Which to pay back first?

prb1984

Hi everyone,

After a few years of building up different debts, I've taken the plunge and moved back in with parents. So now I am able to put quite a large proportion of my wage solely onto paying off these debts.

Here are the debts:

Lloyds Loan - 6356 (9% apr) - £167 per month (of which £50 is interest)
Co-op career dev loan - 5000 (9% apr) - £115 per month (of which £40 is interest
Santander Overdraft - 895 (0% reducing by £70 per month)
Marks & Spencer CC - 1200 (0% apr until Dec 14) - £50 per month

What I have to pay it off....

Pay - 1600 per month - roughly 900-1000 of this should be able to go towards debt each month
Deposit** - £675
Checque** - £1870


**This week I recieved a checque back from a university who overcharged me for doing my Masters so a nice £1870 to put towards the debts too. Add in my deposit of £675 that I got back from leaving my rented property.

So i have 675+1870 to pay off straight away and roughly 1000 a month going forward.

My question is which should I try to get rid off first? and in what order should I pay these debts off? Obviously I will make sure the CC balance is either cleared before Dec 2014, or balance transferred to a new 0% card.

Tixy

Hi

The snowball calculator should work out the cheapest way to pay off your debts based on the money available and the interest rates etc.

Take a look here - http://www.stoozing.com/calculator/snowball-calculator.php

Whalie

My quick reply is to aim to get rid of those with high interest first.

toothfairybuttkicker

I would make sense to pay off those with the highest interest rates first. However, check with your loan companies if there are charges associated with clearing your loans early. If there is I would clear the CC and Overdraft, then stock pile the £1000.00 per month until you can pay the loans off in full early.

If it was me i'd still pay off the CC and Overdraft so that i'm only dealing with 2 debts! I like to feel accomplishment!

FireWyrm

LLoyds first. Although it is the larger debt, it is acruing interest slightly faster than CoOp. Slap all your windfall money there first.
Next month, pay £500 each to Lloyds and CoOp and do the same going forwards. Pay off Marks&Spencer entirely in December without fail, even if you have to stop paying someone else.

That's just off the top of my head, but obviously, the snowball calculator might have a better plan. Once you have paid off Lloyds, which you should manage first, then use that money to pay the overdraft. Dont worry about the overdraft at the moment if it really is 0%. You need all your money to be working to pay off the debts that are costing you interest right now.

MrWillyWonka

Just bear in mind that your bank could call in the full amount of your OD at any time. So even though you would usually pay of the debt with highest interest first, just make sure that if your bank suddenly says you have to pay off your OD now that you are able to do so.

Otherwise, with some work you could try and get these debts cleared by the end of the year. Good luck.

FireWyrm

MrWillyWonka wrote: »

Just bear in mind that your bank could call in the full amount of your OD at any time. So even though you would usually pay of the debt with highest interest first, just make sure that if your bank suddenly says you have to pay off your OD now that you are able to do so.

Otherwise, with some work you could try and get these debts cleared by the end of the year. Good luck.

True, but you normally get some notice of impending closure of an overdraft - 30 days usually. Even if they did close it precipitously, it would be an unsecured debt to the bank which you could deal with in due course. It is unlikely they would call the overdraft in and so, the suggested course of action of using money to pay down the interest bearing debts makes sense. Bird in the hand versus potential bird in the bush kind of thing.

prb1984

Thanks for the replies. I did the snowball calculator and it suggested similar to your responses. Basically, windfall onto the Lloyds loan and then batter down the Lloyds loan going forward, then switch to the Career dev loan.

It also thought i could be mostly debt free by 12 months time, which would be great. Let's see how this goes!

thecassman86

prb1984 wrote: »

Thanks for the replies. I did the snowball calculator and it suggested similar to your responses. Basically, windfall onto the Lloyds loan and then batter down the Lloyds loan going forward, then switch to the Career dev loan.

It also thought i could be mostly debt free by 12 months time, which would be great. Let's see how this goes!

Good luck!!

prb1984

Hello everyone. Pleased to say the paying off of the debts is going well, particularly the letter I recieved from Lloyds saying that my initial 2k payment wiped out an extra £600 in interest I would have had to pay. It really brings home how much the loans are costing in interest.

So anyway, I had a quick question... After reading the latest MSE newsletter I noticed the 0% for 30 months 'money transfer loan' card.

Now I was thinking I could use this card to pay off my Lloyds Loan in order to then pay of the 30 month card, probably much quicker than 30 months, but it would allow me to pay even less interest by paying off my Lloyds loan straight away. I imagine it would save at least £800 in interest allowing me to clear my debts even quicker.

So the question is would using the card to pay off my Lloyds Loan count as a balance transfer or a money transfer into my account which would then be transfered to the Loan balance?

Many thanks for your replies!