Avalanche method?

LilyBouquet

Hello, newbie here.. I have two CCs I want to pay off and can’t decide whether to avalanche, whereby you pay off the one with highest interest rate, or just tackle the biggest debt.

The one with the higher interest rate is currently just under £2k. The one with the lower interest rate is just over £4k.

I really want to chip away at the £4k as to see that go down more quickly would feel more motivating. However, would that cost me more in the long run due to the interest rate in the smaller debt?

RAS

Have you used the MSE tool to check whether you could get balance transfer? It's a soft check so doesn't affect your credit record?

If not, set the repayment on the £4k card slightly above minimum payment and concentrate on paying off as much as possible on the higher rate card. Then check again re the balance transfer in as 4 months.

Martico

The internal dilemma about motivation vs purely financial is usually between clearing the lowest-level debt first (for the "easy" win) and the one carrying the highest interest rate (financially better). Here, you have no such dilemma - your lowest debt also carries the highest rate of interest. Go for that one first.
And yes, as RAS says, explore to see if youcan shift any of your debt onto a 0% rate.

MattMattMattUK

LilyBouquet said:

Hello, newbie here.. I have two CCs I want to pay off and can’t decide whether to avalanche, whereby you pay off the one with highest interest rate, or just tackle the biggest debt.

The one with the higher interest rate is currently just under £2k. The one with the lower interest rate is just over £4k.

I really want to chip away at the £4k as to see that go down more quickly would feel more motivating. However, would that cost me more in the long run due to the interest rate in the smaller debt?

Rationally one should always tackle the highest interest debt first. The fact that the debts are in different pots of varying amounts is irrelevant, the most efficient way to tackle the debt is paying the highest interest rate debts first, the only sensible reason not to do that is if there is a debt currently on 0% that will come off that offer and change to a higher interest rate whilst other lower interest debts were being paid off. 

13thlegion

In your case the two most common methods, 1. avalanche paying off the highest interest, and 2. snowball paying off the smallest balance first, are the same. Both are effective for 1 saves the most money and 2. has a lot of evidence that it triggers feelings of success sooner. 

As an idea, if you want to see a big number come down is pay just over minimum on the lower APR and as much as you can on the higher APR, but only look at the combined total number? That way you'll see c.£6k fall rapidly.

The final decision is of course yours and the one you choose because that's what you want to do will be the most successful.

Rob5342

Id pay as much as I could towards the 2k debt and the minimum to the 4k one. That would make the most financial sense and it eould feel good getting rid of one of them. As suggested above you could look at your total debt figure in the credit karma app and see how that drops each month. 

enthusiasticsaver

I agree that tackling the £2k debt first is the most sensible. 

LilyBouquet

Thank you so much everyone for your clear advice. It’s very much appreciated. 

I will definitely pay the higher interest card off first, and will focus on overall debt rather than the cards individually. I have just now downloaded the credit karma app and will set it up tomorrow evening! 

I have looked at balance transfers before but am just a little wary of buying a debt to pay a debt. Also I’m wary of getting it wrong … As it stands, I’ve banned myself from spending any more on credit until it’s all paid off, and going forward spending only what I can afford to repay end of the month!