Credit card debt - advice on best approach

[SnowdropEirlys]

I'm facing £20k of credit card debt across 4 different cards and determined that this is the year that I will clear the balances. Balances are;
£11k
£800
£6k
£5k

I've been in denial and spend far too much, have ignored the total balances for too long, and just paid the minimum amount per month for years.

I'm now in the fortunate position of a temporary contract that pays well which should go on a few months so have the opportunity to pay off almost 4k a month, as long as this contract continues.

I'm willing to change my lifestyle, change my spending habits and will quite enjoy the challenge of finally bringing these balances down - I think the relief of seeing them finally come down will spur me on.

I'd be grateful for advice on how best to tackle this. Should I chip away at each balance, or aim to bring the largest down first?

I'm not sure that I want to take out a consolidation loan which means I will be paying less per month for longer, years even - I'd rather just tighten my belt for a few months and blitz this, once and for all, now I have this opportunity.

I'd be grateful if anyone has any other suggestions or has any experience of tackling large credit card balances and bringing them right down?
Thanks in advance.

Pay off the 800 first as that's one done which is good mentally for your goal. Then focus on which ever has the highest interest rate

Tackle the one with the highest interest rate first.

Do not take out a consolidation loan. You'll pay much more in the long run.

different people will suggest different ways as it can be approached from the heart or from the head.
heart might say pay off the little one first then take the money you would pay and "snowball" onto the next little one.
head will say pay off the one with the highest interest rate.
and then others might suggest amalgamating all of them into one or two debts vs four.
personally i like the snowball tech as i felt really encouraged by paying and closing them.

What are the interest rates on each card and min payments @SnowdropEirlys?

Agree clear the £800 one first as it's a psychological boost.

Work out the interest on the remaining balances and go for the one which costs the most as priority.

Good for you for facing it and sounds as if you will sort it this year.

Thanks everyone. I was rather afraid I would be judged and abused for this situation, so I am hugely grateful for every response.

Hideously, I'll need to check the rates on each of them. I really have been burying my head in the sand.

I do know how much the monthly payments are -
£11k - I am paying £370 a month (sob)
£800 - is around £20 I think
The others is roughly £150 - £170 a month

I have started to put aside money in making lifestyle changes already so could pay the £800 one off straight away, which I quite like the idea of doing. With my pay at end of February, after rent, I can really start to make a dent in them, and maybe I will start with the 11k-er.

Part of my motivation in clearing these now, is finally being able to apply for a mortgage - which means after clearing these, I will be able to save and be debt free when applying.

What I would do is apply for a First direct loan (3.3%), £20k will be around £300 per month for 7 years, you can pay back early you just pay an extra month's interest. I would then pay off all of your other debts and then overpay the loan.

Could you possibly transfer them onto one / a few balance transfer cards with 0 interest? There might be a fee for the transfer but if you get one with a long free period it'll help save on the interest

I'd start at the smallest and work upwards, it's really boring paying off debts so if you can get some quick wins it gives you a boost. I know the cheapest way to do it is to pay the largest interest rate one off first, but I kind of like the thought of completing clearing a debt and then moving on to the next one.

@HPandTheNeverEndingBedtime - thanks for this, it's just the thought of another 7 years paying this off that fills me with dread with a loan hanging over me, when if I stick with this, I could have these cleared by the summer.

@rolypolydoly - with 4 cards already, I'm not sure I could stomach getting another one - I'm not sure there is another bank that would have me!

Cut them up.

Get rid of the £800 one first for moral boost. Then process of elimination starting by lying off big chunks of the highest interest rate one, meanwhile pay the others off either at minimal payment rate or if possible a set figure so you know what is coming out and no suprises.

At almost £4K per month you’ll have them all paid off in less than 6 months.

@DenholmElliot - I think this is how my mind works too. I would love to break that back of that 11k one though, with that one gone, the relief would be huge.

@CraftyGin I don't use any of them anymore to spend, thankfully. I just need to get rid of these balances.

[quote SnowdropEirlys]@HPandTheNeverEndingBedtime - thanks for this, it's just the thought of another 7 years paying this off that fills me with dread with a loan hanging over me, when if I stick with this, I could have these cleared by the summer.

@rolypolydoly - with 4 cards already, I'm not sure I could stomach getting another one - I'm not sure there is another bank that would have me![/quote]

Check out moneysavingexpert (Martin Lewis)

If you can find a way to transfer your balances onto the 0% interest ones you can close the old cards and won't have to pay interest.

If that isn't something you think is suitable, then as others have said I would pay off the £800 and then start paying off the highest interest card and minimum payments on the others (or more if you can afford to).

Also, don't be afraid to call your card provider and speak to them. They may be able to help

I don't know actually, I think I'm going to go against the grain & say pay some off all of them each month. Once one is cleared split the amount you were paying on that card against the others and keep going until you're just left with one then eventually none.

There's a fab calculator on the Money Advice Service website that shows you the end date your balance will be cleared by if you pay £X per month, I found it really useful.

@snowdropEirlys the loan won't be hanging over you for seven years though, you just pay it back early, the extra months interest is only about £20, but if for whatever reason your contract falls through you've got a much lower interest rate going forward. It's what I've done for my new kitchen and central heating, cost £20k, so spread the loan over the longest possible time to make repayments more affordable if I get ill/made redundent. I pay the normal amount off the loan, move any extra money into Premium bonds at the end of each month which again can be used to pay the loan payments should I be in financial difficulty, once I match the remaining loan amount I'll transfer the lot to the loan and pay it off. If my finances stay how they are I should pay it off in 3 years but I like knowing I've got the security of extra payments tucked away and a longer time to pay if necessary.

£11k - I am paying £370 a month (sob)
£800 - is around £20 I think
The others is roughly £150 - £170 a month

£11k
£800
£6k
£5k

When you say you will have 4k extra each month, how long will that be for?

Forgetting about the 4K I would pay the £800 first and then roll that 20 per month into the next one with the highest interest and go from there...keep paying and keep rolling?

@SnowdropEirlys do you have an emergency fund that you can use in an emergency so that you won't use credit again.

Also when you pay of each card, GET RID OF IT!! Maybe keep just the one. No one needs 4 credit cards.

I would do as a PP suggests and consolidate into a loan then repay the loan early. However if you don't want to do that and have £4K a month?

Month 1
£11k - pay off 2.5k
£800 - pay off in full
£6k - pay off £350
£5k- pay off £250

Month 2
£9.5k - pay off 2k
£5.7k - pay off £1k
£4.8k- pay off £1k

Month 3
£7.5k - pay off 2k
£4.7k - pay off £1k
£3.8k- pay off £1k

Month 4
£5.5k - pay off 1k
£3.7k - pay off £1k
£2.8k- pay off £2k

Month 5
£4.5k - pay off £2k
£2.7k - pay off £1k
£800- pay off in full

Month 6
£2.5k - pay off £2k
£1.7k - pay off in full

Month 7
£500 - pay off in full

Rationale is that is you lose the temporary contract you will have reduced each individual balance reducing the monthly burden.

I like @over2021’s suggested approach. If you I can pay back over 6 months then it massive reduces the advantage changing to a loan or moving to 0% interest would have for you anyway so I would crack on and do what @over2021 suggests. If it does take longer for some reason, then pay off one that is likely to give you a zero percent interest option once that card is paid off to balance transfer the others onto. Some credit cards are definitely more likely to do this eg MBNA , first direct whereas some like Barclaycard would be more likely to just reduce your credit limit down to a meaningless amount once you’ve paid it off. Good luck getting it sorted. It will be great feeling once you are there.

Thanks so much all,

@ddshocker @over2021 I have paid the £800 card off this evening, so that's one down!

I'm trying not to think of this as money now (and what I could be spending this money on instead of clearing the cards) and think of this as a mathematical challenge, focussing on the goal of bringing the numbers down!

And as mentioned, once the balances start coming down, the monthly payments will too, which is key to this too, to relieve the pressure of paying out approx. £700 just in credit card debt a month, which makes me upset just thinking about it.

@Arucanafeather I had no idea once you clear a balance they offer a 0% interest deal so will definitely use that if it is offered. The 11k is a Barclaycard and a reduced balance isn't a bad thing for me. Thank you for the tip.

I don't know actually, I think I'm going to go against the grain & say pay some off all of them each month. Once one is cleared split the amount you were paying on that card against the others and keep going until you're just left with one then eventually none.

this tact will cost you more in interest and as the debts are a reasonable size that could cost you a fair bit in interest.

by paying the card that has the most interest - which is likely to be the largest debt

also by tackling the largest debt first you will see the interest rates fall - so paying off £800 this month on the largest debt will reduce it by just over 7% that would save you about £21 in interest then, but not just for this month but for next month and the month after and so on, as the debt becomes smaller you'll obviously save more and more

if you pay of the £800 you'll save £13 in interest this month and next month and the months after but you'll not be saving any where near as much as if you tackle the bigger debts first

as the £11000 debt if you keep putting the most onto the debt you could end up saving £100 a month in interest but he end of the year

these are rough figures but it gives you an idea of why you would logically save interest if you hit the large debt first

It makes most sense to pay the most £ you can from the debt with the highest interest rate - have you looked this up yet OP?