newbie trying to be debt-free - advice needed on repayments!!

karie

hello everyone

i have read these boards for quite some time now but have never posted a message until now.

i am really trying to rid myself of my debt, have been doing okay thus far, but now would really appreciate some advice on the best way to finish repaying what i owe.

my current (NEGATIVE!) balances are:
first direct personal loan - 11.9% APR - current balance: £2850 (this is the current settlement figure) - i make repayments on this loan of £83.04 per month and have 40 months left to go.

tesco clubcard credit card - 0% (transferred balances from other cards) - current balance: £1500 - 0% offer valid for another 12 months

total debt: £4350 (not including my mortgage of course, but let's start with the more manageable stuff!!)

i make repayments of £300 per month (including the first direct loan repayment) and can't really increase this any further right now because of mortgage, bills, etc.

i am receiving 2 bonus lump sums of £900 and £500 in my March and April pay packets so was going to use these to pay off the credit card. is this the best thing to do, or should i try to get rid of the loan somehow instead? (i'm not sure how as i can only afford to pay off half of it with these bonuses, and won't be receiving any further bonuses alongside my normal pay).

i would really like to get rid of the loan first so that i don't have to pay so much interest, i am unsure as to whether i can make an overpayment, but i think this would only decrease the payment term rather than the interest payments.

any thoughts, help or advice?? thank you

karie

Sea78

Hi- that's a really hard one - perhaps you could pay off the CC, then save the £300 per month(minus the loan repayment) until you have the settlement amount? You'll then be able to clear it sooner?

Sassamac

what is the purchase rate on your CC? Do you have any other CC's or would you be likely to be accepted for a new one (sounds like a yes as your credit history seems good based on this).
One idea is to pay off the loan with the other / new CC (or straight onto the Tesco card if the purchase rate is also 0% for 12 months) then do a BT to the Tesco CC and take advantage of having your whole loan at 0% and only one debt. It may or may not cost you a few quid to do the BT but much less than the 11% is costing you. In which case pay the £1400 off the loan before you do the BT to reduce the BT fee.

karie

hi both

yes i have 2 more credit cards - mint and virgin - but these have no current balances, should still be active though.
the tesco card has 3 months 0% purchases, but after that it is 15.76% (so worse than loan).

sassmac - just to be clear, are you saying...:

- pay the £1400 (bonuses) off loan to reduce it to £1450
- then a few days later close the loan and transfer the £1450 to eg my virgin card (i presume banks allow you to do this)
- then make a balance transfer from virgin to tesco credit card (i have a cc limit of £3k on that card so that would just about work)
- then pay off £300 per month for 10 months

this makes a lot of sense...!!

karie

Merlot

I would also pay the loan off with the credit card it would save you £471 in interest if you settle early, and the bonus then can be used to repay the tesco credit card.

Merlot.x.

Bangerchick

One issue with the loan is that it is almost certainly likely to be front loaded with the interest, so in your earlier payments you'll be paying mostly interest and little repayment, moving through to nearly all repayment and no interest towards the end of the term. You could ring them to get a settlement figure, but if your towards the end of the loan there may be more limited benefit in paying it off early ie you won't actually be saving the 11.9% that you might think. You say there's 40 months left - how long was the original term?

Merlot

What is your balance transfer apr on the tesco c/c and how long for?

karie

hi bangerchick - you may be right
the loan was for £3500 originally, the term was 54 months.
the total interest was around £940.
current outstanding balance is around £3400 but there would be an interest rebate of £550, making the settlement figure £2850. the apr is 11.9%

hi merlot - the balance transfer apr on credit card is 0% for 13 months, i have about 12 months of that left. the apr on new purchases is approx 15% after 3 months (2 months left)

karie

Merlot

I would balance transfer the loan to the tesco credit card, as I said in my earlier post this would save you £471 in interest if you settled your loan early, and the balance transfer fee may be £50 max therefore saving you £421. I would then put the bonus payments in a high interest account for a few months and then repay the debt before the 0% ends or if you prefer to transfer to another 0% card, you could keep your bonus payments in the high interest account for upto 24 months therefore it may help you to pay towards your xmas gifts.

I hope that makes sense. Remember not all debt is bad, and if you have debt at 0% then make use of the high interest account, just remember to set up a d/d to make the minimum repayments on the credit card.


Merlot.x.

karie

hi merlot

i see your point about the high interest account, i will definitely investigate.

unfortunately i would need to use the bonuses to either clear the credit card of half of the loan, because i have a cc limit of £3K and can't transfer the whole balance of the loan due to the outstanding cc balance of £1,500.

thank you for your advice, really appreciate it!

karie