Small debt, best option?

1tripz1

Hi all,

So after a few years of rattling round jobs and tiny bits of unemployment, I've finally landed myself a secure job with decent enough money.

So, finally I can look at the future. Me and my wife want to save, ultimately for a house.

I am terrible with money however, and have no instincts or knowledge.

So, I have around £2k of credit card debt, and owe £5.5k on my car.

I have around £9k worth of inheritance money sitting in an account, which I've kept as the start of a house deposit. However, I know before I can think of that, I need to pay off the other debts.

So I guess my two options are....

1) pay off my debt, be debt free, then start to save. With what I'm earning, I can save the savings amount back in under 2 years easily.

2) Carry on paying back my debts at the slow rate.

Option 1 feels much more positive. Yes, I wont have that nestegg, but I will be debt free. It will be a nice weight off my shoulders.

Hopefully everyone will tell me that option 1 is the no brainer!

Thanks :money:

kindofagilr

Yup it would be option one for me

Then you can start off with a nice clean slate when you buy a house

crazy_cat_lady

If I could clear my debt with a lump sum I definitely would. It's taken me almost 6 years but my debt free date is looming, and I cannot wait!

-taff

If you're paying more in interest on your car and cc than you're getting from your savings, it doesn't make sense to pay it off slowly.

Swampy3k

What is the circumstances of your loans or interest rate?

for example. if your car has 4 years remaining at 4.5% I'd clear this, but if your credit card has 2 years remaining at 0%, then it may be worth just making the minimum payments and saving.

after all that extra 2000 could be actually making money in a savings account. just make sure to clear the CC before the 0% ends!

uncreative

The interest to be made on such an amount after tax is really negligible, even if debt was on a 0% card. It might be mathematically better but the benefits that come with being debt free in terms of mindset, feeling, positivity far outweigh this.

Option 1 for me. Being debt free is one of the best feelings.

andyfromotley

1tripz1 wrote: »

Hi all,


I am terrible with money however, and have no instincts or knowledge.

Hi Tripz and welcome.

I used to say this about myself all the time. It was almost as if i thought the ability to handle money or not was a part of ones DNA.

I now know that this isn't true. Handling money well is just a skill. It involves practice, knowledge and determination. But it can be learnt, at any time.

I almost used 'rubbish with money' as an excuse to live in debt and act irresponsibly.

good luck.

redpete

1tripz1 wrote: »

Option 1 feels much more positive. Yes, I wont have that nestegg, but I will be debt free. It will be a nice weight off my shoulders.

But you won't have a nest egg with option 2, you'll have, say, £9000 in a savings account and £7000 owed on loans. The savings account will be earning less interest than the loans cost (unless you have a 0% CC).

The only argument I can think of for saving now would be to build an emergency fund to avoid having to take more expensive debt when bad things happen in the future - but the £2000 left from the inheritance is a good start towards this.

Hopefully everyone will tell me that option 1 is the no brainer

Pretty much, as long as you avoid the temptation to keep spending on the CC and build up the debt again.