're trying to do, your suggested method is suboptimal. It is better to work on paying off 3/4 for the first 6 months, and only when 1 is charging 24.9% to focus on paying it off. Similarly when 1 is paid off, again focus on 3/4 until the rate goes up on 2. (I gave some figures for the interest over the life of the debt in an earlier post)

This is because the 5% extra interest (24.9%-19.9%) paid is outweighed by saving 19.9% interest for the 6 month period.