Which Debt Should I Pay Off First

YorkyPuds

Hi all

I've ran up around £26,000 worth of personal debt across three credit cards and an unsecured personal loan. I'm currently paying off a little more than the minimum payments, but this is going to take forever and a day to pay off.

I've been fortunate enough to come into £10,000 and all of it is going to be used to pay off some of the debt, but I'm not sure which move is the best. Do I pay off one or two of the credit cards, or spread the £10,000 across them?


Here's what I currently owe, the interest rates, min payment and what I pay.

Barclaycard

Balance: £8,542
Interest: 18.77%
Min-payment: £190
Current payment: £200

Halifax

Balance: £5,600
Interest: 19.20%
Min-payment: £80
Current payment: £100

HSBC Loan

Balance: £6,200 (this includes the interest of the full loan amount)
Interest: circa 6%
Min-payment: £155 (40 payments left)
Current payment: £155

HSBC Credit Card

Balance: £6,160
Interest: 18.9%
Min-payment: £155
Current payment: £160

My initial thoughts are to pay off the HSBC Credit Card and the majority of the Halifax Credit Card then use the money I was paying for the HSBC credit card to boost the monthly payments on the Halifax card.

I think I could have the Halifax paid off in less than four months this way. I can then use the money I was paying these two to add to the £200 I pay Barclaycard so would be paying them back £460 a month in total.

I'd then snowball this money into the HSBC loan which should have that sorted a few months after Barclaycard are paid off.

Is this the best / most cost effective way?

EssexHebridean

I'd tweak your workings a bit and clear the Halifax card, and MOST of the HSBC one, just due to the interest rate on Halifax being slightly higher. As you say then pile the money you're not paying on Halifax any more onto HSBC until that's gone, then the whole lot onto the Barclaycard, but all the while keeping an eye out to make sure you can't get 0% balance transfer cards to move anything to.

Alternatively, you could stick a call in to Barclaycard to ask if they have a long-life-of-balance rate card that they could switch you to for that debt - I've honestly no idea if they still have anything like that though, and even if they have, they may be unwilling to switch you across. it may be worth a try though.

Ignore the loan for now and as the cards are cleared check whether you are able to pay that one off early without penalty - if so check again to find out whether regular overpayments or saving towards a lump sum clearance is your best bet.

username901

Are you using your overdraft at all?

HonmaDP

Do what I did and not pay the cards or get a £20k loan and consolidate the Credit Cards.

YorkyPuds

@usernam901 - I have £4,000 across two overdrafts. I'm usually £500-650 into it for a few days at the end of the month. Depends as I'm self employed and don't always get paid on the same days.

enthusiasticsaver

I think I would go with your first plan and clear the HSBC card which then gives you £160 extra to repay the Halifax which should only have about £1800 left after the money remaining from the £10k goes off it. Then tackle Barclaycard then the loan. If you can get a 0% or LOB deal on any then obviously change the order of repayment.

EssexHebridean

YorkyPuds wrote: »

@usernam901 - I have £4,000 across two overdrafts. I'm usually £500-650 into it for a few days at the end of the month. Depends as I'm self employed and don't always get paid on the same days.

Ideally you need to give yourself a "payday" to make budgeting easier - possibly by getting yours months payments into one account and then transferring the necessary amount to a "bills account" on the same day each month - this will take time to work towards however.

getmore4less

YorkyPuds wrote: »

@usernam901 - I have £4,000 across two overdrafts. I'm usually £500-650 into it for a few days at the end of the month. Depends as I'm self employed and don't always get paid on the same days.

What are the charges on the ODs?

If fixed daily have you worked out the APR on these for the time you are in debt?

getmore4less

I've ran up around £26,000 worth of personal debt across three credit cards and an unsecured personal loan.

What was the change in debt over the last 12 months?
(1st July 2018/2019)

£10k will just be temp fix if you have not fixed the root cause.

savingholmes

I would create an emergency fund of at least £1K - and then pay the highest interest rate debt off. It would also be work posting a SOA to get some advice on where else you can reduce your costs to create more money to throw at debt