Update: What would you do? CC or loan, please help

JayRitchie

longtimelurker2020 said:

JayRitchie said:

How much are your monthly loan payments and how long until it is cleared with basic payments?

Monthly loan payment is just under £600 and the loan is scheduled to end at the end of 2023.

As you know, they've front-loaded the interest so at the moment approx £350 (ish) of the monthly payment is interest. Total interest over the life of the loan will be around £14,000!  I'd rather eat my left ear than pay that much interest. 

I considered making a regular overpayment of £350 to cover the interest payments so that the £600 goes further, but the £350 would have to come out of the available £800, limiting my inroads on CC2. Too many options and I wondered if I wasn't complicating things.

I think you might be overthinking a bit. Most of the time I'd pay off the credit card in your circumstances. Partly as it will be quicker and a nice boost, also because the interest rate can become really horrible. However as you will have cleared the mortgage pretty soon (presumably freeing up a load of money) and have an emergency fund I don't think its such a big deal. Plus its probably more feasible to get a zero percent deal to transfer funds from a credit card.
Does your loan allow overpayments without penalty?

longtimelurker2020

JayRitchie said:

Does your loan allow overpayments without penalty?

Just checked and yes, overpayments are allowed with no penalty. 

-taff

longtimelurker2020 said:

@-taff when you say 'spending the least', do you mean the option that would cost me the least in interest, or the option that would mean a lower outgoing?

I mean the option that would see you spending the least money in total to pay everything off. [so that includes any interest accrued etc]

So if paying off the CC first then throwing that at a loan costs more overall than overpaying the loan and then paying the CC, do that. Or vice versa.

Calculate the options, then see what the figures say. Theoretically working out in your head [or other people's heads ] is no comparison to looking at cold hard spends....:)

If this result contradicts what Dave Ramsey says, then I'm sure spending less money is equally valid.

[Deleted User]

longtimelurker2020 said:

As you know, they've front-loaded the interest so at the moment approx £350 (ish) of the monthly payment is interest. Total interest over the life of the loan will be around £14,000!  I'd rather eat my left ear than pay that much interest. 

They haven't front loaded the interest.  If you're working on that assumption, it's going to throw your calculations off wildly.

Any overpayment you make is coming straight off the capital.

With the rates you're paying, clearing the loan would be the financially sensible thing to do, but I know the Dave Ramsey approach is about little achievements rather than maximising your wealth.

enthusiasticsaver

I would tackle both to be honest as the credit card is 20% and loan almost 24% so little in it considering the loan is higher so costing you more. So I would do £400 to the loan and £400 to the credit card. That makes a total monthly repayment of £1k to the loan and the £4000 charging interest will be gone in 10 months. When is the remaining 0% deal expiring? I know that is not the Dave Ramsey way but it is the most cost efficient.

longtimelurker2020

Hi guys, it's been 7 months since I first posted and I thought I'd come back with an update.
First many thanks to @datlex, @Unicorn_cottage, @DrEskimo, @-taff, @JayRitchie, @Deleted_User, and @enthusiasticsaver for reading and advising. 

Recap of my position in March this year: 
CC1: £10,800 balance paid up and card closed
CC2: £8000 
Loan: £21,000
Mortgage: in the teens (can't remember how much, partner and I were overpaying this)
Position today: 
CC1: still closed (good riddance)
CC2: £6,900
Loan: £5,700 
Mortgage: £6,000

Lockdown happened shortly after my first posts, life changed and I decided to go for the option that would improve my cashflow in the long run, which was clearing the loan to free up the £600 monthly payment - clearing CC2 would've only released £200 a month (taking MSE advice I set up a direct debit for this fixed sum, which is around 3x the minimum payment.) Plus the loan has affected me more psychologically, I don't know why, it's like a unbearable weight I carry around and I can't wait to be rid of it. I threw every spare penny I had plus the savings from working from home at the loan, and plan to clear what's left of it by December 31st.  

We've stopped overpaying our mortgage, at the height of the pandemic we decided to let it peter out naturally, so my contributions to the overpayments were rerouted to my loan, which helped. (Partner still not part of my debt busting)

As you can see CC2 has barely budged, that's because I've been using it regularly to free up cash to overpay the loan. The plan there is to focus on CC2 from January and clear it by the end of March 2021, provided life does not get in the way (touch wood.) This would mean I'd have cleared my debts in 12 months. 
  
@mark55man said somewhere else on the site that some people take the scenic route while others embark on a brutal slog. For me it had to be the latter for two reasons: first to get it out of the way as quickly as possible and move on, and secondly because I'm the sort of person who has to feel some pain in order to avoid repeating mistakes. 

Many thanks again for the support and advice. I hope to return in December to post about clearing that wretched loan, and again in March to celebrate being truly debt free. At that point the Q I'll have for the forum would be whether to close CC2 or leave it open, possibly with a reduced limit...but I'll wait until then to ask. 

enthusiasticsaver

Brilliant progress. Well done you have really made an impact on that loan. Thanks for coming back to update. I think you have done what is best for you and I know I suggested doing half and half but really from an economy point of view it made little difference which you tackled first. 

mark55man

well done - yes indeed I do love the scenic route, and although this year I have taken a harder more direct line, I do have total respect for those who take their pain in one big lump