Which debt should you pay first?
If you’re in debt of any kind, you will probably want to get it paid off as quickly as possible. Debt can hang over you if you let it and become a stress and a worry, as well as causing a massive stretch on your finances. Sadly, debt kind of seems normal these days and whilst some debt such as a mortgage may be inevitable, things like credit cards, store cards and loans can be costly.
But when it comes to paying off debts, how do you decide which debt to aim to pay off first?
Lots of people have more than one credit card, a loan, and a store card. Unless you’re on a 0% interest rate deal, then you’ll be accruing interest on your debts every month. This means it costs you money every month if you don’t clear your balance in full. The interest rate from one card to the next can vary vastly. This is an important factor when deciding which card or loan to shift first.
How do you decide which debt to focus on?
You’ll always need to make sure that you’re paying the minimum payment on ALL of your debts. If you can’t afford to do that then you need to seek help. Make sure your priority bills such as your rent/mortgage, council tax and utility bills are paid BEFORE thinking about paying your credit card and loan debts.
Priority Debts
- Rent or mortgage – you need to keep a roof over your head.
- Any loan secured on your home.
- Council tax.
- Child Maintenance.
- Magistrates Court Fees.
- Tax, VAT or National Insurance.
- CCJs.
- TV Licence.
- Utility bills – gas, electricity and water.
Once you’ve paid the minimum payments, if you’ve got any extra you can throw at your debts then it’s within your interests to do it. The longer you have debt, the more interest you’ll pay.
You may be tempted to pay off the smallest debt first so that you feel as though you’ve achieved something once it’s cleared. Or you may think you’re best off focusing on the big one first then clearing the smaller amounts later on.
In actual fact, you need to find out which card/loan has the highest interest rate and PAY THAT OFF FIRST! The higher the interest rate, the more interest you’re paying, simples!
Snowballing
Snowballing calculators help you to figure out how you can clear your debt in the quickest way possible and reduce the total amount of interest you’ll pay over the lifetime of your debt. This is a really savvy way to shift the debt.
The idea is, that like a snowball rolling down a hill, the progress may seem slow to begin with, but if you follow the pattern suggested you’ll soon see a knock on effect. Your debt busting will soon gain momentum.
You can access a snowball calculator here – https://forums.moneysavingexpert.com/discussion/533603/stoozing-calculator.
Debt is definitely a problem here, so this is really helpful. Once I’ve gotten on top of my priority bills, I’ll come back for that snowball link. #MondayStumble
Sorry to hear that. I hope it helps and good luck with shifting the debt x
Right now I have two credit cards I have to pay off in order to raise my credit score so that I can get a decent price and approval of an auto loan. Plan on doing that with my tax money. I have to have a more reliable car for travel and work purposes but first thing’s first. decrease my debt:) #MondayStumble
Debt can be a terrible thing, so easy to get into and so hard to get out of! I think posts like this are so important as they can really help people who are at a loss on what to do. I just hope that as my kids get older they are able to budget and work with whatever money they have without falling into the debt trap. So far my eldest daughter is showing good signs of managing her money incredibly well. #MondayStumble
is so scary getting into credit card debt – unless you stop using the card – and financially its not always possible because you still need to eat. with the interest added to the repayments the debt tends to go up instead of down. #mondaystumble
I just spent the past three hours looking at our budget and trying to mend the gap. Thank you for this great post! #monaystumble