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Which debt should I clear first?

Borrowing is a part of everyday life, and allows us to get the things we need without having to save up. From mortgages to car loans to putting the lunchtime sandwich on the credit card, it’s all borrowing – and it all needs to be paid back.

But we all know that life’s more complicated than simply borrowing money and paying it back before taking on the next debt. It’s not unusual to have several different debts ongoing at the same time. And because we can commit only a fraction of our disposable income to each, we can end up taking much longer than necessary to pay back all our debts.

A good first step is to prioritise our debts. Here are a few ideas to work out how to do it more quickly – and at minimum cost.

Make a list of priority debts

The natural instinct might be pay off the biggest debt or the ones with the highest interest first, but realistically this is probably not going to happen. A typical example would be a mortgage. Failure to pay a few installments of your mortgage may well result in losing your home, and there's probably little chance of clearing the debt in one go – they are designed to be repaid over decades.

Secured (homeowner) loans are also priority repayments, because the item placed as security (possibly your home) can be lost if you default.

Similarly, where court action or bailiffs are imminent if repayments aren't made, put these debts ahead of all others. Avoiding a County Court Judgement (CCJ) or a criminal record is a smart thing to do financially, because they will make future borrowing more expensive and minimise the chances of you being able to shift your current debts to cheaper deals.

So while you might be struggling to keep on top of debts, there will still be some that simply must be paid. That's not to say you can’t try and find a better deal elsewhere and have your mortgage or loan moved, but in the meantime, these life essentials should go to the front of the queue.

Identify the most expensive debts

Not all debts cost the same. If you’ve got several credit and store cards, there’s a good chance they’ll all have different interest rates because they will all be with different providers and taken out at different times.

A serial culprit for high interest rates is zero/low interest cards whose special deals have expired. Cards that were taken out with the best intentions for 24 months of low interest will revert to normal interest once that time is up, so any balances remaining will be much costlier than they were – and quite often customers are unaware of the transition.

If you have multiple store cards, credit cards and overdrafts, get all the statements together and look at which ones have the highest interest and/or fees. If you don’t intend to move the balances, you should tackle these first with the cash you have left after the ‘priority’ debts have met their monthly requirements.

In other words, make sure you meet just the minimum repayments of the cheapest cards, but try and pay off more of the most expensive one if possible every month. Once that’s cleared, move on to the second most expensive and so on. It might take months or years, but at least you’ll know you’ve paid off your debts quicker and with less interest.

Be realistic

All the above requires that you set yourself a monthly budget for repayment. From your monthly take-home pay, subtract your bills, priority debts and living/travel expenses, and from the remainder figure out how much you can commit to use on paying off debts.


There is another way that might be available to you, and if it is, it’s really worth taking the plunge. Zero interest credit cards and money transfer cards won’t make your debts disappear, but they will – for a time – make your interest disappear. That can mean savings in the hundreds or even thousands on larger debts, so you can get them paid off sooner.

Balance transfer cards allow you to move credit from one or more cards to a new one with a lower interest. Although the low/zero deals don’t last forever, they can last for three years or longer, which will give you plenty of breathing space while you repay.

Money transfer cards put money straight into your bank account, which means you can repay your overdraft without having to pay the interest and fees.

All credit card agreements are dependent upon your circumstances, so have a look into ensuring you have a clean bill of health, and as we said earlier, do try to avoid defaults and court judgements.

What if you can’t get a new credit card?

If you can’t take out a new credit card, consider moving as much of your debt as possible to the cheaper card(s) that you already have. Contact your card company to find out if this is possible – they might be able to arrange it all for you. Even if they charge a fee (and they probably will) it will probably only be the equivalent of one or two months’ interest, so it works out cheaper in the long term.

Patience will get you there

Nobody is saying that repaying large debts is easy. But with a little smart thinking, identifying the most expensive debts and either repaying them first or shifting them to cheaper deals, you should be able to make it quicker and cheaper to repay.

And don't forget to stay in touch with those you owe money to, either. If you explain your situation, lenders will often prefer to renegotiate your deal or give you a repayment holiday than to take you through the courts. If you ignore them, however, legal action will be their only option.

Independent advice

If you’re struggling with debt, there’s plenty of independent advice available from places like Citizens AdviceLink opens in a new window and Nation Debt LineLink opens in a new window.