What should I pay first?

Fudge36

Hi there!

I've been very luck to get a small bonus this year, and I want to use it towards paying off my credit cards. The amount isn't enough to pay one out right so wondering if I'm better off splitting across each one or focus on the one with highest interest?

Thanks in advance

Twiggy_34

I think Martin's advice is usually to clear the more expensive (higher interest) debt first. Although you say it won't be enough to clear it entirely, it will at least reduce the amount of interest you're paying until you do clear the entire debt.

Have you looked into transferring the remaining debt to an interest free c/c? Might be worth investigation after you've reduced the overall amount

CLAPTON

pay as much as possible on the one with the highest interest RATE (i.e. the highest APR

Anthorn

I take a different view which depends on whether you intend to eventually clear a card. Paying off a card can save more interest than making a payment on a card with the highest interest. What really counts is not the interest on each individual card but the overall interest across all your cards and the related overall balance across all your cards.

In this case making the payment off the card with the least balance makes more sense. You will need to get out your calculator to see if that's relevant for you.

HappyMJ

Anthorn wrote: »

I take a different view which depends on whether you intend to eventually clear a card. Paying off a card can save more interest than making a payment on a card with the highest interest. What really counts is not the interest on each individual card but the overall interest across all your cards and the related overall balance across all your cards.

In this case making the payment off the card with the least balance makes more sense. You will need to get out your calculator to see if that's relevant for you.

Surely it's better for me to pay something (let's say I've got £300 spare this month) towards a credit card with an outstanding balance of £4,000 charging 24.9% interest (currently charging 0% introductory rate for another 3 months) than pay off my life of balance transfer card (Capital One) with £300 outstanding charging 3.9% forever. I only need to pay £5 per month to Capital One and will do so for quite a number of years to come.

YorkshireBoy

Anthorn wrote: »

I take a different view which depends on whether you intend to eventually clear a card. Paying off a card can save more interest than making a payment on a card with the highest interest. What really counts is not the interest on each individual card but the overall interest across all your cards and the related overall balance across all your cards.

In this case making the payment off the card with the least balance makes more sense. You will need to get out your calculator to see if that's relevant for you.

I'm sorry I don't follow your thinking. Nor did I the last time you posted your thinking on this (think it was you, apologies if it wasn't).

The debt carries an overall monthly cost, ie interest charged. Paying off the highest APR card first reduces this cost quickest...doesn't it? Meaning less is spent on interest and more on capital for every pound repaid.

The only time I could see any sense in paying off other smaller balance cards with lower interest rates would be to tease an existing customer special offer 0% BT out of them once clear. These days, and for some time now, with positive payment hierarchy repayments there's no penalty (in terms of payment order) to taking a promotional rate BT on top of a revolving balance.

redpete

Anthorn wrote: »

I take a different view which...

...is wrong

Paying off a card can save more interest than making a payment on a card with the highest interest. What really counts is not the interest on each individual card but the overall interest across all your cards and the related overall balance across all your cards.

In this case making the payment off the card with the least balance makes more sense. You will need to get out your calculator to see if that's relevant for you.

If you have £10 available then it will save you most interest to pay it off the card that has the highest interest rate % (not the highest monthly interest charge in £) regardless of what the balance on that card is.

[Deleted User]

This might be better on the Debt Free Wannabe board.

CLAPTON

Bedsit_Bob wrote: »

This might be better on the Debt Free Wannabe board.

why would that be

it's simply a maths problem

stator

First, work out if you have enough money to survive if something bad happened.
Then work out if you have enough money to cover all future comittments, such as making all the minimum payments on your credit cards and other finance and also to pay for any car insurance or taxes that become due soon. For example you may find that if your car insurance is due for renewal and you normally pay monthly, it may be cheaper to pay for the insurance in one go with your lump sum if the interest rate is higher than your credit cards.
Assuming you are happy with your 'cash reserves' then always pay the money off the highest interest rate credit card first.

Anthorn

redpete wrote: »

...is wrong
If you have £10 available then it will save you most interest to pay it off the card that has the highest interest rate % (not the highest monthly interest charge in £) regardless of what the balance on that card is.

I don't understand. Your monthly payment presumably comes from income and therefore it's the monthly payment that matters and not the APR.

My position is this: If you have two cards and you pay off one card then you are paying interest on only one card. But if you make a payment against the higher interest card and don't clear it you are still paying interest on two cards. Pretty obvious really.