Which to pay off first with £500

Senseicads

Hi all,


I'm hoping for some advice on what to begin paying off first, I know the advice is to always pay off the one with the highest interest rate first but I have a bit of a weird situation. Actually maybe it's not weird, it might happen all the time, I dunno.


I have one credit card with Santander at 0% for another 20 months with 3k on and I had a 3k overdraft that I have just balance transferred on to an old Barclay card which will get me 0% until December this year. The interest accrued on the overdraft was only like £40 per month pre the transfer. I also have an old style student loan for which the minimum payment is £147 per month(its 4 loans that I have in total that make this up for the 4 yrs I was at Uni). Total for the loan is £4500.


I have £500 from a work bonus at the end of May and I want to put this towards paying one of these debts off but I'm not sure which one.


The problem is that the £147 a month I am paying for the loan is really high and it would useful and make me feel more comfortable to lessen this, when the 0% runs out on the Barclay card I will pay it off and use my overdraft again which will be the £40 a month and the Santander is currently at £50ish per month. luckily I have an excellent credit rating as it stands(I checked Experian) so my plan is to try and get another balance transfer when my current once with Santander runs out.


I am also (usually) able to pay off an additional £100 a month to a particular debt. but this is not exact and some months are definitely tighter than others, hence me wanting to reduce the overall amount coming out as minimum payments each month.


So the question is what do I pay off first? I really could do with reducing the amount I am paying out on the student loan but I don't want to make any mistakes here and make it so that I take longer to pay off another one. Looking for some advice.


Thanks in advance.

Tixy

If you paid it off the student loan would it reduce the monthly payment on the loan? It may not, so I would check that out first.

rockm87

Are you able to pay off your credit card balances before 0% deals run out?

If not I'd use it to plug the gaps.

Senseicads

If I choose to pay off the credit cards, it's not costing me anything for the credit cards at the moment...would I be better keeping the £500 in a savings account getting interest on it until the 0% runs out then using that to pay it off? What has me more worried is the amount going out each month on the minimum payments. Tixy is right, I am only making an assumption that the minimum payments would go down for the student loan if I paid more off, I'd need to ask that. I won't be able to pay off the 3k on the Barclaycard before December. The minimum payment on that would be £80 I have estimated, but then I might be able to get another balance transfer for 0% at that point for this and then close the Barclay card down. Although it has been useful for balance transfers in the past as it has a high limit and has helped to reduce my overall debt by 10K so far.

Tixy

If your biggest issue is the monthly repayments, rather than the interest then if paying towards the loan doesn't reduce the monthly repayments then I would look at using it, and any extra payments to pay towards the barclaycard.

That will have the immediate affect of slightly reducing your minimum payment to the barclaycard, which should in turn make it easier to afford the loan repayments each month.
And then if you transfer the bc debt elsewhere or pay it back from your overdraftit will presumably reduce the monthly interest you'd be paying on the overdraft that was previously the £40/m.

rockm87

When I ask can you afford to pay off the balances, just do some simple maths.

say if you have £1000 on a card, and you need to pay if off in 6 months, can you afford to pay off £166 a month (rather than paying off just the minimum)

But personally I would just keep hold of it til i needed it!

Senseicads

@Rockm87, oh didn't think of trying to budget like that. Yeah that's not affordable...I'd need £600 a month to pay off the Barclaycard by December

rockm87

If they're at 0%, i find it a good way to work it out!

Try using this method for both cards, and seeing if the £500 makes a difference.

I'd put the credit card with the longer 0% deal on minimum payment, and over pay on the second card to pay off asap.i.e. using the snowball calculator.

bexster1975

Hi

I used to have one of the old style student loans and my overpayment didn't change the monthly amount, just how quickly I paid it off. Do call and check that hasn't changed though. I agree with rockm87, if some months are tighter than others wouldn't having £500 " slush fund" make that a big more comfortable? If you are worried about spending it, put it in a savings account separately. If your other debt is at 0% for now, I would be reluctant to pay it off assuming you have no emergency fund.

Bexster

clint_S

Is your student loan a official student loan, in which case it's payments are calculated not on how much you owe but on how much you earn. you'll keep paying £147 until you've paid it all off.


I personally would put the money in a high rate ISA, you should be able to get about 5%, come December when the interest rate is applied to your card you'll have around £510 to put towards paying it off.

Senseicads

Its an old style loan so the only time my income is taken into account is the deferral decision. If I don't defer then the only thing they know is that I earn over £26k. I don't have an emergency fund yet. I have been concentrating on reducing debt for a couple of years now. I will definitely check whether it would reduce the minimum payment of the loan, if it does not reduce the minimum payment then the decision is easy and I would use it on one of the credit cards.