What to pay off next?

vics199

Hi Everyone

I only have 2 installments left to pay on my loan which I have been paying off for the last 5 years. It was a loan of £10,000 so really happy to finally be rid of it soon. Lets just say it was a very unsuccessful consolidation attempt where I didn't learn my lesson and ended up with debt again. If only i hadn't been so stupid i would have been debt free in 2 months time. Anyway, that isn't the case so I need some advice as to what to do with the extra £241 I will have per month (the amount I was paying towards my loan).

So I have 5 credit cards (crazy, I know, especially when they equal 2 thirds of my income):
CC1: £10,000 owed, interest 24%
CC2: £6,300 owed, interest 17.9%
CC3: £2,200 owed, interest 16.9%
CC4: £1,400 owed, interest 26%
CC5: £500 owed, interest 26%

I keep churning over in my head what is best to do. These are my thoughts:
1) Pay off CC5 followed by CC4 by paying the extra £241 towards them each month. When they are payed off that will give me an extra £40 per month plus the £241 to put towards CC1.
or:
2) Pay the £241 towards CC1 to get it down as currently paying £170 interest per month.
or:
3) Pay half towards CC5 followed by CC4 and pay the other half into an account to build up an emergency fund (I have no savings and have a property that is rented out so could use some money should something go wrong rather than putting it on credit).
or:
4) Spend a year building up some cash by putting away £241 every month, then using it for emergencies only.

Just to note: I have no other spare cash per month after paying my basic living costs and money towards all my debts. I'm no longer getting into debt (mainly due to all the help from this board!) but I guess if something needed repairing in my rental house I would incure more debts. I currently live in a rented house share abroad before anyone suggests selling my 'extra' house! My rental income covers the mortgage.

Red-Squirrel_2

Can you not get any 0% balance transfer cards once your loans gone? Some of those interest rates are scandalous.

If you're a landlord you'll need some sort of emergency fund for your rental so that you can meet your legal obligations if something goes wrong, if not you could end up in even more of a mess. I'd save the extra for 4 or 5 months until you've got a grand or so at least, then start chucking it at CC4.

Have you got good landlord insurance?

Firewalker

Vics, there are different schools of thought on this one. I'd always go for clearing some cards with samll amount on them first - you lower your debt and you get a big moral boost. So, I'll suggest you dealt with CCs 4&5 first.

After that, I'd look carefully at the cards and would start on the one that is closest to being maxed - lower the amount. If you have more than one card that is close to maxed do the same. This is important because it will help you get a 0% deal. Get - it! Than pay it all off.

Firewalker

PollyPrissypants

I think you should pay off cc5 then 4 first. Then tackle cc1. Hit the higher interest rate cards first and you'll pay less in the end. Have you checked out the sticky for advice on snowballing your debts?

bargainbetty

I'd pay off CC5 as it is high interest and a small debt. Then call the provider and see if they will give you a low-life-of-balance transfer, so you can reduce interest on a debt elsewhere.

If they say no, cancel the card and close the account.

CalumHeath

Unless I've missed something, paying off in the following order will result in paying the least interest:

CC4: £1,400 owed, interest 26%

then

CC5: £500 owed, interest 26%

then

CC1: £10,000 owed, interest 24%

then


CC2: £6,300 owed, interest 17.9%

then

CC3: £2,200 owed, interest 16.9%

However, you may wish to pay CC2 off first just to get it resolved.

A different approach may be to pay the ones with the least balance first (regardless of interest rate) and in doing so - or when you call up to close the account - you may trigger an offer of 0% balance transfer to stay with them, especially if (and I mean no disrespect) they can see they've made money from you in the past.

Good luck.

vics199

Thanks for your replies everybody. So looks like my option 1 is probably the best way to go (paying off CC4 and 5 first. Maybe getting rid of CC5 before 4 just to make myself feel like I'm getting somewhere.

I may opt to save a little towards an emergency fund though. say £100 a month of it until I get to £1000 like somebody suggested.

Unfortunately I can't get any 0% offers because I'm not resident in the UK anymore. I also can't get credit in NZ (where I'm living) either because I'm not a permanent resident. Although on the bright side this means I can't get myself into any more debt so it should be good for me!

diable

To be honest I'd get rid of CC5 the CC3 asap then use the extra money from them to pay off the high interest card.

takingcontrolatlast

There are different perspectives to dealing with it - and ideally it would make sense to pay the debt with the higher interest rate as in the long run you would save money.

However, you do have obligations as a landlord and you know that so your suggestion of putting some cash into your EF i personally believe is a sound decision.

I would then personally concentrate on CC5 - you will feel another sense of achievement when this is paid off. You can then snowball what you have been paying CC5 to CC4 and so on.

Basically your 3rd option

Well done in nearly paying off £10k :j

Good luck Vics

andyfromotley

CC 4 and 5, then put that extra £40 into your EF.

Way to go btw, you are really going to supercharge your debt payments now!!