If you have been researching snowballing (and see my Guide to Snowballing if you want more ideas and tips!) you will know that some people say overpay the highest interest debt ans some say go for your smallest debt. There aren’t any ‘right’ answers to these situations. If you overpay the debt with the highest interest rate, you will clear your debts fastest and pay the least amount of interest. But often it’s so good to get rid of a small debt that you feel more encouraged to go after the next one – and this is what really counts, keeping on clearing the debts!
Jen has the following debts and can overpay the minimums every month – what should she do?
|Catalogue||£280||0% for another 3 months then 29%|
|Credit card 1||£3500||22%|
|Credit card 2||£1600||19%|
– Pay 1/3 off the catalogue for each of the next three months so that is cleared before it starts charging interest
– Then pay the minimums to the loan and CC1 and overpay CC2 by as much as possible, because it’s nearly the most expensive debt but it’s quite a bit smaller than CC1.
Dave has recently had a balance transfer application refused and has the following debts, he can overpay by about £200 a month – what should he do?
|Credit card 1||£4200||0% for 9 more months then 28%|
|Credit card 2||£2100||19%|
|Credit card 3||£1300||19%|
– overpay credit card 3 until it is clear and then close it down (unless they offer a nice 0% deal – it sometimes happens!)
– then overpay credit card 1.
– when the 0% deal ends, look for a 3 year loan to clear what remains on credit card 1.
Winstone has an excellent credit record and has the following debts – what should he do?
|Credit card 1||£3500||28%|
|Credit card 2||£1600||23%|
|Credit card 3||£2800||21%|
– overpay the highest interest debt – 28% is way too high!
– Apply for a 0% balance transfer card to shift as much as possible of the expensive credit card debt to 0%