Pay loan or credit card?

clearmydebts

Hi all,

Just wondering if someone more savvy than me (am trying!) could help me with this query.

I have been able to switch my credit card balance to a 0% until March 2009. The total balance now is: £5,400. I intend to pay money off every month (over the minimum repayment). I also have a loan for roughly £16,300). It is for 6.9%. I was wondering is it better to overpay some of the loan while my balance is 0%, and hope that I can transfer it again next March or just pay off my credit cards?

I was hoping to have the credit cards paid off by Xmas and the 0% transfer came from a card I already have so didn't involve re-applying for another card.

Any thoughts or suggestions would be grateful. I also should have a sum of about £500 at the end of the month (above my payment of CC) so wondering where is best to put that.

Thanks.

RedDino308

Hi,

A good rule of thumb is to pay the debts with the highest interest rates first. However, there are a couple of things to be careful about.

1) Loans often come with penalties if you pay them off early. For instance, my Lloyds loan has a 56 days worth of interest penalty.

2) Can you do better by saving the money in a high interest account first and paying it all off in one go? This will involve shopping around but could make you a few pounds.

I'm sure many people who are far better at this than me will be along to advise.

RD308

CLAPTON

A lot depends upon how likely it is to get another 0% deal in a year's time and upon whether the loan is a flexible loan that allows overpayments that reduce the capital.

If you a cautious person then I would suggest

a. paying only the minimum on the CC while its 0% interest
b. savings as much as possible in a saving a/c (if you dont have an ISA open one as they are tax free.
c. when the CC 0% deal runs out... if you can renew then fine otherwise use the saving to pay off the CC to avoid the presumably high CC APR.
d. leave the loan as it is until next year and review the situation then

clearmydebts

RedDino308 wrote: »

Hi,

A good rule of thumb is to pay the debts with the highest interest rates first. However, there are a couple of things to be careful about.

1) Loans often come with penalties if you pay them off early. For instance, my Lloyds loan has a 56 days worth of interest penalty.

2) Can you do better by saving the money in a high interest account first and paying it all off in one go? This will involve shopping around but could make you a few pounds.

I'm sure many people who are far better at this than me will be along to advise.

RD308

Hi Red Dino,

The loan is with Northern Rock and I can overpay without penalty. That was a deciding factor in taking out the loan as I thought I might be able to overpay one day.

I never thought about the high interest savings account but that makes sense as well. Thanks for that suggestion

clearmydebts

CLAPTON wrote: »

A lot depends upon how likely it is to get another 0% deal in a year's time and upon whether the loan is a flexible loan that allows overpayments that reduce the capital.

If you a cautious person then I would suggest

a. paying only the minimum on the CC while its 0% interest
b. savings as much as possible in a saving a/c (if you dont have an ISA open one as they are tax free.
c. when the CC 0% deal runs out... if you can renew then fine otherwise use the saving to pay off the CC to avoid the presumably high CC APR.
d. leave the loan as it is until next year and review the situation then

Hi Clapton,

I am a cautious person but not overly so. The loan is flexible and I suppose I thought if I overpaid that then at least it would be less in interest to them. My OH is likely to be earning some money as he is getting a part time job so maybe I could do 1/2 and 1/2 or as you say, put it into an ISA.

The problem with me is - I like to see balances going down every month as it motivates me more and saving money wouldn't do that (as in motivate me), but it is just my mindset and I need to go for the most sensible option!

CLAPTON

why not, every month write down
a. your CC balance (a debit)
b. your loan balance (a debit)
c. your savings balance (a credit)

and the net total

and then you will see the overall amount nicely reducing

clearmydebts

CLAPTON wrote: »

why not, every month write down
a. your CC balance (a debit)
b. your loan balance (a debit)
c. your savings balance (a credit)

and the net total

and then you will see the overall amount nicely reducing

That's a great idea! I have looked at the ISA's and will do more research but I think that's what I will go for.

Thanks to you and Red Dino for some great advice!

SunderlandBlackCat

Hi there, its always worth keeping an eye on the existing credit card customers deals at
http://www.moneysavingexpert.com/cards/balance-transfers-comparison-table to see what your card offers.

I had some pretty good offers from most of the cards I'd had once I cleared them.