Time to get debt free - Snowball or payoff?

osones

Hi all,

I have been in debt for some time with credit cards, but I am now looking to clear my debt - but am wondering the best way to go about it! Bear with me as this may be a big post!

I have 7 credit cards with various amounts totaling £8,925.12. I have managed to secure a loan from my parents for £6000, plus I am about to receive £4000 of inheritance. This will of course mean paying back the £6000, but with no interest attached.

I have no worries listing my debt, as I think there is no point hiding, so below are the amounts on the cards with the interest and last minimum payment attached:


Virgn Atlantic AMEX
£241.64
2.53%
£12.08

Barclaycard Initial Visa
£458.96
2.08%
£11.35

Natwest Visa
£501.86
2.01%
£10.00

Egg Card
£702.23
2.24%
£26.29

Virgin Mastercard
£1,329.92
2.53%
£58.62

RBS Mastercard
£2,794.64
1.09%
£62.00

Barclay Card Cashback
£2,895.87
1.33%
£57.85

As you can see, there are various amounts. My question is, should I use the £6,000 I will receive to Snowball this debt, OR pay off the two largest amounts first, then use the £4000 to pay the rest off?

I know there are pros and cons to both methods (longer time in debt vs smaller amounts with higher interest etc), so I wonder what fellow debt clearers think?!

I look forward to your replies!

Many thanks!

osones

moneymakestheworldgoround

Hi

I am not going to answer either of your questions so I apologise in advance !

Are you making the full minimum payments each month, or are you making token payments?

My thought was just that the £4000 inheritance might be enough to offer full and final settlements to companies without the need to borrow £6K off the parents. But this will only work if you have been having trouble paying them.

moneymakestheworldgoround

ALSO .. how long do you think it will be before you get the inheritance?

osones

It will be around 2 months I think.

I have been paying the minimum payment on the cards - although some are over the limit and have had charges on them recently.

I'm confused as to how £4000 will be enough to cover the cards?!

Cheers!

savingholmes

With regards to what to pay - only use the inheritance to pay off debts if you manage to resolve your underlying habit of spending too much - if you don't you will end up back in more debt very quickly and regret having used your inheritance on it!

Bit the bullet - post an soa - and get some comments on your current spending and then look at what you need to do differently in future to stay out of debt...

osones

I'm now spending within my means I have been for a while -unfortunately this debt goes back a while but now I'm in a position to stop paying interest on it (parents loan).

savingholmes

well use this site
http://www.whatsthecost.com/login.aspx
to work out which debts to pay first and get on with it! There is no point paying even a day's interest longer than you need to. With regard to the inheritance - do your parents expect you to use it to pay them off as a priority or do they want you to pay off your other interest bearing debts first?

osones

savingholmes wrote: »

well use this site
http://www.whatsthecost.com/login.aspx
to work out which debts to pay first and get on with it! There is no point paying even a day's interest longer than you need to. With regard to the inheritance - do your parents expect you to use it to pay them off as a priority or do they want you to pay off your other interest bearing debts first?

I have created a snowballing sheet for both interest and balance versions.

My parents want me to pay off my interest bearing debt first - the biggest issue I've been having is that each month I have 7 DD's going out which means I can never catch up with myself - what goes in goes straight out - where as now I can pay them back an amount each month and anything I earn can be put to better use (savings etc) after the amount each month goes to them. My dilemma at the moment is what is the most economical use of the total £10,000 - pay off the credit cards that are wasting me the most money first, or snowball. I suppose if the money is there than I should pay off the cards ASAP!

jwil

Hi Osones,

If it was me, I would pay the whole lot off and be rid of it. You would then have around £1000 of your inheritance left with which to buy yourself something nice. I would agree with the previous posts though - only do this if you are sure you will not spend on the cards again - so cut them up and get rid of them. I consolidated and now my debt is double what it was because I spent again on the cards.

If you pay back your parents at the rate of your minimum payments you will be completely debt free in less than 3 years.

If you do decide to snowball instead, I would definitely go with the interest rates - I assume the rates you have posted are monthly - in which case your Virgin cards are over 30%, and Egg is not much better. I would definitely pay these off anyway, and then decide about snowballing the lower rates.

Best wishes whatever you decide to do!
Jwil