Paying off several credit cards: which first?
The short answer
Pay the minimum on every card, then put every spare pound on one card at a time. Clearing the card with the highest interest rate first costs the least interest; clearing the smallest balance first gets a card to nothing sooner. With three cards owing £4,500 between them and £250 a month, both orders clear the lot in 1 year 11 months, but the highest rate first costs £1,008 of interest against £1,076. Paying only the minimums would take 26 years 10 months and cost £7,310.
The two orders
- Highest rate first (often called the avalanche): the extra goes to the card with the highest APR. Every pound clears the most expensive debt first, so this usually costs the least interest.
- Smallest balance first (the snowball): the extra goes to the card with the smallest balance, whatever its rate. It usually costs a little more, but a card reaches nothing sooner, and seeing that helps some people stick to the plan.
Either way, each card always gets at least its minimum, and when a card is clear, what you were paying on it moves to the next one. That rolling-on is what makes both orders so much faster than paying the minimums.
Worked example
Three cards, £250 a month between them, nothing new spent: HSBC £2,500 at 24.9% APR, Santander £1,200 at 29.9% and Lloyds Bank £800 at 19.9%. This month’s minimums, by each provider’s rule, come to £142.69, leaving £107.31 to clear a card.
| Card | Highest rate first | Smallest balance first |
|---|---|---|
| Santander, 29.9% | 9 months | 1 year 1 month |
| HSBC, 24.9% | 1 year 9 months | 1 year 11 months |
| Lloyds Bank, 19.9% | 1 year 11 months | 6 months |
| All clear, interest | £1,008 | £1,076 |
The snowball clears its first card in 6 months, three months before the avalanche clears its first, and costs £68 more. With £400 a month instead, both are done in 1 year 1 month, for £579 of interest highest rate first and £618 smallest balance first.
Which to choose
If you’ll stick to a plan whatever happens, highest rate first saves the most. If you’ve started plans before and given up, the snowball’s early win may be worth its extra cost. The gap is usually small next to the cost of paying only the minimums, so the most important thing is a fixed budget you keep to.
Two things change the picture. A card at 0% (a balance transfer deal, say) goes last in the avalanche, but watch when its 0% ends. And a card close to its limit can weigh on your credit score, so it can be worth clearing early.
Other ways
Move the balances. A 0% balance transfer card can take several balances, if its limit is big enough, and cut the interest a lot while the 0% lasts. One loan. A personal loan can clear several cards and replace them with one fixed payment. Both only help if the old cards aren’t used again. MoneyHelper warns against loans secured on your home for this, as missing payments could cost you the home.
Getting help
If your budget won’t cover the minimums, tell your card providers: they have to treat you fairly and consider what you can afford. Free, confidential debt advice is available from MoneyHelper, StepChange, National Debtline and Citizens Advice, and they can set up a plan with the people you owe.
Work it out with your own figures
Put in your own cards and budget to see when you’d be clear in each order.
Open the Multi-Credit Card Payoff CalculatorNext step: look up how each of your cards works out its minimum.