Which Debts to pay off

Ellie2005

Hi guys, I new here so please bear with me just after some advice about which of these debts we should pay off.
The idea is to try to reduce our monthly out goings as the OH is in the process of setting up his own business so from next month will only be working part time in his current job so his wages will be cut in half plus whatever he makes from his own business :eek: So we have borrowed an extra 14K on our mortgage which has added £85 a month to our mortgage payment we want to use 7k to pay off some of our debts and then use the rest for home improvements, we bought the house nearly 2yrs ago and its in a part renovated state and I can't stand it any longer

These are a summary of our debts (not including the business loan or the mortgage of course!)

Debt type / Amount / Interest Rate / Monthly Payment
Natwest Credit Card - £3443.07 - 0% until 10/6/06 - 16.6% - £100
Natwest Loan - £4670 - 8.9% pa - £156
Natwest overdraft - £3000 - 16.79% - N/A
HFC Loan - £260 - 0% - £52
HFC Loan - £1178 - 0% - £38
A & L Overdraft - £420 - 17.08% pa + £5 per month - N/A
HSBC Overdraft - £464 - 14.8% pa - N/A
HSBC Credit Card - £198 - 14.9% - ?

My original plan was to pay off the Natwest card & the Loan as this will make the most significant reduction on our monthly costs but these come to more than 7K. So I am now thinking about the Natwest credit card & overdraft, £260 HFC loan then the remainder to one of the other overdraft. I have enough in my savings to clear the HSBC credit card.
The only problem is deciding whether we can afford to keep the set monthly loan payment over the overdraft which doesn't have one

Any thoughts or tips would be greatfully received. My ultimate aim is to be debt free except the mortgage of course.
Have just got to train the OH not to spend so much money just when I've cleared the debts I can see he'll want a loan for a new car :rotfl:

southernscouser

The best thing to do is pay off the debts with the highest interest rates first. This will save you money in the long run!

Have a look at this calculator!

I know you might not want to hear this but especially now your OH is starting up a business that isn't guaranteed to be a success, your priority should be your debts and not renovating your home!

We would all probably have advised against borrowing against your mortgage. The snowball calculator will demonstrate how much extra it will cost you in the long run!

You currently owe £13,633.07 with alot at very high interest rates! Would you not feel better to know that all these would be paid with your only debt being your mortgage?

It would also free up alot more money that could possibly help your OH business take off! Or that you could overpay on your mortgage to reduce the term and interest you pay on that!

CLAPTON

i would pay off all the debts....use the rest as a buffer while OH is building up his business, then i would save up money and spend it after i have saved it. this way you save loads of interest by not paying it to banks etc. your aim of being debt free except for the mortgage is available right now, take it and dont buy that new car.

sanfrancisco

I always think...a manky old kitchen with lino does not keep you awake at night with stress and worry, but not being able to meet a loan payment on a loan taken out to put a new brushed steel oven in, because someone has had a baby/been made redundant/got ill/didn't make as much as thought in new business (delete at leisure) will keep you awake at night. I guarantee it.

I know its not what you want to hear.

roswell

Pay off all debt !! you have the Money to and why pay interest on the remorgage and on your debts .... ??? you know it makes sence

kar

If your determined to only use 7K then I would pay off:
Natwest Credit Card - £3443.07
Natwest overdraft - £3000
A & L Overdraft - £420

And the remaining £136.93 off HSBC Credit Card

This would leave you with:
Natwest Loan - £4670 - 8.9% pa - £156
HFC Loan - £260 - 0% - £52
HFC Loan - £1178 - 0% - £38
HSBC Overdraft - £464 - 14.8% pa - N/A
HSBC Credit Card - £61 - 14.9% - ?


And you would then need to concentrate on HSBC CC and overdraft followed by Natwest Loan.

Personally I would use the whole 14K to pay off debts but that really is your choice. At the end of the day if you do go for building work MAKE SURE YOU STAY IN BUDGET. The last thing you need if OH is setting up a business is more debt!! Plus if you have any left over slap it straight on loans as detailed above.

PS. would really try to "find" that extra £61 if you could that would leave you with less monthly repayments.

kar

Lydia.42

I agree with the other posters.
I desperately want to replace our 1970's bright blue kitchen. However, the debts whisper nasties to me in the middle of the night, the kitchen on the other hand just makes visitors giggle!!!! :rotfl:
Good luck with the new business!
L

beanielou

Just goes to show Lyndia.42 as I would most likely just love your bright blue kitchen. :rotfl:
I love blue n my kitchen is 19 years old and falling to bits.
Euk.
Know what you mean though , will live with it for a lot longer.
Good luck OP.

Ellie2005

Thanks for the advice guys, I kinda knew you'd all say about paying of the debts first and not doing the work to the house
We decided to borrow extra on the mortgage to reduce our monthly payments and not worry about the extra interest we'll be paying in the long run. Our mortgage currently has 33yrs left to run but believe me I don't intend to be paying it for that long.
I think a comprimise is in order. I'll sit down with the OH decide what renovating jobs are the most important, as its also about adding value to the house and then see if we can put more towards the debts :j

tyllwyd

Have you thought about how the debts were run up in the first place? Was it spending on the house, was it overspending, or was it because you couldn't afford to live on the income you had coming in? Because money is going to be even tighter now, and unless you get control over whatever it was that created the debts, you are going to slip further and further behind.

Ellie2005

tyllwyd, to be honest it was a bit of all, some of it was spending on the house, some was money we lost on a new car when we sold it and some is just monthly overspending. We do need to tighten our belts as we often find that we get to the middle of the month and all our wages have gone so we have to live off the overdrafts of other accounts :-( and this is only going to get worse!
On paper our finances work, I bring home about £1600 a month and the other half will be bringing home a guaranteed £400 plus whatever he earns from the business (or stacking shelves in tesco's!)
Our monthly bills come to £1078
Our montly debts currently including the business loan are £385, this does not include paying towards the overdrafts.
I need to reduce this to leave enough left over for food, petrol etc and other expenses i.e road tax & insurance (renewal due may)