Should I Concentrate on Paying my Overdraft or my Credit Card?

It can be difficult if we have a selection of debts to decide which might be the best one to repay first. There are many reasons for prioritising paying off one than the other and it can be very dependent on your personal situation so you will need to assess it yourself as there is no easy answer. However, there are a number of important factors that you need to look into and so it is worth thinking about these.


The cost of the loans is the most obvious place to start but comparing costs may not be as simple as it seems. It can be tempting to just look at the interest rate of each and then compare that. However, with both types of borrowing, there may be additional costs as well that you need to consider.

With a credit card. You will normally only be charged interest each month unless you completely miss a repayment. You will be expected to repay just a minimum amount each month and as long as you cover this then what you repay will be the interest. Each month you will receive a statement which will say how much the interest is and so this will enable you to know and compare.

With an overdraft it can be rather more complicated. There are two types of overdraft to start with. An arranged or authorised overdraft is one that your lender has agreed that you can have and there will be a certain interest charge and possible also a fee for this. An unauthorised overdraft is where you borrow money but you have not agreed with the bank that you can do so. This costs more money and could have a higher interest charge and have additional fees. Some may even charge a fee daily until it is repaid. Therefore, you could potentially be paying a lot more for an overdraft but it will depend on how much your specific lender charges.

How much you owe

The amount of money that you owe will have an effect as well. If you compare the actual monetary amount that you pay in interest, fees and charges then you will be able to calculate which is the most expensive. It is likely that if you owe more money on one then It will be dearer. However, this will depend on the charges of the specific lender.

You may feel that it will be easier to repay the smaller loan despite which is more expensive. Some borrowers find it less overwhelming if they can repay a smaller debt and it feels good to know that one will be paid off fairly quickly. This can be more motivating to them than saving more money. It is worth thinking about which might feel better for you. You may prefer to know that one debt is gone or you may prefer to pay off the dearer one and know that you are saving more money. Of course, it could be that your smallest one is the dearest so you will not have to make this choice.

Personal Reasons

You may have personal reasons for wanting to pay off one of the debts before the other. It could be that one debt really worries you and causes you stress so you would prefer to be rid of it. It might be that one lender is hassling you to get a debt paid off so you think that you should repay that one first. You may also have decided that you dislike a particular lender and so you want to get them paid off and forget about them sooner.

It can be quite a complex decision to make. However, you should be able to write a list of pros and cons in order to help you to decide. If you can calculate the cost of your loans it will make the decision easier for you as this can be an important factor. If you find it hard to calculate then you should be able to contact your lender and discuss it with them. They should be able to do the calculations for you and let you know how much you are paying in costs to them each month so that you are able to more easily compare them. Obviously, you will then need to start working hard in making sure that you keep your spending to a minimum so that you are able to afford those extra payments in order to get the loans paid off. It may not be easy but if you keep reminding yourself of the fact that you will soon be free of debt and not longer have stresses about money, then this should help you. Constantly thinking about ways to spend less and earn more, will help you but it is not always easy, so consider writing down some motivating words to remind you are the freedom that you will feel once the debt is gone to help you to feel better about it.

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