To clear loan, or credit card first?

andrewd28

Hi all,

Just signed up this evening for a bit of help.

I'm looking to pay off my debt as I'm trying to save for a deposit as a first time buyer.
I have a credit card with £1600 left to pay of £3500.
I have a bank loan with £3200 left to pay of £700. Plus a catalogue account of £600.

I am comfortably paying the debts however it's annoying me paying the interest when I could be saving it instead.

I have £2000 saved up so far as well as a help to buy isa.

Currently I'm paying £60 a month on the credit card, of which is £24 interest each month.

I'm paying £147 on the loan a month.

I was thinking of paying £2000 of the loan off and getting a smaller loan for a year.

What would be my best option to clear the debt? I've heard about the balance transfers etc but don't really know about them and don't want to be applying for other credit and it affecting my credit score.

Thanks in advance for any suggestions!

Andy :money:

[Deleted User]

I would assume that the £600 catalogue debt has the highest APR and should be number 1 priority to pay off, after that throw as much as you can at each debt whilst paying the min. each month + £1.

fatbelly

You can kill off your credit card interest

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

Dobbibill

fatbelly wrote: »

You can kill off your credit card interest

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

Some catalogues allow you to make a payment with a CC so check yours before you do a BT - combining both options will save you interest on the catalogue.

Ilona

Hello. I suggest you go through your finances with a fine tooth comb. You can jiggle things around, move your debt to give yourself a bit of relief, but at the end of the day you need to pay it off.

A statement of Affairs would be a good place to start.
http://www.stoozing.com/calculator/soa.php

If you cut all unnecessary spending, only buying what you need rather than what you want, you might find that it gives you extra cash to pay off the debts quicker. Post your SOA here and people will make suggestions on how you might save some money. Even small amounts add up to a substantial amount over a year. Cutting out takeaways, buying lunch out, impulse shopping, will all help.

You might look at ways to increase your earnings as well.

Ilona

EssexHebridean

Ilona is right - first step is definitely an SOA - and if I were you I would also give yourself a "financial MOT" as well - Martin has a good guide on the main site on doing a 1-day full review of your finances.

The SOA will enable you to get a working budget in place - I presume that you're no longer using the card, for a start?

While you're working on the above, find out the state of play on paying off the loan - sometimes there is a penalty for paying off early so you need to find out whether that could be a problem. I'd also agree with the earlier reply which suggests that in fact the catalogue debt may well be the one to get shifted first - interest rates on those are often horrible!

When you put together the SOA, think about the things you've used the card, catalogue and loan for, and remember for the future to budget for saving for those sorts of purchases if they are essential - so things like setting money aside ready for replacement of a car, putting a set amount away each month to pay for clothes as and when they are needed, that sort of thing. A lot of people realise that they've been using a CC purely because they've not forward-planned - that is where a proper working budget comes in.

andrewd28

Thanks all for the replies.. I am going to get it all in order.
The catalogue account was for household appliances, the loan was for a previous car I bought and the debt on the credit card was for all the tools I had to buy when I changed career to a gas engineer.
Pay day Friday so the catalogue will be paid off in full. I've contacted bank about paying loan off early and I am looking into 0% balance transfer cards.

Thanks again

EssexHebridean

Start an emergency fund so that if appliances go wrong in the future you'll have a fund there waiting for their repair or replacement.

And close the catalogue account to remove temptation!

andrewd28

I'm thinking of paying loan off using credit card, then paying £2000 off credit card and transferring remaining balance to a 0% balance transfer card with sainsburys with no interest for 28 months.. would this be the most cost saving option? I could then carry on saving each month as well as saving the amount I was paying for the loan each month to get card paid off quicker?

m_c

Using the 2000 in the HtB ISA to pay of debt, may not make the best sense long term, as you could potentially lose out on an extra 500, and it would take you 10 months of saving your maximum allowance to get that 2000 back into the ISA.


As others have already said, the catalogue debt is likely to be highest APR, followed by the credit card, then loan.


If you can get a 0% balance transfer card, get it. Transfer your existing credit card debt to it, then you can reduce payments to minimum for the duration of the 0%, and prioritise cash else where.


Then if the new card has a high enough limit, and a long enough 0% period, it could be worth considering doing a cash transfer using your original card (you will very likely get hit with fees for this!) to get enough cash to clear the loan, then do another balance transfer to move that debt onto the new card to make use of the 0% offer.
However, to see if that's going to save you money, you need to know the APR on the loan, how long the 0% offer is, how much the cash transfer is going to cost.
If the loan APR is only 5 or 6%, and only a short 0% offer period, it won't be worth doing it by the time you factor in a 2-3% cash fee, however if the loan APR is higher, and you get a long 0% offer period, it could very well be worth the 2-3% cash fee to save interest.


If that does work out, just pay the minimum payment for the duration of the 0% offer, and put any extra money into the ISA or savings account.

Dobbibill

It may be worth looking at a card that offers a MT as well as a BT if you want to move the loan amount too.

Have a good look at everything including the eligibility checkers before you do anything.