Help needed with prioritising debt

Tanjawi

Hi, this is my first thread so please be easy

I would like some advice on how to prioritise my debt. Below I have listed the debt I have and the amount of cash I have to pay it off. By no means I have enough to clear the lot but I would like to use the cash as best I can to clear as much as I can so any help would be very much appreciated.

* MBNA (credit card) - £5600 Balance with £5900 limit
* Santander (credit card) - £410 Balance with £500 limit currently on 0% for 10 months remaining
* M&S (credit card) - £180 Balance with £1500 limit
* N. Rock (unsecured Loan) - £2500 (17 months remaining to clear)
* Lloyds TSB - O.D. £650
* Barclays - £640 O.D. - It's free up to £300

I currently have £2500 that can go towards the above debts but am not sure how to best approach it to use the money efficiently. I was thinking of clearing the 0% santander and then using it to transfer some from the MBNA into it. The rest will go towards MBNA and O.D.s. maybe bringing Barclays to -£300 O.D. cause it's free to that level.

My main concern is the MBNA. I have been paying the minimum for endless years and it is not clearing :mad:. I really want to get rid of it.

The loan I can see it clearing. I know that continuing monthly payments will clear it in 17 months.

So please offer me advice on how to make best use of this £2500 to clear the debt.

Cheers
Tanjawi

savingmummy

The best advice and best thing to do is to pay off the debt with the highest APR.
I`m sure others will be along with advice too.
Good luck x

Butti

If you want the most effective method you need to follow the snowballing method. Throw the maximum amount at the card with the highest APR (Annual Percentage Rate) Look at the statement to find this out. Some will list the interest rate per month so you will have to multiply it by 12 to find the annual rate.

So do that. List the cards in order of APR highest first. Pay the minimum on all except the top card. Throw everything else at the top card. When you clear that one you can 'snowball' the monthly amount directed at that card to the next one down.

B

sweetpeas_2

Hi Tanjawi,

Well done for posting, it's the first step :T

Some debts are classed as high priority, some low. The ones which should be paid first are things like mortgage/rent, council tax, secured loans, then unsecured loans. The low priority debts are ones such as credit cards, overdrafts etc. These are the ones that, if you were taken to court over you would only receive a £x per week and no CCJ etc, as they are mag court not crown.

You only be thinking about the above though, if you are struggling to make all your payments a month. If you can afford to pay all your bills okay each month then obviously you should aim any over payments at the highest % rate like the OP said.

HTH :A

Oneday77

Without APRs and a SoA from the link it is hard to advise fully.
The most financially savvy way is to pay the highest APRs first in highest to lowest order.
However with £2500 you could reduce the Barclays OD to -£300, pay off Lloyds TSB OD, pay off the MBNA, pay off M&S. Close all those accounts with zero balances and pay £900ish to the MBNA. This might not be the most finacially sound way but what it will do is limit the actual number of debts you manage. Psycologically if your faced with many debts it seems impossible to sort.
Closing the zero balances stops you adding to them again, also the minimums you would be paying to them can then be thrown at the MBNA and the N.Rock Loan is gone by summer next year

Tanjawi

Thank you all for your advice. I'll look into the snowball method. I also like Oneday77's idea of playing with the psychological side and keeping fewer debts.

Sweetpeas, with regards to CCJ's, I didn't know that but I assume the credit history would be severely affected if payments are not kept up. But again, if you can't afford you can't afford end of. Definitely priority debts are to come first.

I'll look at the APR's but I think MBNA needs to go first. It's the one taking a massive chunk every month.

Cheers
Tanjawi

Tanjawi

Hi again, just a quick question to help with a dilemma. If I clear all the debts and I have and only the loan and MBNA left, do I use the 0% santander card to transfer some of the MBNA balance into it. I only have £500 limit on the santander one and able to use 95% of it to transfer from another card. So does it make sense to transfer from MBNA into it whatever I can?

I thought might as well use the 0% rather than close the account.

My ultimate aim is to close the MBNA account although its the oldest account. I would like to keep the M&S card even if I clear it. So basically I would be happy to keep 2 credit card with a mx of £2000 in them.

I heard that closing accounts can damage credit rating so what do you advise?

Thanks
Tanjawi

DarkConvict

Put all your debts into this calculator

http://www.whatsthecost.com/snowball.aspx

velrist

How much are your Lloyds and Barclays ODs costing you each month in charges and interest?

velrist

Is your Santander card also at 0% for purchases for the same period. The most you would be able to transfer over at the moment would be £65 and most have a minimum fee of £3 or 3% whichever is greater so which would make the interest around 4-5% on that amount.

If you have 0% on purchases as well then it would be better to spend the £65 on your card and then pay that amount of money off your MBNA. Don't do this unless you are certain you have 0% on purchases for the 10 months as well though or it will be charged at their standard rate.

sarahs999

Leave the santander debt. It's not costing you anything so why prioritise that now? Pay off the Barclays, Lloyds nad M&S, then use the remainder on MBNA. I presume you've stopped spending on all of these? It would be crazy to pay off santander and then transfer more debt to it, as you'll pay a fee. Just pay the money straight off MBNA.

This way you'll pay £1k off MBNA right now, reducing your interest payments.

Then prioritise all your spare money into busting the MBNA. If you post an SOA we'll help you free up cash by adjusting your monthly spend.