Clearing debt - what goes first?
Discussion
Hi - no judgements please!
I have around £18500 of debt of which I am (just) keeping my head above water. The debt is as follows
£5493 (left on a) loan, 3 years left, £182 a month
£4750 (left on a) loan, 3 years left, £160 a month
£2700 cc, £56 a month
£2400 c, £78 a month
£1700 cc £79 a month
£1000 cc £44 a month
I have a pension coming in August, £25k lump sum and around £550 a month income. I can increase the lump sum but would prefer not to at the expense of the monthly amount. However, (and dont ask, cant get round it) £10k will be going on a car and £5k to a relative. So leaving £15k to play with, although as I say this could be increased.
Where do I start - initially thought of clearing the loans first as they would give me an extra £340 a month income, but now I'm thinking clear the cards first? Is it worth taking a £33k lumper to clear all debt (but obviously leaving me with a much reduced pension)??
Any advice much appreciated
Ian
I have around £18500 of debt of which I am (just) keeping my head above water. The debt is as follows
£5493 (left on a) loan, 3 years left, £182 a month
£4750 (left on a) loan, 3 years left, £160 a month
£2700 cc, £56 a month
£2400 c, £78 a month
£1700 cc £79 a month
£1000 cc £44 a month
I have a pension coming in August, £25k lump sum and around £550 a month income. I can increase the lump sum but would prefer not to at the expense of the monthly amount. However, (and dont ask, cant get round it) £10k will be going on a car and £5k to a relative. So leaving £15k to play with, although as I say this could be increased.
Where do I start - initially thought of clearing the loans first as they would give me an extra £340 a month income, but now I'm thinking clear the cards first? Is it worth taking a £33k lumper to clear all debt (but obviously leaving me with a much reduced pension)??
Any advice much appreciated
Ian
You haven't stated interest rates which is normally a decider. Have a Google of Martin Lewis Snowball method. Although there's a lot to be said for the psychological boost of closing cards/accounts and it's this reason many people start clearing off the smaller balances first to give them momentum into the bigger ones (i.e the loans)
This is Piston heads after all so I'm not going to try and talk you out of dropping £10k on a car, however with your levels of debt I'd ask what is it you're planning on getting? If it's something classic, sporty or desirable that's going to hold its value or appreciate then fair enough, however if you're looking to get into a five figure repmobile or mundane SUV that will depreciate into shed territory in a few years I'd reconsider whether that's the best use of your £10k
This is Piston heads after all so I'm not going to try and talk you out of dropping £10k on a car, however with your levels of debt I'd ask what is it you're planning on getting? If it's something classic, sporty or desirable that's going to hold its value or appreciate then fair enough, however if you're looking to get into a five figure repmobile or mundane SUV that will depreciate into shed territory in a few years I'd reconsider whether that's the best use of your £10k
Interest rates now there but I'll have a look at Martin Lewis, thanks.
The car will not be desirable lol, it will probably be exactly what you hoped it wouldn't, a bland SUV type thingy! Basically, my very old car is about to give up the ghost, need a small family car but only do around 6k a year (cycle to work instead). However, for reasons I dont really want to get into I'll be spending between £8k-£10k on the car - unless..is it better to use this £10k to help clear all the existing debt and buy a car on finance? You can probably tell by my initial question finances are not my strong suit!!
The car will not be desirable lol, it will probably be exactly what you hoped it wouldn't, a bland SUV type thingy! Basically, my very old car is about to give up the ghost, need a small family car but only do around 6k a year (cycle to work instead). However, for reasons I dont really want to get into I'll be spending between £8k-£10k on the car - unless..is it better to use this £10k to help clear all the existing debt and buy a car on finance? You can probably tell by my initial question finances are not my strong suit!!
Always highest rate credit first so in this case the credit cards.
It might be possible to swap to one to a 0% deal - use Experian free account to check your credit rating / check what you may be approved for rather than randomly trying as you have a number of cards already. BUT - as you’re trying to reduce monthly outgoings I’d be wary of potentially prolonging use of them.
Clearing the cards frees up £257 per month.
Would avoid were possible taking a higher lump sum and reducing the pension as once that’s done there’s no going back.
See if you can make additional payments off the remaining loan with the cash that’s freed up each month.
It might be possible to swap to one to a 0% deal - use Experian free account to check your credit rating / check what you may be approved for rather than randomly trying as you have a number of cards already. BUT - as you’re trying to reduce monthly outgoings I’d be wary of potentially prolonging use of them.
Clearing the cards frees up £257 per month.
Would avoid were possible taking a higher lump sum and reducing the pension as once that’s done there’s no going back.
See if you can make additional payments off the remaining loan with the cash that’s freed up each month.
Curious how you said you’d have a 25K lump sum, with 10K going on a car, 5K to a relative, leaving 15K….
Leaves 10K, no?
As other say: check rates, pay highest interest rates first.
Maybe the rat could be consolidated to one lower cost loan.
Are those loans with a major bank?
If so, I’d consider speaking with them for their help and advice: it would be in both your interests to get the rate down if possible, with one lender (them!!)
Can citizens advice help too?
Could also post this on MSE forums for more help.
Leaves 10K, no?
As other say: check rates, pay highest interest rates first.
Maybe the rat could be consolidated to one lower cost loan.
Are those loans with a major bank?
If so, I’d consider speaking with them for their help and advice: it would be in both your interests to get the rate down if possible, with one lender (them!!)
Can citizens advice help too?
Could also post this on MSE forums for more help.
See if you can borrow more on the lowest rate loan at the original rate. Quite possibly very unlikely but it's worth a shot.
Get the CC debt gone first.
Also, make sure you have a DD for the minimum payment on the CCs setup. No danger of getting hassle for missed payments then.
The important thing. Cut up your Credit Cards.... (except one for online payments and emergencies) and stop buying things online.
To manage your money, and it's a little long winded, Work out what you can afford to pay off each month. Set up another account and move that amount to the new account within a few days of getting paid.
That way you know the cash you have in your main account is all you have to spend.
Get the CC debt gone first.
Also, make sure you have a DD for the minimum payment on the CCs setup. No danger of getting hassle for missed payments then.
The important thing. Cut up your Credit Cards.... (except one for online payments and emergencies) and stop buying things online.
To manage your money, and it's a little long winded, Work out what you can afford to pay off each month. Set up another account and move that amount to the new account within a few days of getting paid.
That way you know the cash you have in your main account is all you have to spend.
I make that £18K of debt being serviced at £599/month.
Very easy for me to say this but if you can get that paid off I imagine it will feel like a weight has lifted.
Can you either make do with a much cheaper older car or wait a few months to save back up from a mix of your new income and the free up cash that you won't be paying out to service the debt?
Very easy for me to say this but if you can get that paid off I imagine it will feel like a weight has lifted.
Can you either make do with a much cheaper older car or wait a few months to save back up from a mix of your new income and the free up cash that you won't be paying out to service the debt?
Yes, this would be my ideal, the relief would be fantastic.
I'm not bothered about an expensive (to me) car, had £2-£3k cars for ages. I cannot go into the details on the 'net though, and I am expected to get a "decent" car. May be a bit of wiggle room, erghh its so hard to explain, without explaining it lol
I'm not bothered about an expensive (to me) car, had £2-£3k cars for ages. I cannot go into the details on the 'net though, and I am expected to get a "decent" car. May be a bit of wiggle room, erghh its so hard to explain, without explaining it lol
As others have said, clear the cards first then cut them all up/cancel them.
It will cost you £7.8k to clear the credit cards leaving you £2.2k from your £10k lump sum and saving you £257 a month in payments.
Shop around for a decent savings account for the £2.2k and add the CC payment savings of £257 every month on a standing order.
£257 x 12 = £3084
£3084 + £2.2k = £5284 which will cover your biggest loan as you will have reduced the loan by another years payments.
£257(CC payments) + £182(big loan payments) = £439
Save the £439 for ten months and you can clear the smallest loan too. Obviously the amounts on the loans will be a bit lower due to monthly repayments so you can pay them off slightly quicker but you get the general idea.
Once you're debt free try to get into the habit of saving on a regular basis
It will cost you £7.8k to clear the credit cards leaving you £2.2k from your £10k lump sum and saving you £257 a month in payments.
Shop around for a decent savings account for the £2.2k and add the CC payment savings of £257 every month on a standing order.
£257 x 12 = £3084
£3084 + £2.2k = £5284 which will cover your biggest loan as you will have reduced the loan by another years payments.
£257(CC payments) + £182(big loan payments) = £439
Save the £439 for ten months and you can clear the smallest loan too. Obviously the amounts on the loans will be a bit lower due to monthly repayments so you can pay them off slightly quicker but you get the general idea.
Once you're debt free try to get into the habit of saving on a regular basis
Sign up to a free credit score check would be the 1st thing I’d do.
See if there’s any offers showing you pre accepted on a new cc with long 0% finance on balance transfer offer.
If there is great get that and transfer all the credit cards, pay the loans off.
If there’s nothing, then pay all the cards and as much as the loans as you can.
10k cars really not a necessity if you have this much debt, come on man, have a word with yourself. Expected…..by who? If it’s anyone worth bothering about explain your position and they will understand why you are in no position to splurge 10k on a car.
See if there’s any offers showing you pre accepted on a new cc with long 0% finance on balance transfer offer.
If there is great get that and transfer all the credit cards, pay the loans off.
If there’s nothing, then pay all the cards and as much as the loans as you can.
10k cars really not a necessity if you have this much debt, come on man, have a word with yourself. Expected…..by who? If it’s anyone worth bothering about explain your position and they will understand why you are in no position to splurge 10k on a car.
Tango - that's just absolutely brilliant, thanks so much for that, seems a great plan and its definitely something I will take a look at, appreciate that so much :-)
Edible, urghh, I know, expected was maybe the wrong word, have discussed many times my finances but the least I can get away with is £8k. I know this sounds bizarre, honestly I do...
Edible, urghh, I know, expected was maybe the wrong word, have discussed many times my finances but the least I can get away with is £8k. I know this sounds bizarre, honestly I do...
Ok not prying your business is yours.
Could you not disguise a car of 4k value as an 8k one will anyone ever know the difference
Paying the debt down would be my priority. Heck without the debt to service each month and the extra cash realised you’d be able to get into a 8k car within 7months of saving.
Could you not disguise a car of 4k value as an 8k one will anyone ever know the difference
Paying the debt down would be my priority. Heck without the debt to service each month and the extra cash realised you’d be able to get into a 8k car within 7months of saving.
cgx said:
I'm not bothered about an expensive (to me) car, had £2-£3k cars for ages. I cannot go into the details on the 'net though, and I am expected to get a "decent" car. May be a bit of wiggle room, erghh its so hard to explain, without explaining it lol
Let me guessThe wife has got fed up with driving around in sheds and insists you get something ‘decent’?
Am I warm?
Gassing Station | Finance | Top of Page | What's New | My Stuff