Credit card debt

Jo401981

Hi there I’m new to this forum, I think I posted this on the wrong thread before?. 

I have been dealing with 3 different credit cards in persistent debt for over 3 years. I have been keeping up with payments the minimum. I have now saved enough to pay off one credit card. What is the advice?,  to pay off some off all credit cards? Just the high interest one first? If can pay off one how can I reduce the interest and put the other credit cards on one? Thanks  

[Deleted User]

Pay off the highest interest one first, that means you have more money to throw at the cards with lower rates so you are paying off more of the capital and less interest.

Unless one of the other cards has balance transfer offers then there is no way for you to "put the other cards on one", just use the money you saved from not having to pay the highest interest rate towards the other two cards rather than spending it elsewhere.

Savings are fairly pointless when they're earning less than 1% while you're paying interest on a card

Arwen

Completely agree with above poster. I am putting everything into repaying my cards, only have small savings to cover something such as car repairs/ emergencies, a weekend away when allowed-nothing big. 

inthezeroroom

Youn have two options. As above, paying off the highest-interest card first makes sense mathematically. However, I am fully subscribed to Dave Ramsey's debt snowball approach where you list your debts smallest to largest (regardless of interest rate) and pay off the smallest one first. You then add the payments from the first debt to the payments on the next debt (plus whatever other money you can find) and get that one gone asap. Then you roll on to the next largest debt (hence the snowball analogy). Yes, you will pay less overall by paying off the highest-interest debt first, but in terms of motivation the debt snowball is more effective.

Coffeekup

With the brief information given there is no best answer. It depends on your personal situation, job stability, income, partner, children, elegible for balance transfers how much Apr you have on your cards, and when the interest free is up on current cards .. You also say "persistent debt" for 3 year's........ TLDR? Basically give us number's if you want to pay less interest, and get the debts paid off.

You have 3 option's...
1. Keep the cash as an emergency fund, (so you don't have to use the card again). What you save each week/month then on in pay off the c.card with highest Interest.
2. Use it to pay off the card with highest Interest. 
3. Pay off one of the 2 smaller card's, and use what you would have paid for that card and over pay on one of the other cards.

Either way paying minimum is persistent, up you payments on all cards to the nearest £10, the balances will come down quicker.

A_Lert

In your situation I would go for paying off one card completely. Then the money you aren't paying on that card every month can go towards another one card. Kick start the snowball.

I understand you may want to keep some savings, for fear that the paid off card will have its credit limit cut, but large savings and large card debts at the same time is just !!!!!! money away.

sonofmerton

i certainly disagree with using all your savings to pay off a credit card. quite a few card companies have been reducing the credit card credit amount once you have a nil balance - ie was 8k you owed 5k, paid it off, they then reduce your limit to 1k.

the result is, you have no savings, so you end up getting another card or going to the limit on the cards you do have (with that reduced limit) if there is an emergency.

certainly i would start to pay off the one with the highest apr/most interest first. but leave a buffer in your account so you can use actual cash should an emergency arise. 

others will disagree but i see no point putting yourself back into the position of why you likely got a card in the first place by using all of your savings at once to pay a card off and leaving you with no cash.

one thing is certain, cash in your account is king and yours (poor savings rates or not). you can manage that to drip feed the cards off (paying each one off individually until you can afford to pay the next one off). you then rid yourself of the scourge of credit cards but constantly retain actual cash you can use that doesn't generate a 2nd bill if you buy something.   

Nebulous2

It would help if you gave us some more details, such as; credit limits, balances and available money.

I'm concerned by your use of the term 'persistent debt.'  If the credit card companies are using a formal process to deal with that, I'd try to head that off, regardless of APR. 

Have you had any letters about it? 

[Deleted User]

inthezeroroom said:

Youn have two options. As above, paying off the highest-interest card first makes sense mathematically. However, I am fully subscribed to Dave Ramsey's debt snowball approach where you list your debts smallest to largest (regardless of interest rate) and pay off the smallest one first. You then add the payments from the first debt to the payments on the next debt (plus whatever other money you can find) and get that one gone asap. Then you roll on to the next largest debt (hence the snowball analogy). Yes, you will pay less overall by paying off the highest-interest debt first, but in terms of motivation the debt snowball is more effective.

Does Dave Ramsey work for credit card companies by any chance???? (joke!)
Paying off small, low interest, debt while racking up interest on bigger debts is a ludicrous idea. Why on earth would you want to pay more interest and take longer to clear the debt just so you can tick a box and say a smaller debt is gone? The motivation is surely that you will get debt gone faster by paying off the one where you are getting hammered by interest where paying off less (to pay off the small debts) means more repayment goes on interest than capital.

[Deleted User]

sonofmerton said:

i certainly disagree with using all your savings to pay off a credit card. quite a few card companies have been reducing the credit card credit amount once you have a nil balance - ie was 8k you owed 5k, paid it off, they then reduce your limit to 1k.

the result is, you have no savings, so you end up getting another card or going to the limit on the cards you do have (with that reduced limit) if there is an emergency.

certainly i would start to pay off the one with the highest apr/most interest first. but leave a buffer in your account so you can use actual cash should an emergency arise. 

others will disagree but i see no point putting yourself back into the position of why you likely got a card in the first place by using all of your savings at once to pay a card off and leaving you with no cash.

one thing is certain, cash in your account is king and yours (poor savings rates or not). you can manage that to drip feed the cards off (paying each one off individually until you can afford to pay the next one off). you then rid yourself of the scourge of credit cards but constantly retain actual cash you can use that doesn't generate a 2nd bill if you buy something.   

Keepings savings at 1% (losing money due to inflation, effectively) and paying lots of interest is not MSE worthy advice. So what if the limit gets reduced - better to have lower limit to stop racking up debts and not be paying lots of interest than wasting cash 

A_Lert

Deleted_User said:

Paying off small, low interest, debt while racking up interest on bigger debts is a ludicrous idea. Why on earth would you want to pay more interest and take longer to clear the debt just so you can tick a box and say a smaller debt is gone? The motivation is surely that you will get debt gone faster by paying off the one where you are getting hammered by interest where paying off less (to pay off the small debts) means more repayment goes on interest than capital.

Because psychology matters. Both the "snowball" and the "avalanche" are for people who can meet all their living expenses and minimum payments but may not have much disposable income above that. The snowball gets that first debt "done" sooner and once it is repaid you are immediately better off. Yes you pay more interest in the long run, but you get steady results rather than the avalanche's long slog before all the "wins" happen at the end - a long slog that makes it so much easier to get disheartened and give up.

So the snowball has a lot of support, though some people will prefer the avalanche.

In practice they often give the same process anyway because smaller debts are typically higher interest.