What should I pay off first?

JayRitchie

10% is not too bad - hit the overdrafts first.

kikamorris

Pay off one of the overdrafts, put the rest into an emergency fund - NOT in the bank where you're still overdrawn, as the bank could take that money to pay off your overdraft - and use the money from the overdraft fee that you're not paying any more (£30/month?) to gradually reduce the 2nd overdraft.

redux

kikamorris wrote: »

Pay off one of the overdrafts, put the rest into an emergency fund - NOT in the bank where you're still overdrawn, as the bank could take that money to pay off your overdraft - and use the money from the overdraft fee that you're not paying any more (£30/month?) to gradually reduce the 2nd overdraft.

I don't think there's much point in doing something that's effectively borrowing money in order to call it an emergency fund.

I'd say pay off both overdrafts, but keep the arrangements, and mentally call that the emergency reserve position. That way it only costs money when used, instead of all the time.

fatbelly

wordswords wrote: »

I have a bonus of about £3000 arriving from work this month. I want to use it to pay off debt. I have three possible pools of debt to pay off:


* 2x current accounts maxed out on their overdraft, total sum ~£3000, costs £60 / month in total in arrangement fees

There's not much to discuss. That's a huge effective interest rate on the overdrafts. Wipe them out and save £720 per year on the fees.

tgroom57

I agree with above about the overdraft, but Go for the bigger overdraft, and use the rest of your bonus as a start on your emergency fund. Agree also, don't have the emrgency fund in any place where you're currently borrowing money. The advice these days is to have between 3 and 6 months pay in an emergency fund to cover unexpected job loss.

Financially it doesn't make sense to have savings while you're borrowing, but it's usual to max out an overdraft anyway regardless of whether you have money available elesewhere. Guess what I'm saying is even if you pay off the 2nd overdraft now using the bonus, you'll probably max it out again before long and be back to square one. Keeping the 2nd overdraft puts pressure on you to keep it under control.

hardikjshah83

wordswords wrote: »

I have a bonus of about £3000 arriving from work this month. I want to use it to pay off debt. I have three possible pools of debt to pay off:


* 2x current accounts maxed out on their overdraft, total sum ~£3000, costs £60 / month in total in arrangement fees
* A personal loan with a settlement figure of £5000, costs £160 a month in repayments
* Or I could use it to build up an emergency fund (which I know MSE doesn't recommend)



I was originally planning to put the debt repayment against the personal loan, but that won't affect my current monthly outgoings as it will just reduce the length of the number of payments of the loan.


Thoughts?

Simple answer the one with the highest interest rate, most likely it will be overdraft. Personal loan can be paid up monthly with cheaper interest rate and for emergency fund you always will have your overdraft that you would have paid up.

Further more you can start building up emergency fund from £60 saving you have each month that you would have otherwise paid via overdraft fees.

wurley

Pay off the overdraft as that directly affects your everyday. It is likely to be the most costly to you. Maxed out means you are likely to get charges for unpaid DDs and extra charges for going over the agreed limit. No brainer!

Afterwards - Make yourself a promise not to use your overdraft (if you need to use it, it may be time for a close look at your income/outgoings and spending).
:money:

liz41

Personally, I would pay off your two current accounts, thereby lowering what you pay out on a monthly basis by a nice little sum.
Then check carefully your spending every month , hopefully to avoid further overdrafts.