Looking for help with quickest way to get out of debt

rockm87

you need a big fat snowball!!!

http://www.whatsthecost.com/snowball.aspx


I'd say start with smallest, its you fired up and paying them off quicker!

SeduLOUs

rockm87 wrote: »

you need a big fat snowball!!!

http://www.whatsthecost.com/snowball.aspx


I'd say start with smallest, its you fired up and paying them off quicker!

There can be a psychological benefit to attacking the smallest debt first, but it is certainly not the quickest or the cheapest option as it will cost more in interest overall.

Highest APR should always be attacked first, then work down in order.

rockm87

SeduLOUs wrote: »

There can be a psychological benefit to attacking the smallest debt first, but it is certainly not the quickest or the cheapest option as it will cost more in interest overall.

Highest APR should always be attacked first, then work down in order.

I agree, but you should work out the maths, Ive been paying off debt for years, doing it this very way.

Its only when I did smallest to largest did I actually make any real progress. maybe its personal preference.

SeduLOUs

rockm87 wrote: »

I agree, but you should work out the maths, Ive been paying off debt for years, doing it this very way.

Its only when I did smallest to largest did I actually make any real progress. maybe its personal preference.

There is no maths to work out, it's just obvious.

If you have £1,000 available to reduce your debt and choose to reduce a debt that is currently accruing interest at a rate of 50%, this will save you more money than choosing to instead pay off a debt that is only accruing interest at a rate of 20%.

Don't believe me? Have a play with the snowball calculator.

Make up some imaginary debts like:

a) Capital One £2000 @ 30%
b) Barclaycard £500 @ 19%
c) Vanquis £6000 @ 50%
d) Aqua £2500 @ 25%

and let's imagine you have £500 per month to clear them, and that each has a typical minimum payment rate of 3%.

Paying by balance order: It will take you 43 months to pay off these debts if you snowball correctly. During that time, you'll pay £10,103.00 in interest.

Paying by highest APR first: It will take you 36 months to pay off these debts if you snowball correctly. During that time, you'll pay £6,586.00 in interest.

7 months and £3,517 difference.

DandelionPatrol

HappyMJ wrote: »

You shouldn't have both a DMP and minimum debt repayments. Everything should be in the DMP.

Strictly, this is true. But as some debts are not defaulted, and OP will soon be in the position to clear the DMP debts quickly, it makes sense now to pay off the DMP debts first.

curlyhair1 wrote: »

Thanks for replies.
It's not worth me doing a soa as I'm not working yet. The debts not on the dmp are my husbands and the debts on the dmp are mine.

It is always worth doing an SoA. Even with your current income as £0, because we can see what will happen when you have an income.

SeduLOUs wrote: »

Meet all minimum payments, then throw any extra money you have at the debt with the highest APR. That's all there is to it.

First, minimums I agree. This will prevent accumulation of more defaults

Next, pay off the defaults, as OP has aspirations to a mortgage and settled defaults can sometimes be accepted with 3 or 4 years of clean record

Next, pay off the overdraft and live within the monthly income. This makes all the rest of the debt historical only.

Then tackle the remaining debts highest APR first.

rockm87

SeduLOUs wrote: »

There is no maths to work out, it's just obvious.

If you have £1,000 available to reduce your debt and choose to reduce a debt that is currently accruing interest at a rate of 50%, this will save you more money than choosing to instead pay off a debt that is only accruing interest at a rate of 20%.

Don't believe me? Have a play with the snowball calculator.

Make up some imaginary debts like:

a) Capital One £2000 @ 30%
b) Barclaycard £500 @ 19%
c) Vanquis £6000 @ 50%
d) Aqua £2500 @ 25%

and let's imagine you have £500 per month to clear them, and that each has a typical minimum payment rate of 3%.

Paying by balance order: It will take you 43 months to pay off these debts if you snowball correctly. During that time, you'll pay £10,103.00 in interest.

Paying by highest APR first: It will take you 36 months to pay off these debts if you snowball correctly. During that time, you'll pay £6,586.00 in interest.

7 months and £3,517 difference.

I wasn't starting a war, it's just what worked for me. If its the difference between a couple of hundred quid and actually achieving my goal, is merely what i meant. sorry.

sourcrates

rockm87 wrote: »

i wasn't starting a war, it's just what worked for me.

They don't like it up em Capt. Mainwaring lol !!!!!

SeduLOUs

rockm87 wrote: »

I wasn't starting a war, it's just what worked for me. If its the difference between a couple of hundred quid and actually achieving my goal, is merely what i meant. sorry.

I wasn't starting a war either, and actually agreed with your sentiment several posts up that snowballing the smallest accounts first can have a psychological benefit.

But then you told me to work out the maths. The maths proves my point - paying in balance order is a more expensive way to pay off your debt.

In your example it was a couple of hundred quid which may very well have been 'worth the cost'. In my example the difference was £3.5k, and that wasn't a particularly huge pile of imaginary debt or unrealistic APRs of the types of cards people tend to get into trouble with.

I'm not interested in winning a war, but people like OP are looking for advice, and your advice could cost them substantially more money in the long run. It might very well work much better for them, but the possible financial implication of that choice should be made clear.

curlyhair1

Thanks for the debate. I do understand both sides. Knowing you have 5 debts as apposed to 10 debts even if the other 5 only accumulated to say £2000 is probably a positive feeling. Cancelling the cards once paid is also positive.

Thanks for the link to the snowball calculator, I'll have a play with it.

Just to clarify- does a default come off your credit file six years after settled or six years after the default was put on. I was under the impression it was the latter.

Many thanks

SeduLOUs

curlyhair1 wrote: »

Just to clarify- does a default come off your credit file six years after settled or six years after the default was put on. I was under the impression it was the latter.

The latter is correct.

It's a long hard climb to get out of debt, and it feels never ending at times but it's a very satisfying one to finish. I'm not quite done with mine yet, but my remaining relatively small pile of debt is now all on 0% APR and my financial picture is a million times better than it was this time last year.

The best solution is always whatever works for you - the most important thing of all is stay motivated and keep plodding on with it.