Which debt first?

[DazedAndConfuz]

I’ll try and keep this short
My monthly take home pay is about £2,300
I have a loan of £7k and pay £327 on it

I also have a pcp car loan that I pay £233 on and a credit card debt of £2,500
I’ve had some unusually high expenses for house repairs recently as well as not keeping a tight grip on my spending

The thing is I have a pot of £6.25k which is enough to settle the car (from the 7k loan actually) but should I settle the car now, it saves about £250 or pay off my credit card with the money and then save for January when the final payment is due.

On paper it should be pay off the car but I’m worried about the credit card debt spiralling

I really need advice and suggestions please

General advice would be to pay off the debt with the highest interest rate first.

What are the different interest rates on your debts?

Credit card first. Always, as it’s the highest. Or you can look around trying to move your credit card debt to a different provider to take an interest free holiday if there are any offers. Check out money advice websites and compare rates.

Well the credit card is 18.9% on £1.5k and 0% on £1k though that £1.5 has to come off first I guess

The car is pcp so it’s a fixed payment I think the interest is paid up front so I think the settlement figure is about £250 less than payments and final settlement. (I’m not sure of the interest rate now but thought it was 3%)

Thank you for taking the time to help it does clear the mind. I’ve been reading the debt thread and it’s inspiring…. Old houses 🤦🏻‍♀️

I think from reading I should maybe pay off the credit card and save like crazy for the January payment as I’ll be about £2k short

Dave Ramsay method would be to pay off the smallest debt first (snowball method), while keeping £1,000 of your savings back for emergencies so you don't go back into debt when something else happens. He figures debt is psychological so getting some momentum will help you make faster progress overall.
You could do that or you might prefer the avalanche method where you pay off the highest interest amount first. Martin Lewis's website says both methods are great, just depends on your personality which will motivate you more.
Ether way you then apply the payment you were making to whatever you paid off to the others to get the whole lot done quicker. Good luck!

Why did you take a loan if you just have the cash sitting there?

@iloverunningslow
Thanks yes I have been paying off smaller debts and consolidating others onto the one credit card in the last few days, I just had so many payments going out - I’ve had my head in the sand I think but your advice is really helpful - I think I’d be better at saving for something than worrying about the money I haven’t got

@MadeForThis
The loan money was for the final car payment, it wasn’t sitting there til I took the loan but I’ve now extra debt that I didn’t budget for on credit cards

…and as for why I’m in debt? Hopeless with money and not very clever is the reason :(

Of you took out the loan to use to clear debts then use it to pay the most expensive debt first. Whatever credit card has high interest.

Pay off the highest interest debt first. Make it a priority and focus on the relief of getting debt free. There's lots of inspiration in the debt free community on Instagram which can help you staying motivated.

And don't take up any more debt!

Good luck - you can do this!!

Cut the card up first
Then switch to a zero % card
Then as others have said pay of the highest interest first or the mallets and snowball

But leaving savings that are doing nothing whilst it’s costing you money to have debts us a waste of money

Make a spread sheet for all your in comings and outgoings

Sell anything you don’t need and use to pay if the debts

Do no spend weeks where you don’t open your purse or go shopping from Saturday to Saturday

If the loan was taken out to pay off the car do that. My reasoning is that you’ve taken out debt to satisfy another debt which is never good. If it’s not used for it’s intended purpose you may have to take out more debt to satisfy it.
Then throw everything at the high interest part of the credit card. Then move onto the loan.

I would get rid of the credit card first, keeping some money as an emergency fund. You need to break the cycle of using debt, so by clearing the credit card you can then use a debit card when you buy things you can afford.

The loans are fixed amounts, so they will keep ticking over. Build up an amount in a separate savings account to your current account, then when the value in the savings account equals the amount outstanding on the loan, contact the loan provider for a settlement figure. I would pay those off in order of size, smallest first.

I'm not understanding why you have a loan and PCP if the loan was to pay off the car. What was the loan money used for?

What are your options for getting rid of the car? Can you survive without one? Are there any financial penalties for handing it back? Check your terms and conditions and any rights you have.

If you need a car use a small amount of loan to buy a much, much cheaper car. Then pay as much of the loan back as possible - check what's possible.

Then move your CC debt into interest free cards and aggressively pay it off.

If you've paid more than 50% of the PCP you can terminate the contract

www.autocar.co.uk/car-news/features/secret-way-escape-your-pcp-agreement

So actually terminate the PCP, keep the loan. Pay of the £2,500 on the CC which leaves you £4,000 to buy a decent car to replace the one you've handed back.

This would mean you only had the monthly cost of the loan to worry about.

If you spent less on a car, say £3,000, you could keep £1,000 as your emergency fund so that you can avoid using credit cards again.

PCP isn't a loan, it's hiring a car. Think of it like renting.

The car is beyond your budget if you are having to take out big loans or pay more than 10% of your income on it (Inc parking/ repairs/ insurance/ petrol).

Ditch the car.

Use the £7k to pay off all other debts, buy a cheaper car outright and leave an emergency fund.

What will be the consequences of not being able to pay off the car loan in January? Will you need another loan? That would not help you trying to get out of this mess.

I like the debt snow ball method and follow a few people on instagram that help with becoming debt free especially @charlottelookingafteryourpennies @financielle and @thriftylondoner

I find them really inspiring!

How much do you owe for the car? Do you have enough to clear the credit car and pay a chunk off the car, doing this will recalculate your monthly car payments which should bring that payment down a bit

So, if I read your updates correctly, you owe 2.5k credit car and a final payment of 2k car, and have 6.25k left from the loan.

Pay both the credit card and and car off, this will leave some money for a rainy ay fund, And only a monthly loan to pay off. Cut up the credit card so you don't use it and build up debt again. Only spend disposable money left after paying all your bills