Debt snowball or Debt avalanche??

streetdog38

Hi all,

I have been using the site for a while but first time posting.

I'm after people's opinion on the best way to clear the debt that me and my wife have.

We have a £21,500 loan at 5% interest.

A different loan of £15,000 at 2.5% interest

Also a 0% credit card currently at £4,000 that we are using to pay solicitors with (very long complicated story that involves a jointly owned property)

Firsty, all of our out goings are on a spread sheet & every week (for me) and monthly for the wife and money is separated and put into bank accounts to make sure everything is paid. I have over the last year been through all our out goings & made sure we are paying as little as possible for all our bills. 

The debt is manageable but after everything is paid it doesn't leave us with a lot of money left.

I have been paying the minimum on the loans and trying to tackle the credit card but we keep having to spend more at the solicitors and feels like we are getting nowhere.

Wondering if I should focus on the highest rate loan & get a 0% balance transfer credit card when my current deal ends and when the highest debt is paid, (hopefully in 3 years) I can then tackle the rest.

Any opinion is greatly appreciated & I can't wait for the day when I am debt free.

TheAble

On the interest rates, it would have to be the 5% loan I'd focus on.

SusieT

When does the 0% rate end on the card in relation to the loans, and what will the % rate be on it when it finishes if it is not paid off?  The loans will automatically decrease but if the card has a high rate approaching it may be better to pay that first

streetdog38

The 0% ends next May & the loans still have a few years on them. I have a good credit score so was thinking about getting another 0% credit card & keep doing that until the biggest loan is paid off.

EssexHebridean

One tip for whittling a little extra off a 0% BT card (one that you don’t use for spending). Rather than accepting the usual minimum payment option, instead take the initial minimum, and instead change it to a direct debit set at slightly above the minimum. So if your minimum payment is £57.60, set the DD at £60 for example. That way you pay a known amount each month, so budgeting is simple, and more relevant is the fact that you’re chipping a little more off the debt each month thanks to stopping the effect of the falling minimum payment. It’s a great way of taking a little more off a debt each month without even noticing it, and works well for 0% cards. 

enthusiasticsaver

The problem with credit cards is that if you keep transferring on to new deals you have a BT fee. Your loans are not at awful rates so I would carry on focusing on the credit card. As EH says set a payment for slightly higher than minimum and throw any extra you can at it. Have you cut spending as far as possible? 

streetdog38

Thanks for the replies, yes I have cut spending as much as possible. Only thing left to do is reduce phone contracts when they are up for renewal.
I have been concentrating on the credit card & paying the interest on the big loan each month so I'm actually paying off the £350 & not having £100 go back on in interest so sounds like that's the best thing to do.

EssexHebridean

When the time comes to look for a new 0% card use the MSE Credit Club to see the fee-free options - otherwise as enthusiasticsaver rightly says your "free" borrowing isn't free at all. Having said that, if it's still going to take you a chunk of time to pay off any balance it may well be cheaper than the interest on your old card for the same period of time. Roundabouts and swings.