Prioritising what debt to pay first

saajan_12

duchessdisconoodle said:

Hi there, I’m hoping for a bit of advice. 

I’ve been working at paying off approx £10k debt over the last year and a half. 

Currently my debt is split between

bank Loan @ £2,400 left to pay (£3,900 originally including £435 interest) and my monthly payments are £149 until December 2026. 

Credit Card @ £2,800, on a 0% interest balance transfer deal until January 2026. Currently paying £50 a month 
I also have about £500 debt on PayPal credit 

At the end of the year, I am due a bonus in work which will be £4k before tax so approx £2.5k after tax and I intend to use all of this towards debt. I’m unsure on which I should pay off first, or if it would be best to split this. 

If I were to pay my loan off in full from today it would mean only paying £2,185 so this would mean a reduction in my interest and no early payment fees, so I’m thinking that this could be more beneficial and it would allow me to make larger payments each month towards my credit card. 

I’m hoping to be debt free by the end of the year and this money will be a great help but I just want to make sure I’m using it efficiently 

thank you 

What are the interest rates and minimum payments on all those? 

There's generally two methods - (A) smallest first or (B) highest interest first
Depends on what you've struggled with most that caused the debt and how its been getting out of debt. Eg
*   Pick (A) if you've struggled with motivation and temptation.
That way get to clear the small niggly Paypal etc and cut out the minimum payments so you can put all your attention on the next and so on. 
*   Pick (B) if it was a random unexpected expense with a low income to save whatever interest you can

 Re the bonus, that seems quite a high tax - just to check with the bonus are you over the higher rate threshold? 

in_need_of_direction

If the funds aren’t available until the end of the year then the payments made between now and then should result in you being able to clear both the loan and PayPal.  You then go into 2026 with just one debt, more money available to pay it and could look for another 0% deal.