Order in which to pay off debt

shteca

My debt situation at the moment is as follows

Sainsburys Loan (3.2% 5 year loan) - £ 11068.32
Ikano (8.6% 5 year loan) £8441.52
NatWest Overdraft (19.89%) £7003
Post Office Credit Card (0% 18 month) £4274.27

My 2 loans, Sainsburys and Ikano are £300 a month repayments. My Overdraft is £120 a month in interest my Credit card is £100 in minimum payments

Up until now I have gone with the Dave Ramsey approach of paying off the smallest debts first but at the moment I have about £5,000 in my business which I can withdraw (I am self employed and get money very sporadically but I get large amounts every so often)

I wanted advice on what to do now. Should I keep the money in my company until I have £8,400 and pay off the Ikano Loan in full to clear up another £300 a month as I wont have that repayment to make or should I continue to clear the smallest debts i.e pay off the credit card which I only have a £100 a month repayment on.

Any ideas would be massively appreciated.

[Deleted User]

Pay off highest rate first.

The Dave Ramsey approach is fine if you don't understand interest or lack motivation to clear your debts, but it's a potentially very expensive way to go.

Unless your savings are earning more than the debts are costing you, throw it at the debt.

marcsshell

I would get rid of the overdraft first and then Ikano but it also depends on when 0% credit card expires and what the interest rate on that would be.

tlc678910

Hi,
If you pay it off your overdraft you are reducing the most expensive borrowing (highest interest rate but I'm guessing the repayments are less as it is only maxed out at the end of the month).

You will also have it available to use in a real emergency - car repair etc - assuming you don't have savings for an emergency?

Tlc

adg89

Based on interest (although post office unknown):


Overdraft
Credit card (depends on interest and how many months are left at 0%)
Ikano
Sainsbury's.


Assumed that you are meeting your monthly commitments to the loans (as these are planned spends which you have agreed with the relative creditors), you can throw everything at the overdraft and credit card first.


Be careful trying to pay off your loans early as you will need to take heed of your contract:


- Can you overpay with no fees?
- Can you offer a full & final settlement (provided you are in the position to do so and have some sort of emergency fund set aside) for no fee?


If neither of these are possible within the terms of the contract then you would need to consider if you could afford the additional fees to be able to pay off/overpay the loans.


I hope this helps.

EssexHebridean

Kill off the overdraft as soon as you can - pay off a lump of that if you have a lump of disposable income to use. OD's are horrible debt as they can be called in at any time, so always best to get shot of them if you possibly can.

Questions though: Does the debt originate from the "feast & famine" nature of your income? If so should this lump sum being being used in this way, or does it need to remain in savings to safeguard against the next "famine" period?
Do you have an emergency fund already in place? If not then I would ring-fence some of the lump sum towards that - £1000 if you're a homeowner with a car, £500 if renting with a car, £250 if renting, no car. Better to have funds in place for this than immediately returning to using credit when something unexpected arises - but ensure that this is there to cover genuine emergencies (exhaust falls off with no warning) rather than stuff that should be planned for - and budgeted in accordingly (annual or mileage Service needed)
How did your eligibility for other 0% BT cards look when you took out the PO one? If good then I'd be inclined to worry less about clearing that, as you have potential options, going forwards.

Some good advice given above about being careful with OP'ing the loans too - you need to read the small print carefully on those to avoid getting stung.

One final note - make sure you have already set aside any tax/NI which will be due against the income you are thinking about using.

JayRitchie

shteca wrote: »

My debt situation at the moment is as follows

Sainsburys Loan (3.2% 5 year loan) - £ 11068.32
Ikano (8.6% 5 year loan) £8441.52
NatWest Overdraft (19.89%) £7003
Post Office Credit Card (0% 18 month) £4274.27

My 2 loans, Sainsburys and Ikano are £300 a month repayments. My Overdraft is £120 a month in interest my Credit card is £100 in minimum payments

Up until now I have gone with the Dave Ramsey approach of paying off the smallest debts first but at the moment I have about £5,000 in my business which I can withdraw (I am self employed and get money very sporadically but I get large amounts every so often)

I wanted advice on what to do now. Should I keep the money in my company until I have £8,400 and pay off the Ikano Loan in full to clear up another £300 a month as I wont have that repayment to make or should I continue to clear the smallest debts i.e pay off the credit card which I only have a £100 a month repayment on.

Any ideas would be massively appreciated.

Given that the loans are of a similarish size I dont think there is a real benefit tacking the smallest. How much longer does the 0% on the credit card last? Might that be an issue?

What is the biggest issue for you? Interest rates (in which case you need to tackle the overdraft as that rate is horrendous) or cashflow - in which case look to close out the loan with the higher interest rate. As your income is variable I can see the sense in minimising fixed outgoings even at the price of additional interest charges.