The short version: Not all debt costs the same, and clearing it in the wrong order means you pay significantly more in interest than you need to. The three debts to tackle first are your overdraft (typically 35–40% EAR — the most expensive debt most people have), your most expensive credit card (average APR around 25%, but varies widely), and any store cards or high-rate catalogue debt. Clear those in that order, before worrying about anything else, and you stop the biggest leaks first.
Most people try to pay off debt by paying a bit off everything at once.
A bit extra on the credit card. A bit towards the overdraft. Some towards the catalogue. Feels balanced. Feels like progress.
But it’s probably costing you hundreds of pounds a year more than it needs to — because not all debt is equally expensive, and paying the cheapest one first while your most expensive one compounds is quietly painful.
I’ve worked inside financial institutions for a decade. The way debt products are designed — the pricing, the default rates, the minimum payment structures — is not in your favour. Knowing which to hit first changes the maths significantly.
Why does the order you clear debt in matter so much?
Because interest is charged daily on most consumer debt. The longer the balance sits, the more it costs you — and the maths compounds. £1,000 on a card at 40% APR costs you around £400 a year in interest. £1,000 on a 0% card costs you nothing.
If you’re making extra payments and spreading them evenly across both, you’re reducing the 0% balance (where it costs you nothing) and the 40% balance (where it’s bleeding £400 a year) at the same rate. Concentrating everything on the 40% card first and ignoring the 0% card until it’s gone saves you real money.
The order matters. Here are the three to tackle first.
Debt 1: your overdraft (clear this before almost anything else)
The arranged overdraft is one of the most expensive forms of consumer debt in the UK — and one of the most overlooked, because it doesn’t feel like debt in the way a credit card does. It just feels like your account is a bit low.
The rates are severe. As of 2026, the major high-street banks charge:
| Bank | Arranged overdraft rate (EAR) |
|---|---|
| HSBC | 39.9% |
| NatWest | 39.49% |
| Santander | 39.94% |
| Barclays | 35.0% |
A £500 overdraft used for a full month at 39.9% EAR costs around £16. That sounds modest until you realise that many people dip into and out of an overdraft every month — meaning they’re paying that fee, or something close to it, twelve times a year.
The overdraft also has a psychological cost that credit card debt doesn’t: it means your account starts every month behind zero. You get paid, the overdraft partially refills, and you’re spending your month digging back to a position you were already in last month. It’s a loop that’s very hard to break without specifically targeting it.
The M&G System approach: treat your overdraft as your number one debt. Stop using it immediately (redirect any purchase you’d put on the overdraft to a 0% card if possible), then set an amount to repay it each month until it’s gone. Once it’s clear, that cleared space becomes your emergency buffer — not a spending resource.
Debt 2: your most expensive credit card
The average credit card APR in the UK is currently around 24–25%, but the range is vast — from around 20% on a mainstream card to 40%+ on store cards and cards designed for people with thin credit histories.
Once your overdraft is clear, rank your credit cards by interest rate (not balance) and put every extra penny onto the most expensive one. Pay the minimum on everything else. Ignore the fact that another card has a larger balance. The interest rate is the cost — and you’re attacking cost, not size.
Two things worth checking before you start:
- Are any of your cards 0% deal currently? If so, they don’t need to be in the priority order — they’re not costing you anything right now. Check when the 0% period ends and put that date in your calendar. The moment a card reverts from 0% to its standard rate, it moves into the priority order immediately.
- Can you shift any balance to a 0% transfer card? If your credit score supports it, a balance transfer to a 0% card (typically with a 2–3% one-off fee) can dramatically reduce the interest clock on a high-rate balance. It’s worth checking — but don’t let the option become a delay tactic.
Debt 3: store cards, catalogue debt, and high-rate personal loans
Store cards are among the most expensive consumer credit products available in the UK. Rates of 30–40% APR are common — often higher than standard credit cards — and they’re frequently opened at checkout with minimal friction, which means people sometimes don’t realise what rate they’re on.
Catalogue debt (Next Pay, Very, Studio, and similar) often runs at similarly high rates, and the minimum payment structures are designed to extend the repayment period as long as possible.
If you have a personal loan at a fixed rate, it’s worth checking exactly what that rate is. Personal loans from mainstream lenders often sit at 6–12% — far lower than the debts above. If that’s the case, it drops in priority behind all the above. Don’t overpay a 7% personal loan while a 39% overdraft is still open.
What about student loans, mortgages, and 0% deals?
Three types of debt that don’t belong in the priority list above:
- UK student loans (Plan 1, 2, or 5). These repay as a percentage of income above a threshold — not as a fixed debt you can meaningfully attack with extra payments in most cases. Don’t overpay a Plan 2 student loan while credit card debt is open. The interest rates and repayment mechanics are different from consumer debt.
- Mortgages. Usually the lowest-rate secured debt you’ll have. Once consumer debt is clear and an emergency fund is in place, overpaying a mortgage can make sense — but it’s Step 4 in the M&G System, not Step 2.
- 0% purchase or balance transfer credit cards. These are costing you nothing right now. Pay the minimum. When the deal ends, they re-enter the priority order at whatever rate they revert to.
A real example: Michael’s debt stack
Michael, 30, had four debts when he sat down to write the list: a £400 overdraft (39% EAR), a £1,200 credit card at 24% APR, a £600 store card at 39.9% APR, and a personal loan of £3,000 at 8.9% APR.
His instinct was to chip away at the loan because the balance was biggest. But by interest rate, the order was: store card (39.9%) → overdraft (39%) → credit card (24%) → loan (8.9%).
He set minimum payments on everything except the store card, which he cleared in three months. Then the overdraft, cleared in two. Then the credit card. The personal loan, at 8.9%, he continued paying normally — no extra. By attacking in order of cost rather than size, he saved around £380 in interest compared to his original “pay everything evenly” plan.
The M&G System: this week’s move
- Write the full list. Every debt, every balance, every interest rate. If you don’t know a rate, look it up on your statement or online banking — it’s there. You cannot prioritise what you haven’t measured.
- Rank by interest rate, highest first. This is your order of attack. Set minimum payments on everything else.
- Put every extra pound at number one. Even £20/month extra on the right debt makes a meaningful difference over a year. The compounding works against you when you ignore it; it works for you when you target it.
See your full debt picture in one place
The free Debt Calculator lets you list every balance and interest rate, then shows you exactly how much interest you’re paying across all of them — and what changes if you shift the order. It’s built specifically for this step.
Get the free Debt Calculator →
Or if you’d like to talk through your specific situation, a free Money Clarity Call is 20–30 minutes — no pressure, no pitch, just clarity.
Two ways to go further
Getting the order right is most of the battle. The full method, with the numbers worked through, is in the book.
Money & Growth 101 — the no-fluff UK guide to clearing debt and building real wealth.
Prefer to talk it through first? A Money Clarity Call is 20–30 minutes, free, and there is no pressure either way.
Frequently asked questions
Should I clear my smallest debt first for motivation?
The debt snowball method (smallest first) can work well if motivation is genuinely the barrier — clearing a debt completely gives a psychological win that keeps you going. But it costs more in interest than the debt avalanche (highest rate first). If you can stay motivated either way, go by rate. If you need quick wins to stay on track, smallest first is still far better than no plan at all.
Should I save while paying off debt?
For most people: clear high-rate consumer debt first, then save. The maths is simple — if you’re paying 35% on an overdraft and earning 4% in a savings account, every £1 in savings is costing you 31p per year in net interest. The exception is a small emergency buffer (£500–£1,000) to prevent the next unexpected cost from adding to the debt. Build that first, then focus entirely on clearing the expensive debt.
Is it worth getting a 0% balance transfer to clear credit card debt?
Yes, if you qualify for one and the fee makes sense. A typical balance transfer fee is 2–3% of the amount moved — paid once upfront. If your current card is at 24% APR and you have 12 months to clear the balance at 0%, you’ll save significantly more than the transfer fee. The risk: if you don’t clear it before the 0% period ends, the rate reverts — often to a high standard rate. Treat the 0% end date as a hard deadline.
How do I know what interest rate I’m paying on my overdraft?
It’s shown in your bank’s terms and conditions, on their website under current account fees, and sometimes in your monthly bank statement. The major high-street banks now charge between 35% and 39.9% EAR on arranged overdrafts. If you’re using an unarranged overdraft (going below an agreed limit), the rate is typically the same or higher, plus potential additional charges.
What if I’m in serious debt and struggling to make minimum payments?
This is the moment to contact a free debt charity — before you miss payments, if at all possible. StepChange and MoneyHelper provide free, confidential advice and can help you understand all your options, including debt management plans, Individual Voluntary Arrangements (IVAs), and — in serious cases — bankruptcy. These options affect your credit file significantly, but they exist because the alternative (continuing to drown) is worse. The earlier you contact them, the more options are available.
Related reading: How to clear debt on a normal UK salary · The truth about buy now pay later · The M&G System: the simple money system that’s hard to get wrong
Mustafa Alsoodany is the founder of Money & Growth 101. By day he’s worked in financial crime and compliance at banks and fintechs — JPMorgan, Monzo, Starling and Barclaycard among them — and holds the ICA Advanced Certificate in Anti-Money Laundering at Distinction. He started Money & Growth 101 to do the opposite of the day job: make money plain, jargon-free and genuinely doable for people in their 20s and 30s who were never taught it.