What to do with inheritence?

Fang_3

What's the APR on the loans and credit cards?

jii_2

The loan is around 14% and the credit cards are both 19.9% I think...

I used the snowball tool linked above and found it very useful. Turns out the best (most efficient) option is to pay off the cards and put the rest into the loan. That was gets me out of debt in just over a year's time.

If anyone else has any more creative/better options I'd love to hear them!

DarkConvict

There is a 3% fee for moving the money to 0% cards, so may not be the best option as you are moving not paying it off. And with such lower interest on savings i would go for the cards.

if you still get hit with interest then paying off the loan early probably doesn't help a great deal. And as you say you only bring the final day closer rather than reducing the £500 monthly fee. Atleast with the cards gone you save £200, and if you budget more you could save on general outgoing costs.

Fortheloveofmoney

I was in a similar debt situation a few years ago (but no inheritance for me). I was lucky enough to secure a 0% credit card and a 0% overdraft so I was only paying interest on the loan which unfortunately did have an early redemption penalty and the interest was front loaded...ouch!

Anyway I saved the money I'd set aside for debt repayment in to an interest paying account and then paid them when the deal was up. I continued doing this until I had enough saved up to pay the loan in full. For me the redemption penalty was worth paying for the sake of being debt free 16 months earlier.

In your situation I would pay off the cards, put the rest in an account and top this amount up with what I was paying off the cards each month.

LillythePink

Surely the loan is on a fixed interest rate and is to be paid at the rate of £x per month for x months paying x amount of interest in total?

If this is the case, then surely if the money is given to the company, it's not going to bring the repayments down - yes it will decrease the term, but you won't really have gained anything (in the short term)

The best bet is to pay the cards off, cut them up, bank the rest and set up a s/o for the money that you would have paid them into your savings account!

That way, you can save up and settle in full early (if you want to)

DarkConvict

You really have to check the loan terms.

Some loans are front loaded. £10000 @10% over 5 years, is worth just over £15,000. The interest is added first making payments £250 a month. In this loans repaying early reduces the term not the cost of the loan as interest is added. These are more common as payments will match the time taken to pay it off, also if you default they can case the full amount inc all interest as its already added.

Some loans will be cheaper, although these are older loans, where you borrow at a set rate but interest is incurred as you go along. Paying early reduces the monthly increases in interest but you must watch out for early repayment charges.