Clear your high-interest debt

UK credit card interest rates hit a 20-year high in 2025. The average APR — the true annual cost including fees — now sits above 35%. At that rate, a £3,000 balance you're paying minimum payments on costs more than £1,000 a year in interest alone, and takes over a decade to clear.

That is a worse return than almost any investment on earth. This guide shows you how to clear it — the right order, whether to use a balance transfer, and when it makes sense to use savings.

What counts as high-interest debt

Not all debt is the same. The question is always: does the interest rate on this debt exceed what I could reliably earn by doing something else with the money?

The Ardlight threshold is 5% APR. Anything above that should be cleared before you invest. Here's how common UK debts sit against that line:

• Credit card (standard rate) ~35% APR Clear first
• Store card ~30–40% APR Clear first
• Overdraft (authorised) ~39% EAR Clear first
• BNPL reverting to standard rate ~29–39% APR Clear first
• Personal loan (>5%) ~8–18% APR Clear before investing
• Car finance (HP / PCP) ~7–12% APR Clear before investing
• 0% credit card (in promo period) 0% Minimum payment only
• Student loan (Plan 2/5) RPI linked Do not overpay
• Mortgage ~4–5% APR Step 6 decision

What high-interest debt actually costs you

Most people underestimate the true cost of carrying a credit card balance. Here's what minimum payments look like in practice.

The minimum payment trap is real. Credit card minimum payments are typically set at around 1–3% of the balance — enough to avoid a charge, not enough to make a dent. The balance barely moves while interest accumulates relentlessly.

Step one: get the full picture

Before you can tackle debt efficiently, you need a complete list. This is the part most people avoid because it's uncomfortable — but it is the most important step.

For each debt, write down:

• The outstanding balance
• The interest rate (APR)
• The minimum monthly payment
• Whether it's in a 0% promotional period — and when that ends

Once you have this list, the priority order becomes clear: overdraft first (highest rate), then credit card A, then personal loan. The 0% card is on autopilot minimum payments until the promotional period approaches — at which point you either clear it or transfer it again.

Avalanche vs snowball: which method to use

There are two debt repayment strategies most people encounter. Both work. The debate is about psychology as much as mathematics.

In practice, the difference in total interest paid between the two methods is often modest — especially if your debts are at similar rates. The research is clear that the best method is whichever one you actually stick to. If clearing a small debt in month three keeps you motivated for the next two years, the snowball is the better choice for you.

Balance transfers: when they make sense

A 0% balance transfer card moves your existing credit card debt to a new card that charges no interest for a promotional period — typically 12 to 29 months. Every payment goes directly against the actual debt rather than being eaten by interest first.

They make sense when:

• You can get approved for a card with a long enough 0% period
• You have a credible plan to clear the balance before the promotional rate expires
• The balance transfer fee (typically 2–3% of the transferred amount) is less than the interest you'd otherwise pay

The transfer fee is almost always worth paying when you're moving high-rate debt. The trap to avoid: clearing the transferred balance feels like progress, so people use the original card again. Once you transfer a balance, stop using the old card until the debt is cleared.

Should you use savings to pay off debt?

This question comes up constantly. The maths is straightforward.

If your debt is costing more in interest than your savings are earning, using savings to clear the debt is almost always the right move. The exception is your emergency fund — you need to keep enough accessible cash to avoid being forced back into debt when something goes wrong.

The psychological objection — "but then I'll have no savings" — is understandable but usually misses the point. If you clear £3,000 of 30% APR debt using savings, you free up the interest payments that were haemorrhaging £75/month. That money is now yours to rebuild savings with, without the debt anchor.

The rule of thumb: keep your starter emergency fund (£1,000 minimum), then use any surplus savings above that to attack high-interest debt.

How to find extra money to throw at it

The maths only works if you can redirect money towards the debt. Before turning to extreme measures, there are often overlooked sources of extra repayment cash:

• Cancel subscriptions you don't use — streaming services, gym memberships, apps. Even £30–40/month matters at 35% APR
• Redirect windfalls — tax refunds, work bonuses, birthday money. Going straight at the debt rather than into general spending is one of the fastest accelerators
• Sell things — eBay, Vinted, Facebook Marketplace. A clear-out of unwanted items often raises a few hundred pounds
• Check you're on the right energy tariff — not glamorous, but switching can free up £10–20/month immediately
• Ask about overtime or one-off extra shifts — even a few extra hours on two or three months can make a meaningful dent

The goal is to increase the gap between what comes in and what goes out so more can be directed at the debt. Even small changes compound quickly at high interest rates — because every extra pound you pay reduces the balance on which the interest is calculated next month.

If you can't afford your minimum payments

Everything above assumes you have enough income to cover your minimums and make extra payments. If that's not your situation — if debt is genuinely unaffordable — the most important thing to know is that there is free, expert help available.

These services are free. They are not the same as commercial debt management companies, which charge fees and sometimes make situations worse. If debt feels unmanageable, contact one of the above before doing anything else.

What comes after the debt is cleared

Clearing high-interest debt removes a guaranteed negative return from your finances. Once it's gone, the money that was going towards interest payments is yours to redirect — first into building your emergency fund to full size, then into investing.

The next step in the Ardlight method is opening a Stocks and Shares ISA — where the same disciplined approach that cleared your debt becomes the engine of building real wealth.