Advice needed on Snowballing debts

stingey

Hi all

I've been on and off this site for years, but recently got seriously fed up with the amount of debt me and hubby have been carrying. Basically I've been in some sort of debt since my late teens and it's controlling our lives. I want the surplus from our wages to go into getting a deposit for a mortgage nd not servicing debt.

Anyhow this is the breakdown of the debt.

Loan 1: £26,000 approx. Paying £228 a month. 26 years outstanding, ( it was one of those loans attached to a Northern Rock 110% mortgage we took out before the credit crunch). The mortgage is gone.

Loan 2: £12,000 approx. Paying £380 a month. 3.5 years outstanding roundabouts.

We can pay extra over the min . Sites I've been on are saying that we should pay extra to Loan 2, and snowball to Loan 1. But we're not paying much off Loan 1 each month and most of it is interest tbh 95% is interest. I would prefer to start paying down Loan 1 first. The outstanding balance is higher but the monthly repayments and APR is lower than Loan 2.

I know it's shocking to tie ourselves to such bad deals. But we did what everyone else did, we fell for the adverts and promise of a great life. It's now affecting us to the point we can't get another mortgage, go on holidays etc and we are living to pay these debts.

The good point is we are determined to pay this down as quickly as possible, I've started budgeting, watching our outgoings, getting wee extra 2nd jobs like mystery shopping.

Any advice on this would be greatly appreciated.

Pixie5740

I'd pay loan 2 off first. It has the shorter term so you'll get it paid off reasonably soon which will be a good psychological boost. Then you'll have over £600 a month to through at the NR loan so you'll be able to bring them term of that right down.

I know that you feel you're mostly just paying off interest on loan 1 but that's because the term is so long. If snowball calculators are also saying 2 then 1 that'll be the cheapest way to do it and snowballing is all about paying the least amount of interest whilst clearing debts.

stingey

Pixie5740 wrote: »

I'd pay loan 2 off first. It has the shorter term so you'll get it paid off reasonably soon which will be a good psychological boost. Then you'll have over £600 a month to through at the NR loan so you'll be able to bring them term of that right down.

I know that you feel you're mostly just paying off interest on loan 1 but that's because the term is so long. If snowball calculators are also saying 2 then 1 that'll be the cheapest way to do it and snowballing is all about paying the least amount of interest whilst clearing debts.

Thanks Pixie. Yeah your probably right. I'm just so frustrated I'm giving so much money away each month. I could kick myself. I'm actually looking forward to a paying this down. Living within my means and taking control of my debts is giving me a new lease of life.

enjoyyourshoes

You need to know the interest rate for both loans and what (if any) early repayment charge (if any) you m,ay incur if you overpay.Then pay off loan with highest APR first.

[Deleted User]

I agree with enjoyyourshoes.

Pay off the loan with the highest APR first, then, when it's paid off, use the extra cash to pay toward the lower APR loan.