Which debt shall I pay off first?

mumpay

Hello I'm new so I hope I am doing this correctly!     My daughter who is working full time is struggling to pay off debts accrued when she was a student and before finding work.  She currently owes £1,900 on a student loan overdraft, with an apr of 39%  and the other is £900 on a master card.   I am prepared to give her £900 to help reduce her monthly outgoings as she is struggling on her take home pay.  The problem is I don't know which one to pay the money to.   If I clear the credit card then she can cut that up and not spend any more and she will save £50 a month.   She paying the overdraft at only £50 per month and most of that goes on interest so is it better to pay £900 off the loan.  If I do this however the bank will still require £50 per month from her as she has made an agreement with them.    I am very confused and don't want to make the wrong decision as it is a lot of money but the sooner she gets out of debt the better.   Thank you in advance for any suggestions.

jonnygee2

If I do this however the bank will still require £50 per month from her as she has made an agreement with them. 

If she has a repayment plan with the bank, are you sure she is still accruing an APR of 39%? 

Generally you want to pay the highest interest debt off first. What is the APR on the credit card?

digalumps

There are two options here - what your heart tells you and what your head tells you

Your head will definitely tell you to pay off the £900 towards the loan with the highest interest rate. The student loan sounds quite high at 39% although I would imagine the credit card might be similar so if you want to be absolutely financially astute you put the £900 towards the loan with the highest interest

however as you have flagged up up your heart might tell you to pay off a credit card which can then be cut up and not used again and that would be my recommendation assuming that the APR interest rates for both are not dissimilar

obviously if the credit card has a very low interest rate then you should not do that but put the money towards the student loan,  but I suspect that they will be quite similar and which case I would pay the card, cut up the credit card and throw it away

Socajam

I would put the 900 towards the student loan with the 39% interest and let the daughter tackle the credit card - that would a learning experience for her.
Also she should continue to pay the 50 pounds towards the balance of the student loan.

planteria

if the credit card isn't on a low/zero rate deal, i would consider clearing and closing that, as you mention. the 'further damage' that can be done with a credit card is always a risk.
i'm not quite clear re the student loan overdraft at 39% and the £50 payment... has an overdraft with the bank been converted into a £50 payment agreement to clear it over time? if so, is it definitely accruing interest at 39%?