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  • FIRST POST
    • holz7
    • By holz7 13th Jan 19, 7:06 PM
    • 2Posts
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    holz7
    What to do - pay off big chunk or...?
    • #1
    • 13th Jan 19, 7:06 PM
    What to do - pay off big chunk or...? 13th Jan 19 at 7:06 PM
    Hi everyone, my OH is in a large amount of credit card debt and recently got given a few grand from his dad to help pay it off.

    A few months ago he applied for a loan from his bank (one of the credit cards is with the bank) to pay it all off and got turned down due to poor credit rating.

    He thinks perhaps it's a better idea to withhold the few grand he now has and pay small amounts from it (but more than minimum payment, which is what he currently has to do) to the cards each month, to improve credit rating. And then maybe re-apply for the loan.

    I'm more inclined to clearing a larger amount and paying one large chunk of it now.

    I've done some research but it's really hard to find the right answer - does anyone know what the best thing to do might be?
Page 1
    • zx81
    • By zx81 13th Jan 19, 7:07 PM
    • 21,238 Posts
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    zx81
    • #2
    • 13th Jan 19, 7:07 PM
    • #2
    • 13th Jan 19, 7:07 PM
    Clear as much as he can from the highest rate debt and work down from there.

    It's not his credit rating he needs to work on - it's his debt and repayment history.
    • cjv
    • By cjv 13th Jan 19, 7:23 PM
    • 449 Posts
    • 235 Thanks
    cjv
    • #3
    • 13th Jan 19, 7:23 PM
    • #3
    • 13th Jan 19, 7:23 PM
    The few grand withheld could end up being spent very easily, especially if someone has struggled to manage debt in the past.

    Use it to pay your highest interest accounts, this in itself can improve your credit history just as much, if not more, than paying small amounts over time.
    • Dobbibill
    • By Dobbibill 13th Jan 19, 8:00 PM
    • 3,592 Posts
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    Dobbibill
    • #4
    • 13th Jan 19, 8:00 PM
    • #4
    • 13th Jan 19, 8:00 PM
    Use the money to pay off the highest interest bearing debt first and then others in order of APR.

    As interest is calculated daily, the more that is paid sooner, the less interest you will pay overall.
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    • holz7
    • By holz7 13th Jan 19, 8:15 PM
    • 2 Posts
    • 1 Thanks
    holz7
    • #5
    • 13th Jan 19, 8:15 PM
    • #5
    • 13th Jan 19, 8:15 PM
    Thank you so much everyone, you're confirming what I thought. And the way you've all put it totally makes sense. Thank you!
    • Terry Towelling
    • By Terry Towelling 13th Jan 19, 8:15 PM
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    Terry Towelling
    • #6
    • 13th Jan 19, 8:15 PM
    • #6
    • 13th Jan 19, 8:15 PM
    There is no doubt that the most financially efficient way forward would be to pay a lump sum, and perhaps, the way to view the situation is to imagine the lump sum as prepayment of the interest charges. The remaining debt might then be viewed as that elusive loan and your OH could service that by paying the same monthly amounts (subject to minimum payment requirements, of course) as if he were indeed servicing the loan he wants.

    I cannot say for sure if this is a workable way to view/approach the issue because I don't know the extent of the debt, the interest rates or the size of the cash gift. Maybe do a few sums and see how it looks.

    The desire to drip feed the gift is understandable but it is also slightly worrying and indicative of someone with the wrong mind-set - someone who wants the comfort of the cash balance to cover lapses of determination and commitment to clearing the debt.
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