Debt and what to do.

sammysolent1

Hi All, 
Over the years I have accumulated debt on both CCs and 2x loans. I have been managing them as best I can, I used the loan to do our home renovations and now it is time to seriously look at clearing it all. The debt is as follows:

Credit/Loan	Balance	Monthly payment	Interest rate
Tesco CC	2818	73.59	17.86%
Barclays CC	10,900	270	17.28%
Santander (Interest free)	5075	51	0%
Lloyds CC	3,558	72.4	21.54%
Virgin Loan	6,670	302	9.90%
Barlcays Loan	6,100	303	10.20%

I have sold my car and now I have £6,400 to use against one of if not 2x of the above. I have looked online at both Snowball and Avalanch effects. The issue I am facing is the monthly payments on these are hard to maintain so I am thinking of using the funds to pay off Virgin Loan/Barclays loan which will free me up an additional £300 per month. I was originally planning on paying off the Lloyds and Tesco CC but this will only allow me £140 per month. 

Any suggestions to what I can do, or what has worked for others?
Want to get this paid off and done as quick as possible 

Thank you

warby68

To give you meaningful advice, posters would need to see your overall financial position.
However on face value, I get the dilemma. Cost effective = pay off most expensive. Cash flow effective = pay off highest payment.
Have you checked terms of both your loans for if you can make lump sum reductions but keep the existing term/rate and therefore reduce the monthly payments? If so does clearing Lloyds CC and some of a loan give you enough to manage?

Brenster

sammysolent1 said:

Hi All, 
Over the years I have accumulated debt on both CCs and 2x loans. I have been managing them as best I can, I used the loan to do our home renovations and now it is time to seriously look at clearing it all. The debt is as follows:

Credit/Loan	Balance	Monthly payment	Interest rate
Tesco CC	2818	73.59	17.86%
Barclays CC	10,900	270	17.28%
Santander (Interest free)	5075	51	0%
Lloyds CC	3,558	72.4	21.54%
Virgin Loan	6,670	302	9.90%
Barlcays Loan	6,100	303	10.20%

I have sold my car and now I have £6,400 to use against one of if not 2x of the above. I have looked online at both Snowball and Avalanch effects. The issue I am facing is the monthly payments on these are hard to maintain so I am thinking of using the funds to pay off Virgin Loan/Barclays loan which will free me up an additional £300 per month. I was originally planning on paying off the Lloyds and Tesco CC but this will only allow me £140 per month. 

Any suggestions to what I can do, or what has worked for others?
Want to get this paid off and done as quick as possible 

Thank you

I think if you are looking at it in a financial way, it is best to pay off the Llyods and Tesco Loans, yes these will only release £145 per month, but it will get you to your debt free goal sooner.  Forgive this comment, but if you do the alternative and release £300 / month, then chances are with the extra disposable money you will fall into old habits.  Short term pain = Long term gain.

stokegal

Does the balance on your loans include the interest? Whereas the interest on your cc will be added each month?
Personally I would pay off the CC and close them down (no risk off spending on them then) or if you pay off a loan you need to commit to transferring as much of that £300 that you can afford to overpaying something else

enthusiasticsaver

Normally you would tackle the most expensive debts first so the Lloyds and Tesco CC and the rest to Barclaycard. If you are struggling to maintain repayments though and are resorting to using credit to live then paying off one of the loans will free up more income. Close down the cards as you repay them. You really need to do a soa to see how tight your outgoings really are. 

ryanm8655

Agreed re: SOA. It might be you can make savings in other areas to help offset some of the deficit.

Personally I’d bite the bullet and clear the highest interest balances first. But if you’ve made all the cutbacks you can and are unable to afford to live then I’d consider other options.

As said by other posters, the risk is you just pay off the loans and use that money to maintain your unaffordable lifestyle rather than diverting it towards the debts.

Other complication is if you are a home owner and need an emergency fund...

BabyStepper

Well done for selling your car...great move. 

Good advice given above about posting your soa. We can give more meaningful help once we have that. 

In the meantime, your debt is over £35k so your £6,400, although it will help, is not going to solve the problem. You're going to be in this for a long haul. 

By my calculations, your 2 loans will be paid off within 2 years (Virgin 22 months, Barclays 20 months). This is a good time frame for dealing with debt, so I would leave them be and keep paying the arranged amount to them. 

I'd pay off Lloyds credit card and Tesco credit card. This will leave you with £15k credit card debt that should become your focus, along with saving £1k emergency fund so you don't have to use the cards again. Having paid off 2 cards, you'll likely be able to get a 0% deal for your Barclaycard so that will help.

You absolutely need a budget. Once it's done, let us know what it is. Good luck!     

sammysolent1

ryanm8655 said:

Agreed re: SOA. It might be you can make savings in other areas to help offset some of the deficit.

Personally I’d bite the bullet and clear the highest interest balances first. But if you’ve made all the cutbacks you can and are unable to afford to live then I’d consider other options.

As said by other posters, the risk is you just pay off the loans and use that money to maintain your unaffordable lifestyle rather than diverting it towards the debts.

Other complication is if you are a home owner and need an emergency fund...

Thanks Ryan, appreciate you giving your insight. I am going to pay the Lloyds off and I spoke with Virgin and they are happy to make a balance payment which will reduce the payment to approx £210 per month. I am hoping to get a 0% balance transfer. Would you suggest keeping the Lloyds card open or actually closing it down? I have a good control and wont use it but dont know if there any any benefits of keeping the card “active”? 

I also checked my credit report, apart from it saying I am using a high usage, Experian have given me a 999 score which I feel is good as it says its the highest it can be, so one would only hope 0% cards would be available?

stokegal

After clearing off your Lloyds CC, Virgin is your lowest APR and the balance reduction will release £92 per month.
Is there any reason you wouldn’t pay off the Tesco CC at a higher APR and release £73 per month?

sammysolent1

So a bit of an update 
I paid off a part of the loan and also the Lloyds CC - I then applied for a 0% with John lewis and got approved 6k 0% for 18 months, the card will come by Thursday so going to trans the balance over to this from the Santander and as much as poss from the Barclays. Finally getting somewhere with this. 
Appreciate all of your comments. 

sammysolent1

BabyStepper said:

Well done for selling your car...great move. 

Good advice given above about posting your soa. We can give more meaningful help once we have that. 

In the meantime, your debt is over £35k so your £6,400, although it will help, is not going to solve the problem. You're going to be in this for a long haul. 

By my calculations, your 2 loans will be paid off within 2 years (Virgin 22 months, Barclays 20 months). This is a good time frame for dealing with debt, so I would leave them be and keep paying the arranged amount to them. 

I'd pay off Lloyds credit card and Tesco credit card. This will leave you with £15k credit card debt that should become your focus, along with saving £1k emergency fund so you don't have to use the cards again. Having paid off 2 cards, you'll likely be able to get a 0% deal for your Barclaycard so that will help.

You absolutely need a budget. Once it's done, let us know what it is. Good luck!     

Thanks for your message,
Just wanted to update you, I managed to get a 6k 0% for 18 months so I am now debating to put the Santander onto it and the rest from the Barclaycard. What do you thinks best?