Which debt to pay first?

Jtuss

Hello.
I have a total of just under £12k of debt, all of it is with various collection agencies, but at the moment it's all managed. I don't make a particularly hefty living, so they all just get a token payment each month, but I give them updates every few months and they're all ok with the arrangement. So no great panic.

The total debt is across about 13 creditors, the largest being for just under 2K and the smallest is a few for around 2 or 3 hundred.

Through an inheritance, I'm in a position where I can pay off 5K of my debt (2K is payday loans currently going through the process to see if they can be written off, so in practice this could halve my total debt).

What I want to ask is how is it best to distribute the 5K? Given that I will still have 5K of debt left, is it best if I pay off the multiple smaller debts, leaving me with fewer creditors, or pay off the larger sums owed? Or clear the oldest ones first?

Advice much appreciated.

JT.

[Deleted User]

Hi,

If it was me, I'd pay off the ones with the highest interest and then tackle the rest.

Do you have any 0% deals that you could balance transfer the rest over to?

Willing2Learn

There are two alternate methods to snowball those debts.


Either do as Purplemumof2 says and focus on the highest APR debt first and then move on to the next highest etc (This is the MSE way as it saves or the most money).

or


Pay off the smallest debt first then the next smallest and onward. This is the psychological method, as you see the list of debts reducing quicker.

Jtuss

Thanks both.

However, in this instance since all of my debts are with agencies the APR point doesn't apply. The interest and charges are frozen and the amount is static. Unless I break the agreement of the token repayments I'm making at the minute the amount due won't increase.

I'm not bothered by the psychological effect of the number of creditors, or the overall debt for that matter. What I'm curious about is which (if any) will be better for my credit score. I'm assuming that reducing my overall debt by 5K will do *some* good, and that clearing some debts in total will be better than just taking 50% off all of them. If that's true, is it better for my record if the remaining 5K of debt is made up of 6 smaller debts, or 3 larger ones? Or is the size of the debt irrelevant, and it's better to clear the older ones? Or the newer ones?

Thanks again.

Willing2Learn

Okay then. If the debts are all with DCAs, then the first action should be to submit a CCA request for each debt. This will ensure that your creditors have compliant paperwork before you make them any offers.

Having defaults on your credit file is always going to negatively impact on the way you are viewed by lenders. Until the all the defaults are removed (six years from the date of default), your file will look bad to potential lenders.

enthusiasticsaver

Why don't you try for full and finals on all of them? You could get rid of them all then. You give them income details not your inheritance details. Your credit score will not improve until the defaults drop off your file which is after 6 years? I think I would be inclined for that reason to pay off the newer ones.