Best way to split £3k to pay off credit cards

Debtdipped

Hi, I have a £3k work bonus (after tax) coming my way in Dec. What is the best way to use these funds to pay off my debts below? All the APRs are similar. My plan was to pay off card 1 and close the card, and then reduce overdraft down to £500. Or should I consider another plan? Thank you.

• Credit card 1 = £2,000, minimum payment £100
• Credit card 2 = £2,000, minimum payment £100
• Credit card 3 = £1,250, minimum payment £65
• Credit card 4 = £1,200, minimum payment £60
• Bank overdraft = £1,500

fatbelly

The overdraft is likely to be the highest apr ( you should check) so clear that first

And stay out of it

Then pay off the credit card with the highest apr 

If you can BT the other balances to 0% you can then concentrate on clearing your debt by overpaying the minimum payments

Emmia

I'd pay off the overdraft and either go no overdraft (close the facility) or reduce it to the level of a tiny buffer £100.

Then put the rest on the highest APR.

Brie

You should also think why you have these amounts needing paying off.  If it was an emergency/one-off, then fine, things happen.  But if it's a constant struggle you need to look at your overall spending and making your budget fit your normal income.  Bonuses are great (saved my financial backside a few times!) but not having to depend on them to solve problems isn't the best way to get on.  

If you want to look at your normal budget you could try filling in the statement of accounts (SOA, see the link below) and use a couple of months of bank/card statements to fill it out accurately.  If you want some help on trimming it down to size you could post a copy back here and people will make suggestions.  

Keep_pedalling

Assuming all those cards charge more or less the same interest, I would clear the overdraft, clear and close one of the smaller CC debts, keep the rest as an emergency fund then work to clear the remaining debt starting by looking at your current expenditure as per Brie’s post above. 

ManyWays

How many days of the month are you in the overdraft, unless its for the whole month this can be "cheap" compared to paying the same interest on a credit card which is always for the whole month..

Unless you have missed payments, payments arrangements, defaults on your credit record, or a lot of loans, getting your credit cards down by 2.5k will almost certainly mean yoy will be able to get a 0% balance transfer in a couple of months, that will speed up clearing the other cards a lot. If you want to do this , do NOT close the card you are clearing, you want it open to boost your credit utilisation which helps get a 0% transfer.

Why 2.5k? It would let you keep 500 as an emergency fund, there is no science to deciding this amount, but if you have a chance of a 0% transfer that can transform card clearing. 

Debtdipped

Thank you for your replies. The total interest charge for the bank overdraft usually costs me around £20 per month, which is very little compared to the interest rates on the credit cards. I am not eligible for a 0% balance transfer card. I have no other debts, defaults or CCJs.

I am wondering if it is worth using the £3k to get all my credit cards down to 50/60% off the balance and not paying the overdraft for now. If that would help me get a balance transfer card in a few months? Otherwise, I think I will pay off 2 credit cards (CC1 and CC4) and close the accounts. I have read here in these forums that paying off the overdraft > credit cards.

For example payment plan to boost credit-debt ratio:

• Credit card 1 = £2,000, min £100, interest £49 PAY OFF £900
• Credit card 2 = £2,000, min £103, interest £43 PAY OFF £900
• Credit card 3 = £1,250, min £65, interest £27 PAY OFF £600
• Credit card 4 = £1,200, min £60, interest £30 PAY OFF £600

ManyWays

Then there is no reason to tackle the overdraft early.

An improvement on a bit off all four may be to clear at least 1 card, so CC4 as it looks to have the highest interest rate and is also the smallest. then divide the other 1800 across the other three.

But noone here can say for certain which the "best" approach to get a 0% as soon as possible is, because different lenders may have different preferences. In general lenders look at both individual score utilisations and the overall utilisation, so it may make little difference. 

enthusiasticsaver

Overdrafts are usually around 40% but if you are paying £20 a month interest on £1500 I would assume you don't go up to the limit for the whole month.  I would certainly look to be reducing that as it can be removed at any time. I would use the rest to clear one of the smaller cards if the APRs are similar on all the cards. 

kimwp

What is the limit on each card? 

Debtdipped

kimwp said:

What is the limit on each card? 

They are maxed out