I have accumulated 18 000 in debt between my Credit Card (-8000, interest=16%) and Cheque Account Over Draft (-10 000, interest=15%). I make 10 000 per month, and I have around 3000 after all my needs to contribute to the credit repayment.

I would like to know which one I should repay first, or if its better to do both at once.

3 Answers 3


It is best to pay for the debt with the highest rate of interest first.

In this case, that is unclear even though it may not seem so. You need to also consider fees you maybe incurring due to either debt. Some banks have charged fee's around 30/day for having a negative balance in a Cheque Account. If you were paying a daily fee of that amount, the effective interest rate on your Cheque Account would be around 122%. If the fee were instead 30/month, the effective interest rate would be 18.6%. Still worth paying Cheque Account first in this case. If there are no fees on either account, you should pay the credit card account first as it has a higher rate of interest. Also, always pay the minimum payment on the other (account with lower interest rate) account.

  • Thank you so much, that was very clear and detailed, I appreciate it.
    – user19806
    Aug 21, 2014 at 14:52
  • You're welcome. I am curious, are there fees associated with your over-drafted account? Can you provide a link to your bank, or a similar bank's website? Want to read the details of this foreign (to me i think) account and how it operates.
    – zerpsed
    Aug 22, 2014 at 12:30
  • Yes, there is R200 fee associated with it. And there's a link to a similar product. (fnb.co.za/business-banking/accounts/overdraft.html)
    – user19806
    Aug 22, 2014 at 12:35

An important question to ask is why do you have overdraft of $10K?

Given your spelling of some words I don't think you are in the US. Typically here in the US, we don't have that kind of limit on overdraft so it is a bit shocking.

Are the events that caused you to go 10K overdraft likely to reoccur? What is your overdraft limit? Again, here in the US there is often a fee per occurrence, and even it is low you might want to keep some money in your account to prevent overdraft from happening first. For example you may want to keep 1000 in your checking, and consider that 0.

Paying off the highest interest rate first is not as effective as one might think. In your example, you are talking about 6 months. Paying off one before the other saves you in the tens of dollars, not really a big deal.

In my opinion, it is more important that you stick to your plan. There will be temptations and distractions that will cause you to spend some of that 3K/month on stuff rather then debt reduction. A date with a pretty girl, a new ultra high def tv, tickets to a sporting match, etc... run a far greater risk than saving less than a $100 on interest.

For some it is better to start with the lowest debt first. Seeing that go away, is encouraging and gives you the strength and desire to carry on to the next debt. For others it might be paying off a hated debt first, or even saving it for last.

Some debts have special incentives. For example a student loan that I had would pay off the last $500 if you were on time with your payments. I paid that one off first, because it help "slingshot" my debt payment program. It was neither the smallest, most hated, or highest interest rate. The month that I got the balance below $500, it was like I had an extra payment that month, very encouraging.

So I would recommend the CC as you will see the result sooner. Luckily it is also the highest balance.

The most important part of all this is to stop borrowing.

  • The events that caused me to overdraft are not likely to occur in the future, but it is very important that I have the facilities in case of needing to use them again. There aren't any incentives outside of paying off the overdraft or credit card, and I think being debt free is incentive enough. Thank you for your opinion.
    – user19806
    Aug 22, 2014 at 6:38

Credit card is the most expensive form of Debt. Its like a maze. Suggest you give importance is clearing the credit card at the earliest. Sametime, try to set off Overdraft loan also.

The ratio of setting off loans - Credit card to overdraft would be 70:30. This is not a thumb rule but a suggested answer.


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