Thursday 3rd of September 2009
Britons should concentrate on paying off their credit card debt, rather than using any spare cash to overpay their mortgage, a claim suggests.
According to lovemoney.com, the ’snowball’ effect means that debt with the highest interest rate will continue to increase at a much faster pace than a mortgage, although this payment should be met every month.
While paying off large credit card bills may seem obvious, for many households, finding the spare cash to do so could be a problem, although an individual voluntary arrangement (IVA) can be of assistance in this situation.
An IVA can freeze the interest on debt, while all credit card balances can be merged together into one monthly, more manageable payment.
The website explains that while mortgages are a much larger debt and it "might seem logical to throw more money at it, because your credit card debt has a much higher rate of interest, it actually makes more sense to focus on clearing that debt first".
Indeed, while the official Bank of England rate stands at 0.5 per cent, this is expected to rise in the near future, making mortgage repayments for people on tracker mortgages higher.
Paying off credit cards as soon as possible could therefore be a wise move to make.
By Mark Waterman
- House price rise 'may not indicate recovery'
- Equity release 'needs to be increased'
- Need for IVA help could increase as expert predicts reduction in lending
- Government announces 'breathing space' for those needing IVA help
- Lack of subprime lending creating need for IVA help, expert suggests
- IVA advice could be way to tackle high interest payments
