Multiple credit cards

Hamiltonc

I have multiple cards and the 0% is slowly expiring.

As cards start to charge interest, what's the best way to prioritise?

Thank you 

DullGreyGuy

ones with the highest interest rates

Hamiltonc

DullGreyGuy said:

ones with the highest interest rates

But do you take balances into account or just use the Apr or the actual interest amount charged?

MorningcoffeeIV

Just the APR. 

Hamiltonc

MorningcoffeeIV said:

Just the APR. 

Confuses me - because if you're paying interest on both a high and low balance but the low balance is higher APR, you focus efforts on that and not the higher balance one?  So balance doesn't matter once you start paying interest? It's a confusing one 

MorningcoffeeIV

Correct. Balance is irrelevant. Say you have the following balances.

10k at 2% 
5k at 3%
1k at 4%.

For any given £100 from any of the balances, it's costing you £2, £3 and £4 in interest to leave it there.

So you pay your spare money off the £1k balance, because you save the most interest.

It's why we desperately need financial education in schools.

Superhoopza

Hamiltonc said:

MorningcoffeeIV said:

Just the APR. 

Confuses me - because if you're paying interest on both a high and low balance but the low balance is higher APR, you focus efforts on that and not the higher balance one?  So balance doesn't matter once you start paying interest? It's a confusing one 

Yeah, presuming you have the ability to pay the same amount on both, pay the higher interest one regardless of balance. If you can pay off more than one or one in full and one partial then great 

CliveOfIndia

Hamiltonc said:

MorningcoffeeIV said:

Just the APR. 

Confuses me - because if you're paying interest on both a high and low balance but the low balance is higher APR, you focus efforts on that and not the higher balance one?  So balance doesn't matter once you start paying interest? It's a confusing one 

Yep, you prioritise the one with the highest APR.

There is an argument to say there's a psychological advantage to focussing on the lowest balance - because that will be cleared faster, so you'll actually see that you're getting somewhere.  But in terms of saving cold hard cash, the highest APR takes priority every time.

To take a steer from Scotty in Star Trek who famously said "Ye cannae change the laws of physics" ..... well, ye cannae change the laws of mathematics either.  Focussing on the highest APR will save you the most money overall, irrespective of the balance.

Of course, if the highest APR also happens to be the lowest balance as you mention, then it's a win-win - you save the most money, and you get the feel-good factor when you've paid it off in relatively short order.

What you must then do is, the money that you were paying to that first debt, you add to repaying the next-highest-rate debt, to hammer that one down even quicker.  The quicker you pay any debt off, the more you'll save in interest.  Don't think "Great, that first debt has gone, I've now got £100 (or whatever) more a month to spend on fun things".  If you want to clear the debt, that "extra" £100 per month goes towards the next debt - in addition to whatever you were already paying towards it.

enthusiasticsaver

Normally you would prioritise the most expensive debt first so the one with the highest APR.  There is however an argument that you could prioritise the smallest balance leaving a card clear in the hope that a 0% deal may open up. 

EssexHebridean

One trick for you. As said, you focus your attention on the card with the highest interest rate, but for the other cards, take the current minimum payment, round it up to the nearest whole pound or a little more and set your direct debit to that amount. A “minimum payment” DD drops over time as you clear more off the card, so the idea of setting the DD to a little above the starting minimum is twofold - firstly it doesn’t drop, so you make more of an impact over time without changing anything. Second, it means you know precisely how much you are budgeting to the payment on each card on an ongoing basis, so makes budgeting more straightforward and means that frittering is less likely to happen.

Two things though - only ever do this on cards you aren’t going to use, and you MUST keep an eye for any correspondence telling you that the minimum payment is changing as there are some circumstances in which they could increase.

NeverendingDMP

What's the cost.com website  or the debt payoff planner app from the app store will show the difference in interest and savings that can be made with all of the various orders to paying it off.
Highest Apr first wil save you money, lowest balance first will give you a boost when you are flagging or it may help you reduce the overall number of debts you have if you pick a few low ones off first. This can help if you have lots of different dates to remember to pay and they overwhelm you. Ideally highest Apr first will be best but if you need to mix and match to suit your needs you can. Just be aware of the overall extra amount it may cost you.