How to prioritize UK-specific debts. Does it make more sense to pay off a 39.9% APR store card or a 6.9% student loan?
When you have an extra £100, where should it go? To answer this, we have to look beyond just the interest rate and look at legal protections and Total Cost of Debt . The Numbers: 39.9% vs. 6.9% Mathematically, the answer seems obvious. A 39.9% APR store card (like those from major high-street retailers or catalogues) is an emergency. For every £1,000 you owe, you are paying nearly £400 a year just in interest. Conversely, a 6.9% Student Loan (Plan 2 or Plan 5) is effectively "cheap" debt. Because student loan repayments are tied to your income—and the debt is wiped after 30 or 40 years—it functions more like a graduate tax than a standard loan. The Verdict: From a pure cash-flow perspective, the 39.9% store card is a "fire" that needs to be extinguished immediately. Paying off the student loan early while carrying high-interest retail debt is essentially giving money away to a billion-pound retailer. The "Priority" Trap: Understanding UK Law However, ...