The Best Way to pay off a loan??

Lottebear · 16 August 2008 at 11:28AM

My Husband and I have a large loan which is eating into our money. My husband is in the Army and we need to buy a house sometime over the next couple of years and also think about having childern, it would not be possible for me to go back to my current job with childern due to the long hours.

He has owes £12531.35 on a loan which is the debt from his first marriage, he currently pays £410 per month and has another 35 months to go.

He pays a further £200 on a credit card which will be cleared in 6 months.

We save between us £400 per month into an ISA, which is for rainy day fund and house depoist.

He also earns and extra £200 from his hobby.

Does anyone have any advice on clearing this money any quicker? Should we use the other money against the loan?

cady · 16 August 2008 at 11:30AM

id use your savings to pay towards the loan tbh

Lottebear · 16 August 2008 at 11:33AM

cady wrote: »

id use your savings to pay towards the loan tbh

Yes I have thought that but, we have just had to pay £900 on our car having the saving there helped, I worried if we used them for this we could be trouble on day?

cady · 16 August 2008 at 11:44AM

yeah it is always worrying but the interest your paying on your loan will be more and once its gone you can use the money you used to pay to save up....how much do you have in savings?

IWantToBeFree_2 · 16 August 2008 at 11:49AM

All depends on the nature of the loan to be honest, and the difference in interest rates between that and your savings.

If the loan has front loaded interest, or high early repayment penalties then you may be better off just letting it run its course, if you aren't going to save on interest then there is no point overpaying whatsoever.

If the interest rate on your savings is higher than the rate on your loan, you would be better off keeping the savings where they are until you have enough to pay off the loan in full, subject to consideration of the points above.

Lottebear · 16 August 2008 at 11:54AM

My thoughts were to get my husband to save the £200 he get for his hobby and use this, the bank want early repayment of £184.01 but as we don't have 12k, it isn't an issue, the bank won't let him increase his monthly payments, instead they have asked that we make extra payments of £1000 at a time.