Pay off debts early, or not?

KaiBosh23

Hi there,

I have a moderate credit score and £13K debts in total, spread across about 20 companies inc catalogues, credit cards, store cards, overdraft and repayment plans for previous debts. I repay around £1K per month. Some of these repayments are long-term, some are indefinite; really only covering the interest. My total debt is decreasing but very slowly.

I have the opportunity via some inheritance to pay it all off in one go and recoup the £1000 a month. This would be nice, but I'm worried it's not the best thing to do financially. I suspect I may be better off by only repaying the debts which charge the most interest. None are in default, so if I'm not being charged interest, isn't it better not to repay early?

Also, I don't know if companies will charge me extra fees for early repayment, or whether actually it's worth negotiating a discount for full settlement.

Any advice or links for further reading gratefully received.

Many thanks.

Tillytwopaws

I always believe in the 'if you don't ask you don't get' approach and would probably be prepared to put some time in on the phone trying to haggle a deal. I did it a few years ago on behalf of a friend and saved a lot of money, things might be different now though. But if you don't ask....

Failing that I'd say high interest first, any debts that aren't attracting interest maybe leave to run )based on what you've said).

dancingfairy

O.K so if you don't use the money to pay off your debts what are you going to do with it? You wouldn't want to waste it, after all.
It would seem silly to me not to use this opportunity to become debt free and to free up over £1000 a month. You could save up to buy a car, a new house, a holiday, an emergency fund in case you loose your job.
You would have a lot more choices with that £1000 a month.
I would however try and get settlements and settle as low as possible, starting by knocking off the bigger debts or any that are charging a high amount of interest.
df

Karen777

You could see this as an opportunity to get a 1k a month payrise. That's an ongoing boost every month. But I understand your hesitance. It's a tricky one.

It's worth asking your creditors if they'd settle for less but if you are not behind on payments I'd say there's no incentive for them as currently they are making money from you quite nicely via interest every month.

indesisiv

I can't see why the ones that you have not defaulted with would settle for lower full and final settlements.
I personally would at the very least pay off the ones with high interest. If you are paying 1K a month on 13k's worth of debts then there must be some serious interest being paid.

However the ones where they are repayment plans for previous debts you may be able to go for a lower settlement.

There shouldn't be early repayment charges on credit / store cards or the repayment plans. Generally it would be loans that have this charge.

KaiBosh23

Thanks for the advice, all.

If you don't ask, you don't get - so I shall start ringing round and see what my creditors say - though I take on board the fact I'll likely have more luck with older, zero-interest debts than current ones.

Two points:

"O.K so if you don't use the money to pay off your debts what are you going to do with it?"

I can make more by investing this money than I would save by paying off the debts. Sorry if this was not clear. I think for those debts like credit cards which may be 25%-30% APR it's probably worth repaying them, however.

"1K a month on 13k's worth of debts then there must be some serious interest being paid"

It's normal interest rates, no payday loans or anything like that, I just chose to increase the payments on the fatter debts in order to decrease the duration and total interest paid. I'd be out of debt in 13 months anyway, which is why I think it might be better not to use the cash to repay the debts.

It's likely I'll go for a varied approach and pay off the worst offenders, and see if there are any bargains to be had in discounted settlement.

Thanks again.