Which debt to tackle first

[Hollyrose164]

Hi

So I know there are a few ways to decide which debt to tackle first, generally either highest interest first or lowest to highest. However I have 1 loan and 2 credit cards, one low interest loan around 3% and 2 credit cards both currently 0% with around 12-18months left on the 0% promotional rate before I would need to balance transfer to another 0% card. Not huge differences in balances either. So asking which most people would start paying an extra £120-£150 per month towards or should I save that amount as I currently have no savings

Loan - £5500 remaining, £220 payment around 2 years left 3% interest
Credit card 1- £5500 remaining , £215 minimum payment 0% interest
Credit card 2 -;£4000 remaining, £40 minimum payment 0% interest

No savings

Wondering what other people would do and why?

Thanks

The loan would be the one to tackle first but check if there are any early repayment fees.
Credit cards would be the next to tackle.
How restrained are you? There are savings accounts offering more in interest in savings than you are paying in interest so you could put some money in a savings account and then periodically pay off more off the debts. If there is any risk that you would spend it what you gain in the interest wouldn't be worth it so it would be better to just pay it straight off the credit cards or loan.

For the two credit cards I would focus on clearing the card with the higher minimum charges first. If you can clear that one quicker the payments you are obligated to make would be smaller and would give you a bit more breathing room should your circumstances change for the worse.

The other thing to be mindful of is the circumstances that led to the debts being accrued and working on protecting yourself against it happening again if possible.

You need some savings IF you’re disciplined enough not to fritter it away. Ie save £150 per month as soon as you get paid into a high interest account (should be higher than the 3% cost of your loan to make sense). Then when the credit cards 0% period expires or you have enough to I pay off the loan entirely or you have a true emergency you reassess your options and use your savings wisely.

if you cannot be trusted and think a true emergency is ‘I’m really tired and I need take away every evening for a month’ or ‘I really need that £200 dress for an event’ then you should pay off the loan!

Thanks both for food for thought
I have found a 3.75% savings account that allows a few withdrawals a year if needed.
I would lose interest if I withdraw though so it's an incentive not to take anything out of it
I'm not someone who spends huge amounts of money on things like clothes
The debt has generally been for large costs like car (second hand), new boiler, house expenses which were unavoidable and unexpected
I suppose if I put it in savings account, I might be more tempted to save anything left in my account as well, because I can still access it if desperate, sometimes I worry about putting too much against my debt and then something expensive coming up and I don't want to get out more debt. I think I need to get out of the mindset of wanting to see the debt fall quicker and maybe thinking of debt value as debt-savings as the amount I owe if that makes sense.
It does worry me not having savings

3.75% isn’t great for savings, TBH. Have you looked at the best rates on Money Saving Expert?

If you have discipline not to touch it, I would save that extra debt payoff money in a high interest rate account and dump it into the 0% debts once the 0% period ends (assuming the interest after the 0% period will be above 3%). Definitely make your money work for you in the meantime!

Quite a few banks have high interest accounts that you can only pay in a few hundred a month, which would be ideal for you. This is one I saw recently 6.5% up to £200/month. There are others out there.

https://www.nationwide.co.uk/savings/flex-regular-saver/

Article about them

https://www.moneysavingexpert.com/savings/best-regular-savings-accounts/

I don't think you should be saving whilst in debt. It makes more sense to me to get rid of your debt and then focus on putting money aside each month.

I would save some money until I had at least a couple of months salary , then review . Not saving means taking yet another loan if something goes wrong .

Can you transfer all the credit card onto one card so when the 0% period ends you can transfer it back to the other one?

There are easy access accounts out there at over 4% some close to 5%. A regular saver might be more suitable for you you can get some at 7%, if you have a lump sum the annual interest can be worse than some of the easy access accounts but when you are building up that initial sum they can be good.

If you put £150 into a regular saver for 12 months at 7% you will have saved £1800 and earned £70 in interest.

Over 12 months you would pay off £2580 off the first credit card leaving £2920, if you used the savings at the end of that period this card could be down to £1000!

It sounds like you need to start building in some financial resilience so you get into less debt when you get expensive curve balls! Having a account to filter money from the end of the month into is a good habit to get into, you may as we'd be getting interest on any money left at the end of the month and you are less likely to dip into it.

It might be time to do a deep dive into what you are spending on, we try to do a check through our account every 4-6 months to see if we are still happy with how we our spending our money.

How are your payments currently calculated? Is it a fixed minimum payment or a % of the amount? It's usually advised to fix the minimum payment at the minimum payment at the full balance to help you clear it quicker rather than letting it drop especially as you are already used to that payment coming out. You could round up the payments so pay off £230 and £50 rather than £215 and £40. It's only an extra £25 a month but might be a psychological boost that it's coming down a bit quicker than if on minimum payments whilst still allowing you to save and give you a cushion against life!

How certain are you that a 0% balance transfer will be available in 12 months when you need it. I would pay the cards off first tbh just in case you can't get more 0% and are on the hook for 25% apr.

I would pay the loan first because of the interest.

I think that's a good plan.
I could save for the next 12 months or so and then decide whether to pay a lump sum off one of the debts then before any 0% offers come to an end. Worst case scenario I'll have to do another balance transfer

My credit rating is good, so I don't think I'll be at risk of being unable to get another 0% balance transfer. Obviously these come with a 3% fee when you transfer a balance initially.

Yes I think I need to definitely build in some financial resilience. It has been the fact I've got no savings that's left me needing to get extra debt out when the unexpected happens. I think having a couple thousand in a savings account before looking to overpay my debt is the way to go

In 12 months time if I didn't do any overpayments my debt will be roughly

Loan - £2900
Credit card 1 - £2860
Credit card 2 -£3500

If I could save at least £150 a month that'd be £1800 + interest in savings. If I could push myself to £250 a month that'd be £3000 + interest, which would be enough to get rid of p e of the debts

Looking at maybe reducing grocery bill, not much else I can save on really as pretty careful with my bills and switching providers for cheaper deals etc

I disagree. The OPs debt is costing her 0 to 3% yet saving pays more. She can more than cover the cost of her debt by saving and paying off in lumps later on.

I've been Stoozing (runnjng CC balances offset by savings to profit from the interest) for over 20 years and have never not been able to get a 0% deal and usually not paid a fee or perhaps paid 1%. There's loads of deals available without fees.

For a balance transfer? I do stozing too, but do it with regular spending on a 0% card and pay it off in full once the 0% period ends. I haven’t ever come across 0% balance transfers with no transaction fee for the transfer.

About 7 months on, down to around £11700 down from £15000. Id managed to save about £2000 but unfortunately had an unexpected emergency that wiped the savings out. Luckily managed to pay it with my savings and not go any further in debt, so back to saving my emergency fund again. Luckily going into some cheaper bill months, no council tax or insurance payments etc, so hoping to get back up to £2000 savings again over the next few months.
Felt like a long slog, really hoping I can tackle the debt this year. The loan and credit cards are all down to roughly £4000 each. Credit card 1 is due for interest change from 0% from around September so hoping I can save enough to clear that balance before then which means I can avoid the balance transfer fee and then start saving again to clear as much of credit card 2 before the promotion ends early next year.

Well done on managing to decrease your debts AND save OP. It’s infuriating when you have to dip into the Emergency Fund but thankfully you managed not to go further into debt so try to see it as a win. Keep going 💪 you will get there and it will so be worth it to free that money up every month that was previously paying debts. I am six months away… it’s exhausting and headwrecking but i
I have got to do this…

Thank you, will probably feel a bit better when I've got my little emergency fund built back up, can't stand the thought of the debt going back up again
6 months away from being debt free, you must be able to see the light at the end of the tunnel now, well done, I imagine that'll be a lovely feeling making the last payment