Which debt first?

cossie1990

Hi everyone,

Just after a little advice on which debt I should try to clear first, here's my current situation:

Personal loan (interest bearing) - Around £6k, payments around £180 p/m
Credit card (another 12 months at 0%) - Around £8k, minimum payments of around £80 p/m
Interest free loan - Around £3k, payments around £160 p/m

At the minute, I manage to save £200 p/m after making these payments and all other expenses including living, entertaining costs etc.Some months I do have to dip into this though.

My question is which one of these debts should I be aiming to clear first? My head tells me the credit card, however I'm planning to balance transfer once the 0% is up, hopefully getting a credit limit that will cover it. However I'm also inclined to throw money at the interest free loan to get that cleared to increase cashflow and help me save more?

I'm not really struggling at the minute, however money is noticeably tight and everything just seems so long term at the moment!

Thanks in advance!

beanielou

I would target the interest bearing loan.
Good luck!

National_Debtline

Hi cossie1990


I'm not sure I would agree about prioritising the interest-bearing loan - as I'm assuming that the interest has already been added on and forms part of the £6K you have to repay? In other words, it's not accruing any further interest now so long as you maintain the £180 instalments?


I'd suggest attacking the 0% credit card now before the balance begins to accrue interest in 12 months' time. Of course you may be in a position to seek other 0% balance transfers nearer that time, but it's best not to bank on that, and in any case you'll be in a stronger position if what you owe at that point is significantly lower than it is right now.


Dennis
@natdebtline

Fireflyaway

I'd use the dave Ramsey method and do the smallest first. Just because it's more motivational.

[Deleted User]

National_Debtline wrote: »

I'm not sure I would agree about prioritising the interest-bearing loan - as I'm assuming that the interest has already been added on and forms part of the £6K you have to repay? In other words, it's not accruing any further interest now so long as you maintain the £180 instalments?

That's not how loans work. Interest is calculated on a daily basis. The sooner it is paid off, the less interest will be paid.

The OP should target the loan for the greatest financial savings and to pay back quicker.

datlex

Why are you putting aside £200 a month when you could use part of that to pay off your debts quicker

Debtfreeforever

Thank you for sharing.

What are you going to do after the 0% offer on the card runs out?

I would pay minimum on the interest loan and the rest on 0% card, a year will only drop of £2.4k though

cossie1990

Thanks for the replies guys, interesting responses.

I'm not sure I would agree about prioritising the interest-bearing loan - as I'm assuming that the interest has already been added on and forms part of the £6K you have to repay? In other words, it's not accruing any further interest now so long as you maintain the £180 instalments?


I'd suggest attacking the 0% credit card now before the balance begins to accrue interest in 12 months' time. Of course you may be in a position to seek other 0% balance transfers nearer that time, but it's best not to bank on that, and in any case you'll be in a stronger position if what you owe at that point is significantly lower than it is right now.


Dennis
@natdebtline

Yeah as someone else said the interest is added daily so no this isn't inclusive of interest.

datlex wrote: »

Why are you putting aside £200 a month when you could use part of that to pay off your debts quicker

As mentioned I occasionally have to dip into this for monthly outgoings. Plus I like to have a cash amount set aside for any unforseen circumstances that may arise, rather than adding more debt.