Which debts should I prioritise paying off first?

Blackbird8919

Evening everybody!

I’ve reached the end of my tether recently on a journey which has been many, many years in the making. I’m 32 years old and I’ve been in debt to some degree since I turned 18. While my current position is by no means as bad as it has been previously I’ve come to the realisation that if I don’t get my finances in order, and quickly, I’m going to face a massive uphill struggle in the coming years. 

I have never been the best with money and I openly admit to having been incredibly stupid with what wealth I do or did have in the past. I have made the conscious decision that I won’t let this get me down or depress me moreover I will use my frustrations from the past to propel me into getting these debts down and then gone for good. I’ve wasted too many years of my life missing out on experiences and other things which would have enriched my experiences in my life so far. I no longer want to be that person who has to say “I can’t afford to” I want to be the person who has stories of trips and experiences to reminisce on when I’m older, not somebody who is only full of warnings for my daughter about how making smart financial decisions is the key to unlocking the doors I’ve not been able to open myself.

My question is a simple one, which of my debts do I prioritise? It is my plan to continue to pay what I am paying to cover all my debts but to pay more to the ones which will help me get debt free quicker, thus giving me more cash to pay to lower priority debts as I clear the main priority ones.

Here is what I have in terms of debt:

1. Bank loan, £2500 left to pay, I pay £174 per month - 22.8% APR
2. Credit card one, balance is £1250, I pay £39 per month - 23.3% APR
3. Credit card two, balance is £1050, I pay £60 per month - 34.9% APR
4. Overdraft, £1500, costs me £40 per month in interest - 39.4% APR
5. Hire purchase, balance £1230, I pay £65 per month - 24.9% APR
6. Hir purchase, balance £700, I pay £30 per month - 0% interest 


Any tips, pointers, help you can give me would be amazing. As I’ve said, I’ve been stupid financially, I’ve thrown far too much money at hire purchase, I’ve been irresponsible and I’m full of regret. But this won’t stop me being motivated and focused on cleaning as much of these debts down as quickly as I possibly can. 

Just to be clear while I am in debt, I have no missed payments since may last year, and in fact one 4 missed payments on my credit file since January 2015 (that’s as far as I can go back) I’m not in dire straits, I make a respectable amount of money each month but I feel that I could be better using it to secure my financial future, I just don’t know where to put my financial gains to best use, which of the above debts should I deal with first?

Thanks in advance!

Kakiste

I would absolutely get rid of the overdraft first as they can be withdrawn very suddenly. Use all your spare money to overpay it whilst continuing to pay the minimum on the rest, then snowball it to the next debt and then the next.

After the overdraft I would overpay credit card two and then credit card one due to their high APR. 

After that I would tackle the higher purchase 1 and then (depending on when your 0% APR HP runs out) either clear the last HP or tackle the loan..

In good news none of those balances are insanely high so you should see lots of progress very quickly. Good luck

RAS

Hi

Check out  the snowball calculator here

Snowball Calculator (lemonfool.co.uk)

Basically pay off the debt with the highest interest rate first.

BUTs:

Check the credit card section on MSE to see if you can get any 0% deals (soft check), even if they only cover part of current card.

Check DDs and SOs and cancel anything you don't use.

Sit down with the last 6 months statements and work out what you have been spending on. Then create a Statement of Affairs (budget) in which you've budgeted for eventualities. Christmas comes round every year and even now if you put aside something each month, it doesn't all end up on cards in January. 

Put aside a small amount each month as an emergency fund as soon as the OD is cleared, aim for £500 to start with, then £1000. That'll help you avoid future overdrafts.

Check the paperwork on the loan and HP debts to find what effect, if any, overpaying has before you do it.

and

what are the credit limits on the cards?

If it's £2K on card one, then it would be worth paying £700 of your essential expenses on that so you can clear the same amount off the overdraft next month. As long as you are totally disciplined.

EssexHebridean

Echoing what has been said about the overdraft - I always think of OD's as a particularly "dangerous" form of debt as they can be called in at any time and with no notice. 

First step here is definitely the SOA (Statement of affairs) as you need to know what money you *should* have left at the end of each month. If that amount differs from what you actually have, then you may want to start a spending diary to work out where the rest is going. 

On the debts then:
1. Bank loan, £2500 left to pay, I pay £174 per month - 22.8% APR This is the lowest APR anyway so let it run for now as it is. You might be worth checking what the terms are around overpaying ready for the future though - sometimes there's penalties involved. 
2. Credit card one, balance is £1250, I pay £39 per month - 23.3% APR
3. Credit card two, balance is £1050, I pay £60 per month - 34.9% APR see if you can balance transfer this to card 1 at the same interest rate as a first step - although if you can get a 0% BT card to transfer both the existing ones to, so much the better. If you can't BT, then make this your second focus once the OD is gone.
4. Overdraft, £1500, costs me £40 per month in interest - 39.4% APR PRIORITY - focus ALL spare money here.
5. Hire purchase, balance £1230, I pay £65 per month - 24.9% APR
6. Hir purchase, balance £700, I pay £30 per month - 0% interest  subject to when the 0% finishes, and the interest rate when it does, just keep paying the standard amount on this right now. 

For anything you are paying a standard "minimum payment" on, and are not still spending anything on, set your monthly DD to an amount just above the current minimum. So if the current minimum payment is £38.70, set it at £40 instead. This means you're paying a little more off each month while still budgeting a set amount, and as minimums fall over time, that also means over time you're making a little more impact on the debt than you otherwise would be. This ONLY works where you're not still spending though, and you MUST keep an eye out for the percentage for the minimum being changed too.