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  • FIRST POST
    • wordswords
    • By wordswords 11th Jun 19, 7:11 AM
    • 32Posts
    • 34Thanks
    wordswords
    What should I pay off first?
    • #1
    • 11th Jun 19, 7:11 AM
    What should I pay off first? 11th Jun 19 at 7:11 AM
    I have a bonus of about 3000 arriving from work this month. I want to use it to pay off debt. I have three possible pools of debt to pay off:


    * 2x current accounts maxed out on their overdraft, total sum ~3000, costs 60 / month in total in arrangement fees
    * A personal loan with a settlement figure of 5000, costs 160 a month in repayments
    * Or I could use it to build up an emergency fund (which I know MSE doesn't recommend)



    I was originally planning to put the debt repayment against the personal loan, but that won't affect my current monthly outgoings as it will just reduce the length of the number of payments of the loan.


    Thoughts?

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    Last edited by MSE Tine; 18-06-2019 at 8:35 AM.
Page 1
    • JayRitchie
    • By JayRitchie 11th Jun 19, 7:30 AM
    • 168 Posts
    • 174 Thanks
    JayRitchie
    • #2
    • 11th Jun 19, 7:30 AM
    • #2
    • 11th Jun 19, 7:30 AM
    What is the interest rate on the loan?
    • zx81
    • By zx81 11th Jun 19, 7:34 AM
    • 22,455 Posts
    • 24,624 Thanks
    zx81
    • #3
    • 11th Jun 19, 7:34 AM
    • #3
    • 11th Jun 19, 7:34 AM
    Normally, you would pay off the highest rate debt, but overdrafts can be called in at any time, which could make life more difficult.

    Compare the rates as a starting point.
    • DigForVictory
    • By DigForVictory 11th Jun 19, 8:21 AM
    • 9,484 Posts
    • 31,817 Thanks
    DigForVictory
    • #4
    • 11th Jun 19, 8:21 AM
    • #4
    • 11th Jun 19, 8:21 AM
    Flatten one overdraft & pay down some of the loan, if it's a high % APR. If it's manageable, flatten both overdrafts. Do please consider how you go into that situation, as routinely-maxed overdrafts are a bad idea.

    Whatever the reasons, you can't afford to carry on - or you wouldn't need the bonus to clear some but not all of your debt. Have a go at a Statement Of Affairs & see what the debt free wannabee board can do to help you. It's tough love, but you'll be amazed at how much less you could live on & Not notice a difference, and if you are prepared to change your ways a bit once they're done, you'll be seriously financially better off!
    • NeverendingDMP
    • By NeverendingDMP 11th Jun 19, 8:43 AM
    • 371 Posts
    • 1,349 Thanks
    NeverendingDMP
    • #5
    • 11th Jun 19, 8:43 AM
    • #5
    • 11th Jun 19, 8:43 AM
    If you have no emergency fund you should try and start one. I know you should look at interest rates etc to compare long term costs but if you want to keep it simple why not pay of the overdrafts, cancel them or reduce to a 200 buffer. If you can afford it use the 60 a month that was wasting itself on fees to create an emergency fund. Uf yiu set up a standing order to a different account an emergency fund would begin to build. If you cant afford to divert the 60 in feed then you definately would benefit from a SOA to work out what you can afford.
    35,213 - Jan 2018, 28500 remaining.
    Mortgage 77230- Jan 2018
    73364 remaining.
    Emergency fund 55
    Make 2019- 1075.46 /2019
    1% challenge 33%
    • wordswords
    • By wordswords 11th Jun 19, 10:04 AM
    • 32 Posts
    • 34 Thanks
    wordswords
    • #6
    • 11th Jun 19, 10:04 AM
    • #6
    • 11th Jun 19, 10:04 AM
    * Interest payment on the loan is 10%
    * Overdraft interest is 17% on both, although if I lower my overdraft to 400 then there is no interest to pay, as I get a 400 interest free overdraft.


    I think I will pay off my overdrafts, thanks to everyone who posted.
    • EssexHebridean
    • By EssexHebridean 11th Jun 19, 10:36 AM
    • 9,272 Posts
    • 48,402 Thanks
    EssexHebridean
    • #7
    • 11th Jun 19, 10:36 AM
    • #7
    • 11th Jun 19, 10:36 AM
    Personally I'd go with getting rid of the OD's - I always describe them as "dangerous debt" as they can, as has been said already, be recalled at any time and with no notice. The 60 that you have been paying in fees for them can make a start on building an EF as I see someone else has already suggested - it's not that MSE doesn't recommend this, quite the opposite in fact - a basic EF is something that everyone should really have - the level of this depends on your situation though. Renting, furnished - probably 250 will do you to start. Renting, unfurnished, or renting at all but own a car - aim for 500 starting point. And Homeowner, with or without a car = 1000.

    There's a bigger picture here that you also need to look at though, and that is why you've found yourself 3000 in the red in the first place. Possibly a full overhaul of your budget needed, or maybe even putting together a budget in the first place?
    MORTGAGE FREE 30/09/2016
    SOA CALCULATOR (for DFW newbies): Stoozing.com SOA Calculator
    • HonmaDP
    • By HonmaDP 11th Jun 19, 11:03 AM
    • 46 Posts
    • 7 Thanks
    HonmaDP
    • #8
    • 11th Jun 19, 11:03 AM
    • #8
    • 11th Jun 19, 11:03 AM
    I had a 3.5k overdraft with Lloyd’s, we fell out over the extortionate charges they were taking from me. It came off my credit file last July and now I pay 1 every 3 months to a company who bought the debt.
    • iarniee
    • By iarniee 11th Jun 19, 11:07 AM
    • 50 Posts
    • 64 Thanks
    iarniee
    • #9
    • 11th Jun 19, 11:07 AM
    • #9
    • 11th Jun 19, 11:07 AM
    * Interest payment on the loan is 10%
    * Overdraft interest is 17% on both, although if I lower my overdraft to 400 then there is no interest to pay, as I get a 400 interest free overdraft.


    I think I will pay off my overdrafts, thanks to everyone who posted.
    Originally posted by wordswords

    Surely you've answered your question, reduce both overdrafts to 400?

    Then you can use the remaining money to start emergency fund.
    • andydownes123
    • By andydownes123 11th Jun 19, 1:42 PM
    • 642 Posts
    • 760 Thanks
    andydownes123
    I have a bonus of about 3000 arriving from work this month. I want to use it to pay off debt. I have three possible pools of debt to pay off:


    * 2x current accounts maxed out on their overdraft, total sum ~3000, costs 60 / month in total in arrangement fees
    * A personal loan with a settlement figure of 5000, costs 160 a month in repayments
    * Or I could use it to build up an emergency fund (which I know MSE doesn't recommend)






    I was originally planning to put the debt repayment against the personal loan, but that won't affect my current monthly outgoings as it will just reduce the length of the number of payments of the loan.


    Thoughts?
    Originally posted by wordswords

    First one I would settle first after a quick glance
    • adg89
    • By adg89 11th Jun 19, 4:01 PM
    • 75 Posts
    • 136 Thanks
    adg89
    I'd get rid of your overdrafts to get yourself current, then you have an extra 60 per month income that was previously being used to pay overdraft fees.
    After you've done that, build up a small emergency fund (1 month of expenses - say 1000).
    Are you able to overpay on the loan or are you penalised for doing so? If you are not penalised, you can start overpaying the loan once you've got rid of the overdraft and have an emergency fund (make sure you commit to not using any other form of credit before you do this otherwise it negates the point in overpaying the loan).

    • JayRitchie
    • By JayRitchie 11th Jun 19, 8:14 PM
    • 168 Posts
    • 174 Thanks
    JayRitchie
    10% is not too bad - hit the overdrafts first.
    • kikamorris
    • By kikamorris 11th Jun 19, 11:22 PM
    • 9 Posts
    • 56 Thanks
    kikamorris
    Pay off one of the overdrafts, put the rest into an emergency fund - NOT in the bank where you're still overdrawn, as the bank could take that money to pay off your overdraft - and use the money from the overdraft fee that you're not paying any more (30/month?) to gradually reduce the 2nd overdraft.
    I have ME - please excuse occasional brainfog
    • redux
    • By redux 12th Jun 19, 10:40 AM
    • 19,290 Posts
    • 26,430 Thanks
    redux
    Pay off one of the overdrafts, put the rest into an emergency fund - NOT in the bank where you're still overdrawn, as the bank could take that money to pay off your overdraft - and use the money from the overdraft fee that you're not paying any more (30/month?) to gradually reduce the 2nd overdraft.
    Originally posted by kikamorris
    I don't think there's much point in doing something that's effectively borrowing money in order to call it an emergency fund.

    I'd say pay off both overdrafts, but keep the arrangements, and mentally call that the emergency reserve position. That way it only costs money when used, instead of all the time.
    • fatbelly
    • By fatbelly 14th Jun 19, 6:24 AM
    • 13,868 Posts
    • 10,911 Thanks
    fatbelly
    I have a bonus of about 3000 arriving from work this month. I want to use it to pay off debt. I have three possible pools of debt to pay off:


    * 2x current accounts maxed out on their overdraft, total sum ~3000, costs 60 / month in total in arrangement fees
    Originally posted by wordswords
    There's not much to discuss. That's a huge effective interest rate on the overdrafts. Wipe them out and save 720 per year on the fees.
    • tgroom57
    • By tgroom57 14th Jun 19, 6:54 AM
    • 1,358 Posts
    • 12,872 Thanks
    tgroom57
    I agree with above about the overdraft, but Go for the bigger overdraft, and use the rest of your bonus as a start on your emergency fund. Agree also, don't have the emrgency fund in any place where you're currently borrowing money. The advice these days is to have between 3 and 6 months pay in an emergency fund to cover unexpected job loss.

    Financially it doesn't make sense to have savings while you're borrowing, but it's usual to max out an overdraft anyway regardless of whether you have money available elesewhere. Guess what I'm saying is even if you pay off the 2nd overdraft now using the bonus, you'll probably max it out again before long and be back to square one. Keeping the 2nd overdraft puts pressure on you to keep it under control.

    • hardikjshah83
    • By hardikjshah83 14th Jun 19, 8:19 AM
    • 10 Posts
    • 4 Thanks
    hardikjshah83
    I have a bonus of about 3000 arriving from work this month. I want to use it to pay off debt. I have three possible pools of debt to pay off:


    * 2x current accounts maxed out on their overdraft, total sum ~3000, costs 60 / month in total in arrangement fees
    * A personal loan with a settlement figure of 5000, costs 160 a month in repayments
    * Or I could use it to build up an emergency fund (which I know MSE doesn't recommend)



    I was originally planning to put the debt repayment against the personal loan, but that won't affect my current monthly outgoings as it will just reduce the length of the number of payments of the loan.


    Thoughts?
    Originally posted by wordswords
    Simple answer the one with the highest interest rate, most likely it will be overdraft. Personal loan can be paid up monthly with cheaper interest rate and for emergency fund you always will have your overdraft that you would have paid up.

    Further more you can start building up emergency fund from 60 saving you have each month that you would have otherwise paid via overdraft fees.
    01/05/14 : -22545.93
    01/02/15 : -8133.00
    01/02/16 : -15867.00
    • wurley
    • By wurley 14th Jun 19, 2:44 PM
    • 85 Posts
    • 80 Thanks
    wurley
    Easy - Overdraft!
    Pay off the overdraft as that directly affects your everyday. It is likely to be the most costly to you. Maxed out means you are likely to get charges for unpaid DDs and extra charges for going over the agreed limit. No brainer!

    Afterwards - Make yourself a promise not to use your overdraft (if you need to use it, it may be time for a close look at your income/outgoings and spending).
    • liz41
    • By liz41 16th Jun 19, 12:48 AM
    • 1 Posts
    • 0 Thanks
    liz41
    What to pay off first.
    Personally, I would pay off your two current accounts, thereby lowering what you pay out on a monthly basis by a nice little sum.
    Then check carefully your spending every month , hopefully to avoid further overdrafts.
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