What to pay off first? - a happy post

Firsttimebuyer_4

Hi,

I've been a "good boy" in my job and will receive a substantial bonus in January which I will use to pay off some debts!! (all shout "HOORAY"!). In addition a series of other fortunate monetary events means that I will have roughly 5k to pay off debts with In February!!

Problem is...which debts shall i repay first??

I have an loan with roughly 5K remaining at 6.9% which has 3.5 years left on it.

I have 2 credit cards totalling roughly 5k as well, 1 with 8.9% and one with 9.9%.

One dilemma is what will in the long run save me most money. My loan has 3.5 years left but my credit cards are flexible although a higher interest rate. By paying off my loan early i can use the money i save monthly to pay of the cards quicker.

The other dilemma that I have is, what looks best on my credit file. Does it look better to pay off my loan early or to have no credit card debt. My other half and I want to start looking for a mortgage next year so i want my credit file to be the best possible.

AMILLIONDOLLARS

If it were me I'd pay off cards, then throw any surplus funds at the loan to pay it off earlier, never know, next year you could come up with another 5K and instead of spending it on debt, you could be spending it on yourself instead:D

earthmother

Purely on rates, I'd go for the cards, but it will only work if you never use the cards again.

If you think you will need the cards as emergency fallback at some point, then I'd pay off the loan - whilst it's a better rate, at least you can't run it up again once it's cleared.

On a rating aspect - it seems better to have a couple of clear-but-available/low-balance debts on your account than none at all.

Pauper_Princess

Well done on your bonus!!! :beer:

If it was me (not going into fantasy land though ), I'd use the 5K to clear the cards, then use the money I'm saving on trying to pay the cards to overpay the loan (or bung it into a savings account till I'd acquired a good lump, then get a settlement figure for loan).

WELL DONE on your hard work!!! :j

Phoenix79_2

I'd pay off the loan. Then i'd apply for some 0% credit cards and transfer the balance from your current cards over to them. Then you will be paying no interest!

How is your credit history?

Leon_W

I'd pay the cards.

The loan is STRUCTURED

Cards are your fickle friend that you will allways repay 'later', but it never comes.

Phoenix79_2

Are there any penalties for clearing the loan early?

Firsttimebuyer_4

Are there any penalties for clearing the loan early?

1 months interest for paying of the loan early if i remember correct.

I'd pay off the loan. Then i'd apply for some 0% credit cards and transfer the balance from your current cards over to them. Then you will be paying no interest!

How is your credit history?

Well......I've NEVER missed a payment so that part is good and I have settled loans early before. However, I do have quite a lot of debt due to a number of reasons (university, job hunting, moving house etc). In addition to the above i got:

ca 3.5 years left of a 5 year £14000 loan at 6.5% (balance is roughly £10k now)
3 years left of a 4 year £12000 loan at 7.9% (balance is about £10k as well i think)
5k on a mbna card at 0% until November 2007.
3.8k on a AMEX at 4.9 life of balance.
And then i have the debts that i can pay off:

5k on 2 credit cards with 3k 8.9% and 2k on 9.9%.
5k loan at 6.9% with 3.5 years left.

These arent excact figures but rounded up or down...but they show my situation.


I have a lot of debt but it is manageable and the interest is not too high. Total debt is 29k and It's reduced by approx 1k per month now so there IS a light at the end of the tunnel. All my loans will finish about the same time so i am expecting a bit of an "income boost" when they're paid off