Which debt first?
Discussion
We've chosen to rent out a spare bedroom to a lodger and have an additional £550 coming in from 1st June. We're keeping £150 of this to cover potentially increased energy/water bills, and also as a 'treat' for having someone else in the house.
With the remaining £400 we want to start paying down debts. Logic says highest-interest-first, but this is a PCP loan, so our next thought was smallest-first to give us the satisfaction of fewer loans, but we're not sure. A part of me says "get the phone done with one month's rent and be done with it" but it's not actually saving anything and the reason I went for all these 0% deals was that the money felt better in my pocket than theirs at the time and I'd rather have the safey-net set aside.
So which would you pay down first of the below? Any over-payments are in addition to our 'safety buffer' savings which get topped up monthly at any rate.
With the remaining £400 we want to start paying down debts. Logic says highest-interest-first, but this is a PCP loan, so our next thought was smallest-first to give us the satisfaction of fewer loans, but we're not sure. A part of me says "get the phone done with one month's rent and be done with it" but it's not actually saving anything and the reason I went for all these 0% deals was that the money felt better in my pocket than theirs at the time and I'd rather have the safey-net set aside.
So which would you pay down first of the below? Any over-payments are in addition to our 'safety buffer' savings which get topped up monthly at any rate.
- PCP at 3.9%, due to end September 2019 with a £10,400 final payment. We are considering paying the final payment as we are happy with the car, but haven't decided for sure yet. Is it worth over-paying this now when it's so near the end? Would we save anything in interest?
- Mortgage at 3.49%, already being over-paid by £100/month [High rate as we stretched to a 95% loan to buy the house we wanted knowing we'd not need to move again for a long time].
- Car loan for the second car, 3.3% (not PCP, bank loan, less than £13k outstanding)
- 0% on our carpet (3 years, approx £2700 left), sofas (£1300 / just under 4 years left), or mobile phone (£470 / 12 months left).
Maybe chuck it at the mortgage, if you are lucky you’ll get the balance down enough to be in a lower LTV bracket when you refinance. That will save you a lot more than paying down the PCP just because it’s interest rate is slightly higher.
Plus it gets you closer to mortgage freedom.
Plus it gets you closer to mortgage freedom.
That’s quite a bit of debt ( obv relative to earnings too) do u have any savings ?
Personally would use savings or saved cash to reduce ltv on mortgage to 90% when your fixed rate is up for renewal. You will notice the monthly savings.
Is the 2nd car loan for 13k necessary ? What car is it ? Could this not be cleared by selling the car and buying a cheaper one ?
Personally would use savings or saved cash to reduce ltv on mortgage to 90% when your fixed rate is up for renewal. You will notice the monthly savings.
Is the 2nd car loan for 13k necessary ? What car is it ? Could this not be cleared by selling the car and buying a cheaper one ?
jonny70 said:
That’s quite a bit of debt ( obv relative to earnings too) do u have any savings ?
Personally would use savings or saved cash to reduce ltv on mortgage to 90% when your fixed rate is up for renewal. You will notice the monthly savings.
Is the 2nd car loan for 13k necessary ? What car is it ? Could this not be cleared by selling the car and buying a cheaper one ?
Total debt expenditure per month is 16% (excluding mortgage) and has always felt comfortable to us. We save 10% of our net income each month to have a safety net, although it was recently depleted due to an unexpected bill.Personally would use savings or saved cash to reduce ltv on mortgage to 90% when your fixed rate is up for renewal. You will notice the monthly savings.
Is the 2nd car loan for 13k necessary ? What car is it ? Could this not be cleared by selling the car and buying a cheaper one ?
Current LTV is already around 92% as we bought cheap and did a fair bit of work to the house, plus have been over-paying for a year. It's well on track for a 90% or even 85% renewal next May and we're very much looking forward to some savings when it comes around!
We bought a Renault Zoe brand new - While I was keen on something used and traditional and suggested several Golfs, Minis, Fiestas and DS3s, my partner (who thus far has taken the bus or cycled to work) was insistent on an electric vehicle and this fit the bill nicely. Monthly payments were well within our reach so it wasn't an issue.
I think you may have mistaken the aim of my question. We're not short of cash, we're looking for the best or most reasonable way of paying down existing (but manageable) debts with the extra income.
So it's between the potential loan for the PCP car, the mortgage or the car loan.
Mortgages usually have favourable overpayment facilities. Personal loans may not.
Assuming you'll need a loan to buy the PCP car? Do you have sufficient personal loan credit left or will you need to finance the car?
I'd be staying liquid until you know what you're doing with the PCP car but pay an extra hundred on the mortgage.
Mortgages usually have favourable overpayment facilities. Personal loans may not.
Assuming you'll need a loan to buy the PCP car? Do you have sufficient personal loan credit left or will you need to finance the car?
I'd be staying liquid until you know what you're doing with the PCP car but pay an extra hundred on the mortgage.
Normally, I would always advise to pay off the one costing you more in interest first but as has been said above you would actually be better off in this instance paying the mortgage off to get the LTV down and then getting a much better deal on the interest rate which would save you more in the long run.
At that point then I would go back to the higher interest items.
At that point then I would go back to the higher interest items.
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