How best to use a lump sum and going forward

Noobie2011

So apologies for the long post but I am hoping with the info a short term and long term answer can be achieved.

Initial summary is we have a lump sum of money coming(around 20k) in the next few months and I am wanting to know how best to use it that will help in the short term and also long term.

Area where I could use it is:
 - Current Debts: 90k(2 loans at 9% interest each being around 20k, 0% loan at 11k, 2k Overdraft and then 29k in 0% Credit Cards)

So my options are:
Option 1 - Pay one of the big 9% Interest debts of as that would take a chunk off my debts but also save the most interest and save about £500 a month
Option 2 - Pay off most of the 0% Credit Cards which would not save on Interest currently but would pay off a few debts in terms of number of debts and save around £300 a month

Also on top of this our Joint Disposable Monthly is around £1500 so would be looking to use a good chunk of this plus any savings from using the 20k to then do the snowball affect onto the remaining debts.

At the moment I am thinking Option 1 seems the best as we get rid of a big Interest debt, save the most a month as in £500 and also if I start doing the snowball on the Credit Cards then with quite a few being 2-3k they would vanish quite quickly

enthusiasticsaver

Isn't the overdraft the most expensive debt?  Most charge around 40% in interest?  Option 1 looks the best but I would also address the overdraft. 

Noobie2011

enthusiasticsaver said:

Isn't the overdraft the most expensive debt?  Most charge around 40% in interest?  Option 1 looks the best but I would also address the overdraft. 

Yes you are correct there in terms of we get charged interest every month which is not reducing the balance whereas the payments on everything else at least has some impact on the balance and especially when at 0% for the credit cards.

Actually looking at option 1 I would probably tweak it to also include getting rid of the overdraft

Thanks

MEM62

Do you have an emergency fund?   If not allocate something to that, or at least start building one once you have freed up the additional £500 per month. 

RAS

Check the terms and condition for each of your loans. You may find that there are restrictions on paying off early, or that doing so doesn't reduce your monthly payment.

And look at your 0% deals. What do they revert to and when do they end? If you can refinance any due to end soon at 0%, great. If not, you might want to pay them off before tackling the loans?

Noobie2011

RAS said:

Check the terms and condition for each of your loans. You may find that there are restrictions on paying off early, or that doing so doesn't reduce your monthly payment.

And look at your 0% deals. What do they revert to and when do they end? If you can refinance any due to end soon at 0%, great. If not, you might want to pay them off before tackling the loans?

So I have checked the loans and I can settle early so that is no problem as long as pay the full settlement figure

I do have the dates the 0% ones end so need to check if pay the loan and then use the snowball method to clear the cards that I do so before the 0% ends or that I can move to a new 0% as you say

londoner2019

Personal preference for me would be to get rid of the overdraft, build an emergency fund of a few thousand, and throw the rest at the loans charging interest.

The emergency fund will mean you won't have any setbacks/need to use credit in future, and can continue paying down the debt.