What to pay off first?

jw2014 · 28 August 2014 at 2:36PM

Hi!

I'm new here, so hello!

My situation has changed where my outgoings have dropped considerably and I can now take care of a few things. I'm in my overdraft by about 1k (3k limit from an ever harder time then recently) and I have 2,200 on a horrible loan 24.9%. Obviously they both need to go before I start saving my money away but I can see a few options and am after some advice with what to pay first?

1. Wait a few months whilst my salary pays off overdraft and account balance builds, continue paying monthly loan payment then pay it off in full.

2. Pay loan off in full asap, this would put myself deeper into my overdraft but it's less interest and I think would make sense to do?

3. Make ~£800 p/m payments into loan which would pay off in a few months and keep money in my account which would pay off overdraft at the same time.

Edit: I'm also due to get about £1000 extra in cash through, should this be put anywhere in-particular?

Tixy · 28 August 2014 at 3:16PM

Hi

2. puts you at greater risk if the bank decided to recall your overdraft (and could possibly increase the chance of them doing so).

1. if the overdraft is cheaper than the loan then 1. will cost you more than repaying the loan first.

Is £800 the max you can afford to the debts a month?

I would settle the loan first. Assuming overpayments are allowed pay the £800 to the loan for 2 months and then the lump sum £1k when available to clear the loan. Then the following 2 months you can clear the overdraft and get back in to credit with a small buffer.

Then you can start your savings.

jw2014 · 28 August 2014 at 3:25PM

Thanks for the reply!

I'll get rid of idea no 2 then!

I can put ~£1,300 p/m towards debts now, the £800 came from leaving £500 in my account to pay off the overdraft. Would you suggest paying the £1,300 over the next couple months to clear it in two? This would keep me at about the same point in OD.

Thanks!

jodles16 · 28 August 2014 at 7:37PM

I reckon Tixy's advice is spot on, I can see the appeal of getting rid of your loan asap, but overpaying your socks off will be the best way! You should still make a nice saving if you are paying it off sooner!

Good luck!

Jodles

jw2014 · 29 August 2014 at 10:30AM

Thanks very much both! Hopefully I'll be back in a few months with no debts to my name!

What to pay off first?

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