hi melanie i seen it on another site, it all depends i suppose on how high the debts are , this is the guidance they have on it:
When thinking about how to tackle your debts, you'll find you have a number of options to consider. These include getting a better deal on your credit card debts by transferring them to a low-interest rate card, consolidating the debts by getting a personal loan at the lowest possible interest rate, or even releasing some of the equity in your home by remortgaging. The aim in any or all of these options is to get a better deal so that you are freeing up as much money as possible to put towards paying off the debts.
If you're not in a position to do any of these things then it's time to prioritise.
Look at all the debts and think about which ones have the highest interest rates. Who is nagging you the most for money? Can you meet at least the minimum payment for each debt? And do you have some money to spare to feed the most voracious debt, ie: the one charging the highest interest rate?
If so -- then do it! Throw as much as you can at the most expensive debt until it's cleared while making minimum payments on the others. Then tackle the next one, and the next one, and the next one!
One technique you could try is known as snowballing. The idea of snowballing is to single out one credit card as your target and throw all the money you can at it whilst making minimum payments on all the other debts. Once you've paid off your first target debt, you then use all that freed-up money to tackle the next one on your list. Have a look at this example for three credit card debts:
Debt Amount
owed APR Minimum
payment
CC 1 £1,000 22% £50
CC 2 £5,000 12% £150
CC 3 £10,000 6% £300
You owe a total of £16,000 and your minimum payments each month are £500. It's quite a scary number, and it's obviously going to take a long time to pay these cards off if you only make the stated minimum payments. Three years and one month actually - and that's only if you keep paying the same amount each month. You'll be looking at many more years if you reduce your minimum payments whenever the credit card companies tell you that you can.
But let's say you've managed to pare down your expenditure so that you've got a spare £200 available each month on top of the £500 minimum payments for all of the debts. Where do you start?
Well, logically, it makes sense to focus on the most expensive debt first -- the £1,000 with an APR of 22%. (It also has the added bonus of being the smallest debt so you'll get a result pretty quickly, which should prove motivating).
So, let's pay the minimum of £50 + the spare £200 towards this debt -- a total of £250 -- whilst continuing to make the minimum payments on the others. Note that, as you gradually pay off this first debt, you'll be told that your minimum payment has been cut - but don't reduce it! Keep paying it off at the same rate. You'll have cleared CC1 after five months.
Obviously, you'll then have a spare £250 a month to throw at the next debt. If you add that £250 to the £150 you're paying for CC2, you'll have a total of £400 to chuck at this second debt. Because you've also been making minimum payments whilst paying off CC1, you'll have cleared CC2 17 months from now.
Eventually, you'll have £400 available to add to the £300 you're paying for CC3 -- a total of £700 a month. Wow! You'll be shot of that debt in no time at all! Debt-free two years and one month after you started - and you'll have saved yourself a bundle in interest at the same time.
Can you see how the "snowball" has got bigger and bigger? If you'd just made the same minimum payments listed in the table, it would have taken you three years and one month to clear your debts. But using this method, you'll be "clean" a whole year sooner -- and £700 a month richer!
From a psychological point of view, some people find it easier to tackle the smallest debts first -- regardless of how much they're actually costing in interest charges.
This method does at least induce a sense of satisfaction more quickly -- and if it's the one that works for you -- then reassure yourself with the thought that at least you are doing something. However, bear in mind that it will take longer to clear your debts overall if the smallest ones also happen to be the cheapest to finance.
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