Which to pay off first?

first78

I've got two debit so (in addition to my mortgage):

I'm paying off my boiler and owe £1832 (currently pay £39.80 per month), interest rate I see 11.30% per annum.

Second is my credit card which is £1255, interest rate 24.8%.

At the moment I'm in a position to be able to pay off £1000...which one would be best to pay off? I'm unsure if it would be the credit card as it's the higher interest rate or whether I should pay the boiler off as I owe more and will be paying that off longer.

[Deleted User]

The highest rate debt.

[Deleted User]

How much do you pay each month, on your Credit Card?

Sanctioned_Parts_List

Agreed. Play with the snowball calculator, which has the capability to account for one-off lump sump payments http://www.stoozing.com/calculator/snowball-calculator.php

first78

Bedsit_Bob wrote: »

How much do you pay each month, on your Credit Card?

I'm paying £40-50 per month off the credit card.

MrsTinks

Always highest first

Unless a debt is shortly due to increase dramatically in APR (end of intro offers etc) then you always pay off the highest as the priority.

[Deleted User]

first78 wrote: »

I'm paying £40-50 per month off the credit card.

OK, let's call it £45 pm.

Based on current payments, your boiler will take 60 months to pay off, and cost you £550 in interest.

Paying the £1000 to it, will reduce the repayment period to 24 months, and the interest to £88, a reduction of 36 months and £462 in interest.

In comparison, based on current payments, your Credit Card will take 35 months to pay off, and cost you £480 in interest.

Paying the £1000 to it, will reduce the repayment period to 6 months, and the interest to £10, a reduction of 29 months and £470 in interest.

Interest wise, there isn't a huge amount in it (just a tenner), but, I'm assuming the boiler loan is a fixed APR, so I'd still be inclined to clear the Credit Card ASAP, as that can have the APR change at any time.

Also, paying it to the Credit Card will mean you can increase your payments to the boiler loan in 6 months (when the Credit Card is cleared), whereas, if you put it to the boiler loan, it would be 2 years before you could increase the payments to the Credit Card.

NB. The above is based on the assumption, that there are no penalties for early settlement.

first78

Bedsit_Bob wrote: »

OK, let's call it £45 pm.

Based on current payments, your boiler will take 60 months to pay off, and cost you £550 in interest.

Paying the £1000 to it, will reduce the repayment period to 24 months, and the interest to £88, a reduction of 36 months and £462 in interest.

In comparison, based on current payments, your Credit Card will take 35 months to pay off, and cost you £480 in interest.

Paying the £1000 to it, will reduce the repayment period to 6 months, and the interest to £10, a reduction of 29 months and £470 in interest.

Interest wise, there isn't a huge amount in it (just a tenner), but, I'm assuming the boiler loan is a fixed APR, so I'd still be inclined to clear the Credit Card ASAP, as that can have the APR change at any time.

Also, paying it to the Credit Card will mean you can increase your payments to the boiler loan in 6 months (when the Credit Card is cleared), whereas, if you put it to the boiler loan, it would be 2 years before you could increase the payments to the Credit Card.

NB. The above is based on the assumption, that there are no penalties for early settlement.

Thanks very much for explaining Bedsit Bob! Feel like I have a better understanding now...credit card it is!

fatbelly

first78 wrote: »

Thanks very much for explaining Bedsit Bob! Feel like I have a better understanding now...credit card it is!

.. unless you can balance transfer to a 0% card

http://www.moneysavingexpert.com/credit-cards/balance-transfer-credit-cards

bouncydog1

Yes but there is a fee involved so even if the fee is reduced it makes more sense to pay the £1000 off the credit card. Could you raise your payment to the card each month - nothing as good as seeing the debt gone!

fatbelly

Yes at 1.5% the fee would be £19