Best payment option

Tom59

Let's say that I have two credit cards. Both charge the same interest.
The balances are A/C A £5000 and A/C B £1500.
I don't always want to pay the minimum amount. If I get a lot of overtime some times, I can afford to pay £200 or £300 extra for that month.
Which is the most efficient way to do it?
£300 to A/C A and have a slightly smaller interest charge in future or should I send it to A/C B in the hope of paying it off sooner?
In all honesty, both options seem good to me, so I'm really not sure what to do for the best.

grumbler

If the interest rates are the same it makes no financial difference what card you pay to, but psychologically it's better to pay the smaller debt off first.

Tom59

Thanks for that. I've been rattling the calculator and getting nowhere. Now I know why!

chattychappy

I'd pay off the smaller balance first. Then put your purchases there to get them to 56 days interest free (or whatever).

Also, the sooner you clear a balance, the sooner you might get a decent 0% balance transfer deal to take the other balance. Depends on the card though - some are better than others.

lee111s

Get a new card with x months interest free and balance transfer both cards?

matttye

Tom59 wrote: »

Thanks for that. I've been rattling the calculator and getting nowhere. Now I know why!

I'll just explain briefly why it doesn't make a difference.

If you paid £300 off either card, you're going to be charged whatever the interest % is on £300 less no matter which one you pay off.

So let's say:

Card 1 = £5,000
Card 2 = £1,000

No matter which one you pay £300 off, you're still going to be paying interest on £5,700 in total.

The only time it would make a difference is if the interest rates were different, in which case you'd pay off the highest % first.

StuC75

same rates then no difference.

It can be more pleasing to clear off the lower one first - then you could use that month to month, or maybe even get offers for balance transfers on that card.

Whats the credit utilisation on both accounts - i.e. 5k of ?k and 1.5k of ?

Do you presently just pay the minimum? in which case might be better to split between accounts the extra payment so that doesnt flag as only minimum payment made..

3rd account to balance transfer some into on a deal could also be sensible, but chances of success could very according to your credit file (e.g. if maxed out or low utilisation)..

Its a guessing game really, and like the card providers themselves everyone on here has a slightly different perspective..

The_Boss

While I agree with most of the above, I'd also take my credit limits into account and certainly not close the 'lower' account after repaying.

Not such a factor if the balances were as above and you could repay £200+ a month, but would be more of an issue if the balances were say £2000 and £4000 with >75% of credit limits in use.