What to pay advice

LottieLou101

Hi everyone! Looking for a bit of advice. My aim this year is to make a dent in my debt but I'm not sure what to prioritise.

My husband recently got a surprise bonus and kindly gave me a little bit of money to help out, but I can't decide where to put it. I could clear one of my smaller accounts completely, or pay off a chunk of one of my higher interest cards. 

However, I also live in my overdraft, I'm self employed so don't get one big payday so it never gets cleared. So I'm tempted to leave it in my current account and reduce this debt. My concern here is that it'll slowly get eaten into and I'll have wasted it. 

Any advice? 

fatbelly

If none of your debts are defaulted then it is just a question of which one to overpay, and the answer to that one is the highest apr or effective apr, because you want to kill off the most interest

That is likely to be the overdraft  but you will need to look at the detail

RAS

Sounds like you also would benefit from doing a Statement of Affairs, detailing you income and expenditure? So you can see what you need to pay and plan your expenses. Are you rigourous about keeping your employment and personal costs separate and saving for tax?

Meantime, unless you're paying over 40% APR elsewhere, your overdraft is likely to be your most expensive debt

LottieLou101

RAS said:

Sounds like you also would benefit from doing a Statement of Affairs, detailing you income and expenditure? So you can see what you need to pay and plan your expenses. Are you rigourous about keeping your employment and personal costs separate and saving for tax?

Meantime, unless you're paying over 40% APR elsewhere, your overdraft is likely to be your most expensive debt

I do have a separate business account so everything to do with the business is separate (with a pot for tax).   

I'll look into the statement of affairs, thanks! 

ManyWays

The overdraft interest can be misleading, it depends how long you are in the overdraft for and by how much. If you arent in your overdraft for the first week of the month, are in it for an average of 500 for the second week, 1000 for the third week and 1500 for the last week, that is an average of about 750 for the month. So you would be paying interest at 40% on £750 for a month, whereas a credit card with a 1500 balance would could be paying interest of say 27% on which would be more than the overdraft.
Many people find it simpler as well to clear and close a credit card rather than clear and not use an overdraft

kimwp

Statement of affairs link should be in my signature. Fill it in accurately (what you actually spend, by looking at your bank statements), then format for me to post it here.

Note on it which spends are split with anyone else and what the split is - this helps us identify if the spend needs to be bigger in reality or could be reduced eg by shopping around.

VAP_Driver

The thing about overdrafts is that they are subject to recall at any time. And the fact that you’re not clearing it increases the chance that the bank may choose to do so. So I wouldn’t just base your decision on interest paid alone, but also factor in how you’d manage if your bank suddenly removed or significantly reduced your overdraft with little or no warning.

londoner2019

My personal view on overdrafts is I don't like seeing that minus symbol in my current account. That, plus the other reasons stated in this thread, is why I would clear it first.

enthusiasticsaver

I would focus on the overdraft assuming you are in it fully (you say you never clear it) and that the interest rate is around 40%  as most overdrafts are.  I would then reduce the limit so you are not tempted to go back into overdraft once cleared.