Which debt do I clear first

I have around 7 different debts across an overdraft, credit cards and long term loans (5 years plus) I’ve put them into %APR ORDER. I get around £6 bonus in March but can’t work out what to pay off first. I was shocked that one loan of £5k will result in me paying £9k so should I pay one of the highest interest loans off first ?

my Halifax overdraft is costing me £135 a month but if I use my bonus to just clear that , I don’t feel like I’m clearing much.

I then thought , clear one big loan and a credit card and get another loan of cheaper APR % to clear my overdraft as I’m just not clearing it.

my credit is just ok so right now I’m maxed out. I want to clear something that improves my credit score. 

If I clear just the credit cards , I’ll then have £350 a month going forward to use against other debts.

thanks in advance 


Replies

  • TheMilkmansDadTheMilkmansDad Forumite
    474 Posts
    100 Posts First Anniversary Name Dropper
    Forumite
    get rid of the overdraft 1st and foremost - this is arguably the most expensive form of borrowing.

    Basic advice after that is to pay of the highest % ones 1st. So list all your debts and work out the % interest charged - hit the highest number 1st.
  • Chris_EnglishChris_English Forumite
    466 Posts
    100 Posts Name Dropper
    Forumite
    As above, the most efficient way (i.e. the way to reduce the amount you end up paying out in interest) is to pay the highest APR debts first.

    If several are on similar APR's though there's an argument to be made for paying off one of the others if it lets you clear an entire debt, as ytjhat can give you a bit more of a psychological boost, seing an account disappear and being able then tio put more towards the next one.
  • edited 26 January 2022 at 2:13PM
    FreeFallerSaverFreeFallerSaver Forumite
    30 Posts
    10 Posts First Anniversary Name Dropper
    Forumite
    edited 26 January 2022 at 2:13PM
    Agree with the responses above, and having been in a very similar situation to you in terms of a crippling overdraft, that should be your absolute priority, no two ways about it.

    Looking at the monthly amount you're paying, I'm guessing your overdraft is around £5K? After a very hard-earned promotion at work it took several months committed and concerted effort to reduce mine to zero, then I asked the bank to remove the facility completely. I don't ever want to be in that position again. I had built it up over years in true head-in the-sand fashion, and it was the most horrible feeling being in that constant debt situation every single month, even straight after being paid. When the % rates got hiked up to 40%, it was even worse knowing that I was paying the same as you every month just to service my debt. Plus there was also the worry about the very real possibility that the bank might call in the overdraft at any time, and God knows what I would've done then. Paying it off gave me the mental and psychological headspace to knuckle down and finally take control of my finances, and develop a plan to get debt free. I now manage everything, account for every penny, nothing is interest-bearing, and I'm on track to be DF by December next year.

    Pay off the overdraft, and throw that £135 a month at your other CC debts instead - whether highest rate first (the avalanche method), or smallest amount first (snowball). Just make sure you don't ever slip back into using the overdraft.

    (Edited to add that this forum and the posters have been absolutely brilliant and instrumental in my tackling this by the way)
  • EssexHebrideanEssexHebridean Forumite
    16.8K Posts
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    Forumite
    I'm going to agree with others saying to get rid of the overdraft - not only are they expensive they are a dangerous form of debt as they seem somehow less "real" than a credit card for example, but the bank can call an overdraft in at any time and with no warning as mentioned above.

    I'd suggest that you need to put together a Statement of Affairs so you get a clear picture of all your income and outgoings - that will also prompt you to set out your debts as a list so you can see exactly what you owe where, and what the interest rates are. 

    It might help you to post the SOA (The link for one of the calculators we recommend for this can be found in my signature) into this thread (use the "format for MSE" option and copy and paste) and we could take a look over it for you and see if we can help to identify any savings that you may have missed? 
    🎉 MORTGAGE FREE 30/09/2016 🎉
    SOA CALCULATOR (for DFW newbies): SOA Calculator
    2023 "Gym Neutral Fund" - £11.87/£280 (Membership taken 01/2/23)🏋🏻♀️ 2023/24 Gym cost per use: at 01/02/23 £280.00 per visit! (1) 🏋🏻♀️
    she/her
  • draiggochdraiggoch Forumite
    122 Posts
    Tenth Anniversary 100 Posts Name Dropper Combo Breaker
    Forumite
    I would agree with Freefallersaver about the psychological affects of living in an overdraft. Especially if it is not cleared when you get your wages. 
    Once paid off at least the money coming in to your account is yours rather than just owing less to the bank on that day.
    On top of that the rate is normally horrendous as well.
  • KevindurantKevindurant Forumite
    22 Posts
    Eighth Anniversary 10 Posts Combo Breaker
    Forumite
    Thanks everyone, gosh so glad I asked as I really didn’t see the overdraft as the priority. I was thinking clear other higher interest items and get a loan to clear the overdraft at a lower rate . I can see the logic in the responses and I’ll do as you suggest. Huge thanks for your time , it’s much appreciated 
  • KevindurantKevindurant Forumite
    22 Posts
    Eighth Anniversary 10 Posts Combo Breaker
    Forumite
    Agree with the responses above, and having been in a very similar situation to you in terms of a crippling overdraft, that should be your absolute priority, no two ways about it.

    Looking at the monthly amount you're paying, I'm guessing your overdraft is around £5K? After a very hard-earned promotion at work it took several months committed and concerted effort to reduce mine to zero, then I asked the bank to remove the facility completely. I don't ever want to be in that position again. I had built it up over years in true head-in the-sand fashion, and it was the most horrible feeling being in that constant debt situation every single month, even straight after being paid. When the % rates got hiked up to 40%, it was even worse knowing that I was paying the same as you every month just to service my debt. Plus there was also the worry about the very real possibility that the bank might call in the overdraft at any time, and God knows what I would've done then. Paying it off gave me the mental and psychological headspace to knuckle down and finally take control of my finances, and develop a plan to get debt free. I now manage everything, account for every penny, nothing is interest-bearing, and I'm on track to be DF by December next year.

    Pay off the overdraft, and throw that £135 a month at your other CC debts instead - whether highest rate first (the avalanche method), or smallest amount first (snowball). Just make sure you don't ever slip back into using the overdraft.

    (Edited to add that this forum and the posters have been absolutely brilliant and instrumental in my tackling this by the way)
    You are spot on with overdraft , £4,900, had it for years just creeping up. It is psychologically depressing to see myself still on overdraft after getting paid . 
  • enthusiasticsaverenthusiasticsaver Forumite, Ambassador
    13.9K Posts
    Ninth Anniversary 10,000 Posts Name Dropper I've been Money Tipped!
    Ambassador
    I would also clear the overdraft then cancel it so you can’t be tempted to go into it again. Tackle the most expensive credit cards next. 
    I’m a Forum Ambassador and I support the Forum Team on the Debt free Wannabe, Budgeting and Banking and Savings and Investment boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing [email protected] All views are my own and not the official line of MoneySavingExpert.
    Save £12k in 2023 Challenge #8 £12,000/£5700
    The 365 day 1p Challenge 2023 #1 £670.00/£72.00
    The 365 £1 a day Challenge for Christmas 2023 #43 £1000/£300
  • FreeFallerSaverFreeFallerSaver Forumite
    30 Posts
    10 Posts First Anniversary Name Dropper
    Forumite

    You are spot on with overdraft , £4,900, had it for years just creeping up. It is psychologically depressing to see myself still on overdraft after getting paid . 
    Pleased too hear you'll be addressing your overdaft :smile: Even though it's a long road ahead with your other other debts, it's definitely more doable when you don't see a debit balance in your current account at the end of each month.

    I never think about how much I may have actually spent in interest over the years - it's gone, no point dwelling on it, and it was all down to my own poor money management so I have to accept it and learn from it. But I'll never forget how handing over £140 of my hard-earned salary every single month in one fell swoop just for the privilege of being in debt made me feel (combined with servicing interest on CC's all the while too). That's what keeps me focused.

    Good luck with it, and do take the supportive (as ever) advice from @EssexHebridean about completing and posting an SoA on here. I didn't ever publish mine (but still did one). It can be terrifying being honest with yourself, but it's the wake-up call some people need. And there are some great folk on here that will help you afterwards.
  • peteukpeteuk Forumite
    781 Posts
    Part of the Furniture 500 Posts Name Dropper Combo Breaker
    Forumite
    Don't forget that the amount outstanding on a loan is not what you will pay back.  Depending on the loan you will get a discount on the interest as you are paying it sooner than planned.  
    Proud to have dealt with our debts
    Starting debt 2005 £65.7K.
    Current debt ZERO.
    DEBT FREE
Sign In or Register to comment.
Latest MSE News and Guides

Glitch hits Nectar bonzana

Did you miss out on bonus points?

MSE News

Ask an Expert: Scams

Watch MSE Katie's answers to your questions

MSE Forum

Hot Diamonds 40% off code

Including already-reduced outlet stock

MSE Deals