What to do with inheritence?

jii_2

Hi guys,

I'm lucky enough to have just received a small inheritence (around £10k) and have no idea what to do with it.

I'm currently in debt at around £26k. £18k of that is in a personal loan which is costing me nearly £500 a month, the rest is split between two credit cards costing about £200 a month altogether.

I just can't decide what the best course of action is! Do I pay off the credit cards fully and put the rest towards the big loan? Do I put it all in the loan? Do I do some kind of split?

I can't help but think there is a "clever" way of dealing with this situation where I can more out of debt.

Any help is much appreciated!


PS. My salary currently allows me to pay the debts OK but at this rate I'm not saving anything or making any big dents into the debt.

DarkConvict

Are you up to date with your payments, if so there is little chance of making a settlement offer.

In which case i would pay off whatever is costing the most, most likely the credit cards. Pay it off and do not use them again. Problem you may suffer is paying it off and then you start re-spending on the cards making only min payments which just put you back in debt, cards must be paid in full monthly to be off any worthy use.

If the debts were defaulted, I would be tempted to do a 50% settlement offer on the loan to try and clear a big chunk of debt.

katsu

Jii - look at the interest rates. Cards are generally higher than the loan so you save more in the long run by clearing the highest interest debts.

So, assuming it is the cards:

1 - clear the cards
2 - destroy or freeze them for genuine emergencies only
3 - either overpay the loan repayments with the money you were paying to the CCs plus the remains of your inheritance OR, if you cannot OP, then open a separate bank account and put the money in there every month, that you are currently paying to the CCs (plus remains of the inheritance). Keep making the loan repayments and eventually you will have saved up enough to clear the rest of the loan early
4 - you are free

jii_2

DarkConvict: No the debts are paid and up to date... are you saying I should default on them for a bit then make an offer of 50%?? Wouldn't that ruin my credit rating? I wish I knew more about credit ratings, I get paid a good salary but have this debt so no idea what it is! I do know that the bank are always upping my credit card and overdraft limits without asking...

katsu: That's kind of what I had in mind actually. If I paid off the cards I'd have about £5k left which I was thinking to put in a savings account and pay that extra £200 into as well. After about a year or so it'd be enough to pay off the loan I think.... but a year seems so long away!

DarkConvict

Im not saying default by any means, many people that come here for help have already defaulted and have damaged credit records so can make these types of offers. In your case i would strongly recommend you keep up payments and keep your credit file clean.

Since loans often have early repayment penalties there is usually little benefit in clearing them early. I would pay off your cards, and save the remainder in a separate account. if you have not saved much consider using ISA's for the best rates.
Then check out the terms of your loan and see if it makes sense to repay early. Sometimes you can't avoid the interest and repaying early only means you pay it quicker not cheaper. You still end up paying all the interest you would do if you left it run out the remainder of its term.

lesalanos

hi,

what rates are the credit cards? could you move these to 0% cards? If you could then it may be better to move the cards across and pay off some of the loan. Then put the loan repayments into teh cards to pay them off in full before the 0% ends. This also depends on what if any charges you will be charged by the loan supplier for paying off earlier.

so you need to know/find out

what charges will be made by the loan supplier .. phone them
what rates you pay on the cards or if you can move them to a 0% balance transfer.

It is always best to pay off teh highest interest first to reduce the totals that you have to pay.

jii_2

Well the loan charges 30 days interest in the case of early repayment so it doesn't seem too bad. I know it's probably wise to pay off the credit cards first but the loan really is the big one, the weight on my shoulders if you know what I mean? That £500 a month could make a big difference... but even paying all £10k to it would still mean over a year left to pay £500 a month off so it seems there is no quick fix! It's very quick getting into debt but getting out again can take a lifetime

jii_2

lesalanos wrote: »

what rates are the credit cards? could you move these to 0% cards? If you could then it may be better to move the cards across and pay off some of the loan. Then put the loan repayments into teh cards to pay them off in full before the 0% ends. This also depends on what if any charges you will be charged by the loan supplier for paying off earlier.

so you need to know/find out

what charges will be made by the loan supplier .. phone them
what rates you pay on the cards or if you can move them to a 0% balance transfer.

It is always best to pay off teh highest interest first to reduce the totals that you have to pay.

I hadn't thought of moving the credit cards, that's not a bad idea thanks! I thought a while ago most cards brought in a 3% charge for moving cards? still, it'd probably work out better that way anyway.

RAS

Hi

Go to the snowball on www.whatsthecost.com. You can put in the details of your current situation and see how much interest you will pay and your debt free date.

Then put in the details of paying off the credit cards and keeping the loan as against paying off some of the laon and see what happens in eaach scenario.

jii_2

RAS, thanks for that website it's exactly what I needed! brilliant!

sleepless_saver

jii wrote: »

I wish I knew more about credit ratings, I get paid a good salary but have this debt so no idea what it is! I do know that the bank are always upping my credit card and overdraft limits without asking...

Why not just check your credit record then? See Martin's article on how credit ratings work and how to check them.