Which debt to pay off first?

Ariel2013

Hi! In the next couple of months I will have £6700 to pay off some debt. The debt is a joint debt with my partner. My goal is to be debt free by the time I turn 30! I would like some help on which ones i should pay off first.

Hire purchase- Balance £6578, settlement figure is £5549.58 Interest of 14.50% monthly payment of £170

Bcard- £3104.19 0% until 07/16 and promotional spending balance £1460.50 interest as of 7th september 17.5%apr. minimum payment of£103

Bcard- £3338.85 0% until 1st october this year then 17.5% apr. fixed payment of £100

Thanks in advance!

rockm87

I'd wipe out your hire purchase balance first, as you can get rid of it completely, and its the most expensive payment per month.

cynicalmofo

The logical way to pay this off is to start with the £3338.85 debt as this will have the highest APR as of September 1st.

The Bcard £1460.50 debt can also be paid off as this will also be a higher APR as of September 17th.

This should leave a BCard debt of £3104.19 that's 0% until July 2016 and a £5549.58 debt that's currently at 14.5% APR with circa £1900 left in the bank.

That £1900 should come off of the £5549 debt and the £100 being paid to Bcard should be diverted making the monthly payment £340.

This whole scenario changes if the settlement figure and the balance are genuinely different on the first debt as the £1000 saved there is far more than the amount you'd save by paying off the accounts with 3% extra APR.

If that is the case, clear the car loan. This will leave you, from September, with;

BarclayCard £4799.35 at 17.5% APR
BarclayCard £3104.19 at 0% APR

Use the extra £170 you now have with no car loan to increase your payments on the £4799 debt and look at transferring the debt to a different 0% card.

rockm87

i thought £1460 was the promotion, not the balance?

Tixy

It is usually best to pay off the highest APR debt first.

However are you able to make overpayments on HP debt?

Ariel2013

hi Tixy! Thanks everyone for replying! I dont believe I am able to make overpayments on the HP.

Tixy

Ariel2013 wrote: »

hi Tixy! Thanks everyone for replying! I dont believe I am able to make overpayments on the HP.

If that is the case then given that the difference in the interest rates is pretty small and it sounds like you will be clearing your debts fairly quickly I would probably go against the usual advice and use the lump sum to clear the HP first.

Then switch the £170 extra per month to the barclaycard debts (it doesn't matter which you target first really).

As suggested by rock, in a couple of months it might also be worth trying to get another 0% card to transfer to pay off the 2 sums that will be at 17.5%