Pay off credit card or loan first?
Discussion
Currently owe just under £4600 on a loan - interest rate about 4%. I am almost past the 3 year mark out of 5 with 26 months remaining.
I also owe just under £2200 on a card. 0% interest. However, I've had the card a while and anticipate that the 0% deal will end sometime between Summer 2019 or around this time next year... I can't be sure because I've had these deals before and they sometimes pull the deal earlier than expected.
Most advice states to pay off the one with the highest rate first. However, if I have to transfer the balance then I'm going to be stung for another 4% BTF.
Also there is the thought that having more available balance on a 0% card is essentially my emergency fund, although I don't anticipate any emergencies - especially as I now no longer own a car and rent so anything that goes wrong with the house isn't going to affect me.
I can pay off £1400 off either the card or loan this month.
So should I just go ahead and attack the loan as per usual advice or just pay off the CC to avoid potentially having to switch next year?
I also owe just under £2200 on a card. 0% interest. However, I've had the card a while and anticipate that the 0% deal will end sometime between Summer 2019 or around this time next year... I can't be sure because I've had these deals before and they sometimes pull the deal earlier than expected.
Most advice states to pay off the one with the highest rate first. However, if I have to transfer the balance then I'm going to be stung for another 4% BTF.
Also there is the thought that having more available balance on a 0% card is essentially my emergency fund, although I don't anticipate any emergencies - especially as I now no longer own a car and rent so anything that goes wrong with the house isn't going to affect me.
I can pay off £1400 off either the card or loan this month.
So should I just go ahead and attack the loan as per usual advice or just pay off the CC to avoid potentially having to switch next year?
I paid off a loan a bit early before but it didn't save much in interest payments due to the way the interest was collected, Higher proportion in the early stages reducing as the term went on.
I would just clear the CC in your shoes I think, saves dealing with applying for new cards / transferring the balance.
I would just clear the CC in your shoes I think, saves dealing with applying for new cards / transferring the balance.
Yep I've noticed that all the interest has been front loaded on my loan... so it looks as though I'll have about £200 interest left on the total remaining sum on the loan... it'll cost about £80 or so to transfer the balance.
The other thing is, not that it matters too much, is if I clear the loan that saves £183 a month in payments, the min payment on the card is £25... At the end of the day they've both got to be paid off somehow...
The other thing is, not that it matters too much, is if I clear the loan that saves £183 a month in payments, the min payment on the card is £25... At the end of the day they've both got to be paid off somehow...
I think I'd take a slightly different approach. I'd keep the cash as the emergency fund (rather than remaining credit card limit) and keep paying them off. You can always use it as a lump payment later on if you change your mind and it can earn its little bit of interest in the meantime.
Do you think you'll be able to pay the credit card off before interest is charged without using this cash for it?
Do you think you'll be able to pay the credit card off before interest is charged without using this cash for it?
Jimmy Recard said:
Do you think you'll be able to pay the credit card off before interest is charged without using this cash for it?
Would be difficult I think - probably not.My fear is also that if I did that I might end up dipping into it. If it's not there, I'm likely to be a bit more disciplined.
Its quite a tough call. The credit card debt is arguably the higher risk as its terms are not set in stone for the duration and as you say, can change at any time and cars rates tend to be punitive so from that aspect clearing the card debt makes the most sense as it is the element that has the potential to do the most damage.
The flip side is that credit cards are designed to continuously and endlessly spend money that you don’t have. So long as you have a credit card in your wallet there will be a company continuously enticing you to spend and to pay them fees. So you need to have an honest and true understanding of yourself and whether you are the sort of person who can live with a credit card in your wallet and never use it or whether you are the sort of person who will talk yourself into buying things you don’t need because you have a card that will allow this?
Credit cards are hugely beneficial to non spenders because of their flexibility, zero cost and securities but hugely toxic to spenders, people who lack self control and are prone to excess consumption.
It sounds weird but for quite a lot of people it is cheaper to run a balance on a credit card than to not as they are incapable of not using a credit card to go spending and only stop when a certain amount of debt is loaded up and acting as a level of fear and restraint to stop spending. For some, if they pay off their card debt they will just end up going spending again until their card goes back up to that controlling debt limit so while they may avoid fees for a short while they’ve blown thousands.
With credit cards you really do need to know who you are and be honest with yourself in this regard to know what the true course of action should be.
The flip side is that credit cards are designed to continuously and endlessly spend money that you don’t have. So long as you have a credit card in your wallet there will be a company continuously enticing you to spend and to pay them fees. So you need to have an honest and true understanding of yourself and whether you are the sort of person who can live with a credit card in your wallet and never use it or whether you are the sort of person who will talk yourself into buying things you don’t need because you have a card that will allow this?
Credit cards are hugely beneficial to non spenders because of their flexibility, zero cost and securities but hugely toxic to spenders, people who lack self control and are prone to excess consumption.
It sounds weird but for quite a lot of people it is cheaper to run a balance on a credit card than to not as they are incapable of not using a credit card to go spending and only stop when a certain amount of debt is loaded up and acting as a level of fear and restraint to stop spending. For some, if they pay off their card debt they will just end up going spending again until their card goes back up to that controlling debt limit so while they may avoid fees for a short while they’ve blown thousands.
With credit cards you really do need to know who you are and be honest with yourself in this regard to know what the true course of action should be.
Interesting ^ thanks for that post... 
I believe that I am disciplined enough not to keep spending on it although that hasn't been the case in the past (obviously!), but I am certainly aware of some of the benefits (i.e. protection) you get with using a card, plus it's supposed to be good for the credit rating.
It does sound from what you're saying it might be better to concentrate on the card first, which if I'm honest, was my gut instinct despite most advice stating to always pay off the highest interest first, but in this case, there's not much interest left to be paid by the looks of it.
I believe that I am disciplined enough not to keep spending on it although that hasn't been the case in the past (obviously!), but I am certainly aware of some of the benefits (i.e. protection) you get with using a card, plus it's supposed to be good for the credit rating.
It does sound from what you're saying it might be better to concentrate on the card first, which if I'm honest, was my gut instinct despite most advice stating to always pay off the highest interest first, but in this case, there's not much interest left to be paid by the looks of it.
Gassing Station | Finance | Top of Page | What's New | My Stuff