Advice re: interest please

squiggle123

Hi,
Things haven't exactly gone to plan since my last post. However, ragardless of that I need some advice on interest as I don't understand it. We are going to have aprox. £2000 to pay some debt next month. The credit card is at 20.63% 'compounded rate' whatever that means? And the overdraft is 19.84% EAR. Firstly I have no idea if compounded and EAR are the same thing. Can anyone she'd some light please? The credit card is at £4,200 balance. The overdraft £2000 balance.
Basically I'm thinking use the money to pay off the overdraft because it's an Ac we no longer use and would mean from April the debt would be all in one place ie. The credit card. And mentally that feels more manageable and organised. However I am unsure if this is sensible regarding the interest rates to do this or would there only be minimal difference? Gosh I hope this make sense. Really appreciate any advice on this.
Thank you!

Pixie5740

The interest will be compounding on both the credit card and your overdraft. Compound interest (or compounding interest) is interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

The EAR is the Equivalent Annual Rate. It is a representative interest rate that shows the rate you would pay if you remained overdrawn for a year. Note that it doesn't include any fees or charges for going overdrawn.

Pixie5740

There's not much between the two rates so from a psychological point of view I would pay the overdraft off in your shoes. Overdrafts can also be recalled so that's another reason to clear it.