Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • first78
    • By first78 11th Oct 16, 4:05 PM
    • 709Posts
    • 352Thanks
    first78
    Which to pay off first?
    • #1
    • 11th Oct 16, 4:05 PM
    Which to pay off first? 11th Oct 16 at 4:05 PM
    I've got two debit so (in addition to my mortgage):

    I'm paying off my boiler and owe £1832 (currently pay £39.80 per month), interest rate I see 11.30% per annum.

    Second is my credit card which is £1255, interest rate 24.8%.

    At the moment I'm in a position to be able to pay off £1000...which one would be best to pay off? I'm unsure if it would be the credit card as it's the higher interest rate or whether I should pay the boiler off as I owe more and will be paying that off longer.
Page 1
    • zx81
    • By zx81 11th Oct 16, 4:07 PM
    • 9,400 Posts
    • 9,235 Thanks
    zx81
    • #2
    • 11th Oct 16, 4:07 PM
    • #2
    • 11th Oct 16, 4:07 PM
    The highest rate debt.
    • Bedsit Bob
    • By Bedsit Bob 11th Oct 16, 4:13 PM
    • 9,311 Posts
    • 48,764 Thanks
    Bedsit Bob
    • #3
    • 11th Oct 16, 4:13 PM
    • #3
    • 11th Oct 16, 4:13 PM
    How much do you pay each month, on your Credit Card?
    My job is Top Secret. Even I don't know what I'm doing.

    Amount I have so far denied the BBC - £1015-50
    • Sanctioned Parts List
    • By Sanctioned Parts List 11th Oct 16, 4:15 PM
    • 294 Posts
    • 764 Thanks
    Sanctioned Parts List
    • #4
    • 11th Oct 16, 4:15 PM
    • #4
    • 11th Oct 16, 4:15 PM
    Agreed. Play with the snowball calculator, which has the capability to account for one-off lump sump payments http://www.stoozing.com/calculator/snowball-calculator.php

    • first78
    • By first78 11th Oct 16, 4:27 PM
    • 709 Posts
    • 352 Thanks
    first78
    • #5
    • 11th Oct 16, 4:27 PM
    • #5
    • 11th Oct 16, 4:27 PM
    How much do you pay each month, on your Credit Card?
    Originally posted by Bedsit Bob
    I'm paying £40-50 per month off the credit card.
    • MrsTinks
    • By MrsTinks 11th Oct 16, 4:49 PM
    • 14,585 Posts
    • 22,066 Thanks
    MrsTinks
    • #6
    • 11th Oct 16, 4:49 PM
    • #6
    • 11th Oct 16, 4:49 PM
    Always highest first

    Unless a debt is shortly due to increase dramatically in APR (end of intro offers etc) then you always pay off the highest as the priority.
    DFW Nerd #025
    SPC member #561
    Sept 2016 - £10811 Oct £10166 to clear Cleared Since Sept 16:£645 6% repaid Declutter 25 items in November target: 0/25 Make £10 extra a day in November: £57/£150
    • Bedsit Bob
    • By Bedsit Bob 11th Oct 16, 7:19 PM
    • 9,311 Posts
    • 48,764 Thanks
    Bedsit Bob
    • #7
    • 11th Oct 16, 7:19 PM
    • #7
    • 11th Oct 16, 7:19 PM
    I'm paying £40-50 per month off the credit card.
    Originally posted by first78
    OK, let's call it £45 pm.

    Based on current payments, your boiler will take 60 months to pay off, and cost you £550 in interest.

    Paying the £1000 to it, will reduce the repayment period to 24 months, and the interest to £88, a reduction of 36 months and £462 in interest.

    In comparison, based on current payments, your Credit Card will take 35 months to pay off, and cost you £480 in interest.

    Paying the £1000 to it, will reduce the repayment period to 6 months, and the interest to £10, a reduction of 29 months and £470 in interest.

    Interest wise, there isn't a huge amount in it (just a tenner), but, I'm assuming the boiler loan is a fixed APR, so I'd still be inclined to clear the Credit Card ASAP, as that can have the APR change at any time.

    Also, paying it to the Credit Card will mean you can increase your payments to the boiler loan in 6 months (when the Credit Card is cleared), whereas, if you put it to the boiler loan, it would be 2 years before you could increase the payments to the Credit Card.

    NB. The above is based on the assumption, that there are no penalties for early settlement.
    My job is Top Secret. Even I don't know what I'm doing.

    Amount I have so far denied the BBC - £1015-50
    • first78
    • By first78 12th Oct 16, 5:39 AM
    • 709 Posts
    • 352 Thanks
    first78
    • #8
    • 12th Oct 16, 5:39 AM
    • #8
    • 12th Oct 16, 5:39 AM
    OK, let's call it £45 pm.

    Based on current payments, your boiler will take 60 months to pay off, and cost you £550 in interest.

    Paying the £1000 to it, will reduce the repayment period to 24 months, and the interest to £88, a reduction of 36 months and £462 in interest.

    In comparison, based on current payments, your Credit Card will take 35 months to pay off, and cost you £480 in interest.

    Paying the £1000 to it, will reduce the repayment period to 6 months, and the interest to £10, a reduction of 29 months and £470 in interest.

    Interest wise, there isn't a huge amount in it (just a tenner), but, I'm assuming the boiler loan is a fixed APR, so I'd still be inclined to clear the Credit Card ASAP, as that can have the APR change at any time.

    Also, paying it to the Credit Card will mean you can increase your payments to the boiler loan in 6 months (when the Credit Card is cleared), whereas, if you put it to the boiler loan, it would be 2 years before you could increase the payments to the Credit Card.

    NB. The above is based on the assumption, that there are no penalties for early settlement.
    Originally posted by Bedsit Bob

    Thanks very much for explaining Bedsit Bob! Feel like I have a better understanding now...credit card it is!
    • fatbelly
    • By fatbelly 12th Oct 16, 6:18 AM
    • 10,093 Posts
    • 7,568 Thanks
    fatbelly
    • #9
    • 12th Oct 16, 6:18 AM
    • #9
    • 12th Oct 16, 6:18 AM
    Thanks very much for explaining Bedsit Bob! Feel like I have a better understanding now...credit card it is!
    Originally posted by first78
    .. unless you can balance transfer to a 0% card

    http://www.moneysavingexpert.com/credit-cards/balance-transfer-credit-cards
    • bouncydog1
    • By bouncydog1 12th Oct 16, 7:54 AM
    • 2,593 Posts
    • 2,038 Thanks
    bouncydog1
    Yes but there is a fee involved so even if the fee is reduced it makes more sense to pay the £1000 off the credit card. Could you raise your payment to the card each month - nothing as good as seeing the debt gone!
    • fatbelly
    • By fatbelly 12th Oct 16, 8:13 AM
    • 10,093 Posts
    • 7,568 Thanks
    fatbelly
    Yes at 1.5% the fee would be £19
    • Bedsit Bob
    • By Bedsit Bob 12th Oct 16, 8:44 AM
    • 9,311 Posts
    • 48,764 Thanks
    Bedsit Bob
    BT-ing is fine, provided you're going to have the funds available, to clear it during the 0% period (£70 pm for an 18 month 0% APR), and the willpower not to drop down to minimum payments, a few months down the line.

    Paying it off (and closing the account), means it's gone for good.
    My job is Top Secret. Even I don't know what I'm doing.

    Amount I have so far denied the BBC - £1015-50
    • Sanctioned Parts List
    • By Sanctioned Parts List 12th Oct 16, 9:00 AM
    • 294 Posts
    • 764 Thanks
    Sanctioned Parts List
    Originally posted by fatbelly
    An interest rate of 11.3% APR on the boiler sounds like one of those semi-flexible repayment plans Hitachi Capital and New Day tend to underwrite. Both are quite pleasant to deal with. (New Day bought almost all Santander's old consumer loans when Santander left that market a few years ago).

    Anyway, the downside of those loans is that you cannot use a balance transfer credit card to pay the off directly. You can, however, use a 0% on purchases credit card to pay them off for a 2.5% handling fee*. Alternatively, you can get a money transfer card, transfer the money to your current account, then use that to pay off the balance by debit card for the 1.9% typical money transfer fee. The difference between the two fees is a princely £10.99. Note that money transfer cards tend to be rather harder to come by.

    So to follow Fatbelly's post to its logical conclusion, the most efficient way of treating this debt in terms of interest and fees is to:

    i) Pay £1000 off the credit card. That's a no-brainer.
    ii) Use the eligibility calculator to see if OP's able to get a long 0% balance transfer card. The credit limit will need to be £2500 - £3000 depending on the CC's terms and conditions, and note the health warning below.
    iii) Transfer the remaining £255 to the credit card for a 1.9% fee
    iv) Pay the boiler loan for a 2.5% fee. (*Health warning: before you take the card, check very carefully that they'll honour this as a general purchase. Halifax and Barclaycard both did for me, but your mileage may vary).
    v) The total debt including fees will now be £2137.65. Assuming a 32 month balance transfer card, this will be cleared with room to spare for £68.96 per month.

Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

702Posts Today

5,052Users online

Martin's Twitter