Which to clear?

makinganeffort · 18 April 2014 at 8:49AM

I expect the answer to this is fairly obvious but for some reason it doesn't feel comfortable?!? I have done some consultancy work which gives me enough to clear part of my last debt.

I have £1700 on an interest free card (until end of year) and a loan of £5k.

I have two options (assuming I use all the money to repay debts which is my aim):

1. Clear the credit card and make an additional payment of £2.2k to the loan (terms allow for this). This means I have cut the loan term by 4 months and have 5 months remaining. The calculator on the bank site estimates interest saving of £80. The benefit of this is that I only have a single loan left which I have got used to making the payment on. I don't then have any credit cards.

2. Clear £4k from the loan, leaving only 2 months remaining and leaving the credit card. The estimated interest saving is £115.

My concern is that although the rule should be to clear the most expensive debt I feel uncomfortable being still left with loan and with a credit card. I would still carry on paying the same loan repayment onto the credit card which would take 3 months to clear.

Either way I'm looking at 5 months to be debt free.

Thoughts?

Thank you

Pepperoni · 18 April 2014 at 9:15AM

Option 2. You'd then have £35 extra to put towards your CC plus you can also start using the money you've been using to pay your loan as additional monthly payments to the CC to help clear that.

NHS_worker_bee · 18 April 2014 at 10:52AM

Option two, because the credit card is currently interest free.

Although I can see your concerns because your debt will still be split between two products and you'd rather just have one debt, the balance will be so much smaller on the loan so you'll soon be able to clear them both

makinganeffort · 18 April 2014 at 11:29AM

Thank you. That's what I thought although psycologically to clear 1 would have felt temporarily better!

If I follow option two then in may and June I make the last two payments for the loan. During this time, at minimim payment on the 0% card, I probably reduce this to £1600.

If I then add in what I was paying on the loan and card together I can expect to be able to pay £650 per month for the card. So should be clear in 3 months.

Fingers crossed! Debt free by September!