have debt, and now got lump sum, what should I do?

Paced_Out

Calling all money saving experts, I need your help!

I have just received the money from a recently matured "with profits" fund.

Value = £5,500

I also have the following debts:-

Mortgage, currently £90ishK (fixed at just over 5% for 5years)
Car loan £12K
Card1 = £3,800 on 0% until April next year
Card2 = £1,000 on 15%
£1500k overdrawn

The first two debts I consider to be necessary as I need a house and a good car (drive a lot for work) and they are affordable debts. Therefore I calculate that I have the following annoying credit card and overdraft debt:-

Total Credit Card and Overdraft Debt: £6,300

Now I can afford to pay these monthly repayments and can chip away at this over the next year as I haven't committed to any holidays this year.

However, I have now received this lump some of £5,500 from a savings plan and don't know what I should do with it. The options that I see are:-

1) tuck £3k in a mini cash ISA and pay the remaining off the most expensive debts, the 15% card and the overdraft.

2) tuck £3k in a mini cash ISA and the rest in savings until April and then put it in the ISA as part of next years allowance and keep chipping away at the most expensive debts first.

3) Use all of it to pay off as much of the debt as possible leaving me with £800 on a 0% credit card but with no savings. Then try to budget to get rid of the other £800 and start saving a fresh.

Before I do anything I have decided that the very best thing to do is to ask for your thoughts. Thanks in advance,

Paced_Out.

stapeley

Are you servicing your current debts ? Is your job secure and do you have money left over each month ? I would clear your overdaft and reduce your available limit. Clear 15 % card and cut it up . Put rest in saving account and pay of other card in APRIL . GOOD LUCK

Crown

Hi PO,

How much are you being charged on your overdraft in terms of interest as it is generally considered best to pay of the debt with the highest interest first.

IMHO you should keep an emergency fund in a separate account and use it just for REAL emergencies. A New Sofa or pair of Shoes are not a real one im afraid

I havent seen your SOA but a good start to an emergency fund is about a months living expenses. Remember though that you are not actually losing money if you have savings at the moment. The highest savings account on the market is 8% before tax and as you have a credit card at 15% then you are actually losing 7% each month! and thats before tax.

I would make sure you have done a proper budget so you know how much you can afford to live on on then clear the Overdraft and vow not to use it. If you have an emergnecy fund and you have budgeted propeply then you should not need it and remember the overdraft is a loan and is not your money.

The rest I would pay of the credit card and then make sure you snowball the debt at the highest interest first.

Well done in even posting about this though as it shows you are clearly thinking about debt elimination. many people would view this windfall as a excuse to go shopping

Paced_Out

Thanks for the very fast replies and great advise...

To answer your questions, Job is safe, I have Income Protection Insurance to cover almost all of my salary so feel safe there really.

The overdraft is at 10% interest. I do get bonus payments every qtr and this year these were all directed to paying for holidays, I have made the decision that next year this money can go to paying off this debt and I will be going on a very cheap budget camping trip instead of the expensive holiday (just hope it doesn't rain as much next summer when I'm under canvas!).

Jacks_xxx

Hiya my lovely!

We-ell...it's highest interest first to go as a rule, so I would check the car loan interest rate first of all and then clear that pesky 15% card and close the account.

I'd definitely want to get rid of that overdraft too.

After that, I'd want to check that I'll be able to pay off the £3800 card before the interest charges start - either by paying them £633 a month or paying the minimum and saving up to clear it before the interest kicks in.

Now this is just my opinion honeybun, but I think if you did a full MOT of your finances, your budget, your expenditure - maybe post an SOA on here you might be horrified to find out how much that "affordable" debt is costing you - and decide to prioritise that over savings and investments.

I know I did.

You can use the snowball at www.whatsthecost.co.uk

and Martins demotivator - links all over this site

It's a bit of a wake up call! :eek:

Love Jacks xxx

Paced_Out

Thanks for the help Jacks, With the remaining amount that would be left on the 0% credit card, I was thinking of paying this back monthly at say £100 pm and just keep balance transferring it to other 0% cards until I clear it all up. I will be able to hit lumps off it each qtr with bonuses from work in addition to the regular £100 monthly payment. Just hope 0% card deals continue to available.

Jacks_xxx

Hi again sweetie,

Poeple keep telling me that 0% deals are drying up, but I got another one this morning - although we've been paying interest for about 6 months because we couldn't get one for a while. (Kept getting blimmin' turned down despite being in better financial shape these days than we've been for a long time! )

So what's your plan then hon? What have you decided to do?

Love Jacks xxx