Where to put my bonus

QC_040

Hi,

I have a dilemma with my pay bonus of 2200£

I have a credit card balance of 1916£ (I already pay 90% I'm really proud!) and a loan of 4328£ (I pay the minimum for the past 6 years, the monthly interest are higher than the min payment I do).
I have no savings/cushion but a very secure job.

A part of my brain tell me to pay my CC in full (higher interest rate 19.9%) and the remaining in my loan (interest 17.9%).
But another part of my brain tell me to pay 1000£ on my CC and the remaining in a savings for security. 
Another part of my brain tell me to put all in a savings account for security. 

The last thing is I need to buy a phone as my mobile is dying (bought in 2016), I think to buy a second hand one, I don't need the last tech.
Do I take some of the money from the bonus to pay for it? 

If you can suggest anything it will be appreciated. 

Thanks 
QC_040

madaboutspots

Hello

i could see a few other options but would ask a few more questions as well - though you’re welcome to ignore all as you choose.

Is there any potential to move some of the debt onto 0% interest with a different credit card? This could cut out either a lot or all of the interest. You’d have to be really disciplined and not add with any further purchases.

How much are you paying against the CC each month? How do you plan to reduce the loan? If you’re paying less on the loan than is getting added in interest then that’s costing you more because the balance is higher. Do you trust yourself to throw payments to the loan once the CC is gone?

It doesn’t sound from the above that you’re completely focused on working to get rid of both (apologies if I have that wrong - just going on the above only) but surely to have no debt with either would be a bonus each and every month? 

I would hold off on the phone for a bit. As long as you can. If it works it’s not urgent. Paying interest on CC &/or loan should be the priority. 

Initial thoughts would be get rid of the card. Stick it in the deep freeze as your emergency funds just until you have cash to do that job. Once you have no CC debt or loan and an emergency fund saved, defrost the CC and cancel it. Pay as much as you can on the loan after clearing the CC until you’re free of debt and then save yourself an emergency fund.

If you’re able to move some of either/both debt onto a 0% CC it will of course speed up this process - as long as you’re suitably disciplined.

Spots x

QC_040

Thank you for your reply

Concerning your questions: see the reply for each in bold and italics 

Is there any potential to move some of the debt onto 0% interest with a different credit card? This could cut out either a lot or all of the interest. You’d have to be really disciplined and not add with any further purchases = I have checked and I can find only 2 with 0% as my balance is inder 2500£. I would checked again. I don't add any purchases on it.

How much are you paying against the CC each month? = 60£ plus 250£ and up (I pay the money I can save during the month)
How do you plan to reduce the loan? = as soon as I pay in full the CC I want to do the same as my CC pay as much I can every month 
If you’re paying less on the loan than is getting added in interest then that’s costing you more because the balance is higher. Do you trust yourself to throw payments to the loan once the CC is gone? yes I trust myself and I want to do it.

It doesn’t sound from the above that you’re completely focused on working to get rid of both (apologies if I have that wrong - just going on the above only) but surely to have no debt with either would be a bonus each and every month? = you are right I wasn't focused, I'm quite scared if I don't see money in my account. I understand this is counterproductive and it doesn't have any logic. During covid I started charging my ways of seeing things. I know I still have to work on me. 

I would hold off on the phone for a bit. As long as you can. If it works it’s not urgent. Paying interest on CC &/or loan should be the priority. = I would try but my phone is dying. This is why I'm looking for a second hand and a previous year. 

I know I have problem with money, I'm not someone who buy just for buying. I don't drink or smoke. I don't go out much.

I have to be more confident with my money and learn of manage it better.
Thanks
QC_040

SusieT

If you want a phone you may find it worth looking on backmarket as they have some very good deals, and you get a guarantee with them. 
As to the debt, if you like to see that you have a bit to fall back on in an emergency, why not pay some off the card and buy a replacement phone, and then start a savings account with the remainder? Then when the card is paid off (which will not take long the way you are paying it down) put the £60 to the savings account, and overpay the loan with anything else - all assuming that there are no penalties for overpaying the loan. 
You have done really well to clear as much as you have and change the way you see debt, and it will not be long before you are debt free  

EssexHebridean

Do you have an emergency fund saved already? If not, then I would suggest immediately putting £500 of the bonus into an easy access savings account which pays interest - but ideally is away from your regular current account - this helps to reduce the risk of just dipping in to it. 

Then, buy the cheapest replacement phone that meets your needs that you can - refurb or whatever. And don't be tempted to take a new phone contract "to get a cheaper phone" - there are always cheaper options than contract phones! once you have done this, you need to start saving a small amount each month into a savings account (which pays interest) against the point where the phone you've just bought needs replacing. 

I would then pay the balance of the bonus off the CC, as that has the highest interest.

How much  more is the monthly interest on the loan than the amount you are paying monthly? I'm slightly surprised that it's still allowed for companies to give loans in this way as I thought that there was a requirement for the minimum payments to at least slightly chip away at the capital, even if not by much, rather than allowing the debt to increase. Could I ask what sort of loan this is - which company is it from and do you happen to know the APR? 

I'd be inclined once the CC balance is much reduced to turn some of the "spare" money each month to beginning to at least make some headway on the loan. Having said that, if it is going to turn out that it has revoltingly high APR, I'd also be inclined to investigate whether you are now able to get a loan with a lower APR to use to pay off the current one - that would need some thought and you would need to be 100% certain that you would ONLY borrow the amount needed and would immediately clear the loan, though. 

enthusiasticsaver

I would repay the credit card in full and start an emergency savings account. Then focus on the loan.  If the phone has  lasted 7 years it will last a few more months. 

QC_040

Thank you all for your suggestions 

kimwp

Congratulations on paying off 90%, that's an achievement!
My view is:
1. Buy the refurbed phone - from experience a dying phone is painful to deal with and if you wait until it breaks, you'll have to buy one in a hurry rather than look for a good deal.
2. Pay off the credit card, but keep it. This is now what you use in an emergency (but only for real emergencies)
3. Keep some cash (£200-500) in an account as a buffer and emergency cash (again only for real emergencies)
4. Pay the rest to your loan and divert payments from your credit card to the loan.
5. Try to find a loan/credit card with lower interest to transfer your loan to (check terms and conditions)

Kakiste

I don't have anything else to add as everyone else has covered the advice with the money but a few years ago when I was in lots of debt, my phone broke. I put a post up on social media to ask my friends and family if anyone had a spare old phone sitting in a drawer that they would be willing to give me, I ended up with a 4 year old (but perfectly working) phone from a friend that lasted me until I had enough spare money to buy a decent second hand one off another friend a good while later. 

QC_040

Thank you again for your reply! 

QC_040

Hi all,

This is an update concerning my post.

I'm so proud of myself, following your suggestion:

1st my CC the balance is 0£
2nd I bought a phone with a voucher from my employer. I paid 250£ new and the system upgrade are good until 2027.
3rd I already start to pay my loan I put 250£ today on it.
4th I put 190£ in my savings for security. 

At the end of the month if I have left money in my bank account, I will split between my savings and my loan.
I'm targeting the end of the year to pay my loan in full.

I'm getting there and I start to see the light at the end of the tunnel bigger.

I just want to say thank you for all your suggestions it was a great help. 

QC_040