Settle car finance / invest elsewhere

Justin1986

Hello all, I'm looking for a bit of advice, or some reasoning. First world problems and all, I'm due an unexpected work bonus soon and trying to get my head round what is best to do with it. I'll use some example figures and a high level situation below, hoping this doesn't come across as crass- 

Good salary, and good pension contributions. I did think about sacrificing it in, but feel it would be better used to either clear debts or lock into an ISA / premium bonds / other. Job is reasonably secure. 

Main earner in house, with an emergency fund around 3-6 months readily accessible. Slightly uneasy about this, ideally would like it nearer 12. 

Two cars, one PCP and one personal loan. Outstanding balances around £20k and £15k. Both are circa 6% interest APR. Both cost just under £500 per month. 

£5k credit card (0%)

Managing them all monthly.

What would be best use of a £20k bonus here? 

Save it all as a rainy day and continue to service the above. 
Pay PCP off completely 
Pay personal loan and CC off completely. 

I'm struggling to get my head round sinking £20k into any of the above and having nothing 'real' to show for it, but then realise it would likely save me more on interest than it would earn on interest sitting in a bank somewhere. Also worried if I keep it readily accessible I'll be tempted to spend it!

Any advice would be appreciated. 

400ixl

As 6% is at the higher end of what you would get for savings / short term investments, I would pay off one car and then take the savings to double down on paying off the other. Assume the credit card will come off of 0% at some point so you will either need to be able to shift that to another 0% card or get it paid off asap.

Taking the £20k and the current payments (£1k per month) you make you could be debt free is around 2 years.

Being £40k in debt and getting to debt free is a lot to show for it.

Justin1986

Thanks, that's sound advice. I did consider paying off the lower value car and also the CC but guess paying the 0% doesn't make as much sense. 

RAS

Agreed, paying off the 0% card makes no sense, unless it's due to end very soon and you can't get a replacement.

This is a rhetorical question. Maybe think about why you struggle to get your head round clearing debt and having nothing "real" to show for it? Do you judge your success by things, or at least spends? Or do you work in an environment where colleagues "boast" about what they spent their bonus on?

Plainly you've got a decent emergency fund, so you've got a good grip on your family's security.

In addition to 400ixl's comment, cutting £500 a month from your monthly expenditure means that your current emergency fund would stretch further. Again, that's something about which to be proud. 

Justin1986

That's actually a fair point. Although your second paragraph is not the case, quite the opposite really I'm not one for talking about money. It's more so just to balance my mind in thinking that my bonus has not just arrived and 'left'. To me it's a significant sum of money, and would be nice to see it in the bank account but I think you're both right, it'll work harder for me paying debts off.

Thinking about it a bit more, the car would be paid off and be ours which would be a nice feeling. 

Andyjflet

Pay the debt off, you haven't really got a £20k bonus as you owe other people money, the title of the board is Debt Free wannabe.
Trade in the Cars for cheaper cash alternatives and settle the difference. Then you have no car payments at all!

Personally I would move it all to debt repayment, I can tell you now after 40 years of living in debt, the feeling you get when debt free and your salary cheque is mostly yours is priceless and the only thing that lets me sleep without worry at night. 

Justin1986

That's a good point thanks. 

Maybe the other way I was thinking with it is being a preference over the money sitting in the bank, or having the £500 per month freed up