Which debts should you repay first?

By: Nat | Posted: 18th January 2008

You should always try to repay the most expensive of your debts first. This make logical sense really if you think about it but credit card companies often do the opposite; repaying the most expensive of your debts first...

For example, if a credit card company launches a new credit card – we’ll call it ‘credit card A’.

You successfully apply for ‘credit card A’ as opposed to ‘credit card B’ because you think it’s a better all-round deal as the credit card company has said.

Then, over the next few months you make purchases with the card and the rate is 0 per cent for 6 months. After 6 months the money you have spent will be charged at 15.9 per cent APR Typical.

However, any payments you make will still be paying off the balance you have transferred and not the purchases made. Unless of course you manage to pay off the entire balance transferred.

This is because the credit card company will be making 15.9 per cent Typical APR from the purchases you have made and they want this debt to stay on the credit card for as long as possible, so they make more money in interest charges. Therefore the credit card company will reduce the balance you have transferred until it is paid off before the purchases are repaid.

If you don’t spend anything on the card then it makes no difference, infact the ‘credit card A’ is probably a better option because you have 13 months rather than 12 months 0 per cent on balance transfers. But with the best will in the world how many of us actually NEVER spend a penny on the new credit we’ve got because of a 0 per cent balance transfer rate??


Nathan Galdwell writes for Chiltern Debt Management a UK financial solutions company, helping people who may be struggling with debt through Debt Management solutions, and Individual Voluntary Arrangements, and more.
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Tags: money, 12 months, debts, interest charges, credit card companies, credit card company, financial solutions, balance transfer, balance transfers, individual voluntary arrangements, logical sense, typical apr, solutions company, debt management solutions