What is the best way to handle this debt? Can’t believe I’m here again.

[endlessdebt]

I finally got completely debt free in January. I’m bloody back in it already.

My car got written off. I urgently needed a new one, I knew what car I wanted, I’d driven a shit box for years so I said I’ll get the car I wanted and suck up a small monthly payment.

I now have the car, but I also now have a loan and some credit card debt.

• The loan is £4802.50 at £80 a month until 2031 and the cost to settle in full today is £3807.36

• The credit card is at £2400 and is interest free until October 2027

I have £2200 settlement coming in for my written off car, I also have a one off payment of £5000 coming in October, but I also plan to buy next year and need to get my savings up.

Option A: Pay £2200 off the loan, which will reduce the monthly payment to only £38 a month. I then pay £100 a month off the credit card, settling the full balance in October with the £5k, and put the remainder in savings. I will hopefully save £150 a month during this time if I can.

Option B: Pay the credit card off in full, continue paying the loan at £80 a month and just treat it like car finance. Keep the full £5k as house savings. I will try and save £150 a month during this time too.

My tax and insurance are £40 a month total cheaper, and this car is much cheaper to run so the £80 a monthly is technically ‘covered’. I won’t really notice the £80 a month, and I won’t be panicking about a nearly maxed credit card, this is the option I keep thinking makes most sense. But realistically the credit card is interest free so is this silly?

I’m a bit traumatised by debt so I want outside opinions.

To add, my savings are currently £0 as I’ve been aggressively paying off debt for years. My boyfriend also has no savings but has recently paid off all of his debt. We both have good credit scores, we earn £55k a year combined and he is getting a £35k inheritance which is our house deposit really, I just wanted to save up a contribution.

The car was good value, should be reliable unless extreme bad luck and would likely sell for £5k if needed to sell in next couple of years so it isn’t ’lost money’

Option B would be my preference.

Option B

No advice from me, just bumping a bit.

And solidarity- I hate it when an insured car gets written off, and the value just isn’t realistic. When you have a functioning, reliable car with reasonable tyres and up to date servicing, mot etc, the payout is nowhere near the value of the car. My last would have done years more, had it not been crushed 😒

I’d also say b but also I think perhaps you need to calm down about being debt free, you needed a car, things come up, that’s life- I’ve never underestimate experts saying don’t worry about savings until you’ve gotten rid of debts- things break, shit happens, I think better to have a cushion than be debt free!

Very frustrating! Can buy same car online with same mileage for £3200 and they won’t budge on their £2200 offer, I’ve haggled that up from £1700. I had to get back on the road straight away, so I looked at market value car and expected around £3k and thought I could pay more off all of this so I’m a bit more worried now I would have otherwise been. 😭

I have to keep reminding myself it’s all affordable it’s just not ideal. It isn’t that I can’t afford all of this it’s just that I can’t believe I’m in bloody debt again.

It’s one of the few things worth carrying debt for, let’s face it. It facilitates saving money in other ways- earning, cheaper shopping etc.

Try not to panic, like you said it's affordable even if not ideal. Financially it would make most sense to pay off whichever has the highest interest rate first so if it were me I'd probably got for an option c
Put the 2.2k on the car loan and then pay it off in full in October. minimum repayment on the 0% credit card and open the highest interest savings account I could - take a look at money saving expert for comparisons. If you can afford a set amount each month and not touch it for a year you can get up to 7% interest, if you want the safety net of being able to access at any time chase is offering 4.5% with no minimum or maximum monthly deposit. The rest of the money in October either goes on paying off the credit card if you're looking at applying for a mortgage soon or goes in savings ready for a rainy day/paying of the credit card when the 0% ends.

In terms of purchasing a property, the car loan would look better on the application than credit card debt.

Also the affordability will be more affected by the credit card than the loan.

So I'd prioritise paying off the credit card and leave the loan alone.

If you weren't buying the advice would be the other way round but you've got to play the mortgage game.

£2400 on a credit card since this January?

I had a free money transfer offer that was interest free until October 2027 so I did that so I could take out a smaller loan, but now I feel more uneasy for some reason about such a high credit card balance even if interest free as opposed to an affordable loan.

Option B a car loan or finance is inevitable really unless you’re able to buy outright.

You shouldn't accept the first offer they give for your written off car. You can, and should, haggle. You need to go in armed with data, i.e. prices of comparable/similar cars per Auto Trader, internet, local garages etc. You can also expect a higher value if, say, yours is lower mileage, full service history, immaculate condition, recent new tyres, recent timing belt, etc etc. The insurance firm should be giving you enough money to basically buy your old car again - or as near as possible. Make sure you have plenty of evidence, i.e. invoices from the garage to prove recent new tyres or exhaust, or timing belt, or whatever, latest MOT screenshot (though the insurance firm already have access to that), photos showing the condition it's in (inside and out showing immaculate condition!) etc. It's a misconception that the insurance firm only have to give the PX value - that's completely wrong, they have to give open market value i.e. equivalent money so you could buy an identical car, same age, condition, etc. Don't let them get away with it.

When our old car was written off, we ended up with more than double their initial offer and I think I could probably have got them even higher. The "We buy any car" value was £900 and that's what they offered. I ended up with £2,200 as I provided them with a few online adverts showing the nearest I could find (mileage, condition, age etc) being typically £2,000 and mine was in better condition and lower mileage than the ones I could find.

Did you show them the advert showing £3200?? I think you should have raised a formal complaint about their low-balling the valuation. But, I do appreciate you were in a pressurised situation and time was short!

Ok slow down.
Breathe

I'm sorry your car has been written off, it's pushes you into making quicker decisions than you might otherwise.

If you don't think the payment for the car is fair you can take it to the financial ombudsman. List the prices for the you have seen for sale, a comparison of the conditions and if you can compare the MOT histories. Our car had had some advisories on its previous MOT and they scored us down for that. We argued they weren't reflective of poor care and they increased the offer by £400 at the time. Our car was written off in 2020 but last year we had a letter saying they had revised our offer and paid us an extra £800+ interest. I assume the ombudsman had got involved in someone else case and discovered under valuing as a standard response. If you put your previous car reg into a car insurance comparison site or we buy any car type site what comes back as the estimated value?

As for what is the right thing, a few extra details might be helpful.

If I have followed your post correctly.
The direct situation is.
You split the cost of the new car between the new credit card and a personal loan.
You had to act before the settlement from the written off car so you are awaiting the insurance pay out and your questioning is about the use of this money.

In the context of recently getting debt free, potential money coming in later in the year and wanting to buy a house next year.

You are worried about debt but also the lack of savings and resilience.

The loan / credit card combo sounds like a rationale decision. What is the interest rate of the loan and how much of an impact does it have on your day to day finances. If the interest rate isn't extortionate and the £80 is affordable. I wouldn't over pay the loan at the moment.

You say the monthly cost of the insurance has gone up, are you paying the insurance monthly or do you pay it annually? The interest they charge you on this would probably be more than you are paying on your loan and credit card if you are paying monthly.

I think I would be inclined to pay £1200 off the credit card with the payout, put the other £1000 in a savings account to have as a buffer and use the £150 you plan on saving each month to pay off the remainder of the credit card in 9 months.

Keeping some for savings and building some resilience for when things crop up I think will give you some confidence back that you can manage life without debt. From a mortgage perspective, needing a new car after yours was written off and I have a plan to pay off the debt looks like planning. If you pay off all the debts and then something else comes up that requires further debt makes it look like you are on a cycle of relying on debt to get you out of sticky situations. As the credit card is 0% you have that little bit of flex in paying it off now versus in a few months as the time isn't costing you money.

Pay you debt in order of highest to lowest interest rate.

Also consider what interest you can get on that money in a savings account. For example, I just opened a 6 month regular saver that is giving 7.5%.
I drip feed money into here and only pay minimum off my interest free credit cards. If the savings rate is higher than the cost of debt, pay contractual payments on the debt and save.

I wouldn't throw all your money at debt that is interest free until next year. Whilst it may feel psychologically safer, financially it isn't efficient and you're not in a very strong financial position. You need to maximise what your money is doing for you.

Then to psychologically make yourself feel safer, create a spreadsheet showing how your net worth changes month on month. Your debt will decrease (no interest being added, and some payments being made) and your savings will increase (new savings and interest being added). Your savings should increase at a higher rate than the debt if you have set things up in the right way. This will then give you the psychological boost that your financial situation is improving.

Do not beat yourself up OP . Car payment is an OK firm of debt . Very few people can buy a newish car for cash . Once you are servicing the debt regularly you are on the right path. You seem very savvy which is great and are keeping on eye on things . These days with needing such a large deposit it is hard to juggle everything. And you do need to have some enjoyment in your life .

First, complain to the insurer about the value - they should use several guides and ensure they pay the highest value they can (they are generally tied to the guides but regulator expects them to pay towards the higher end).

As for your debts, I’d pay the cc first then concentrate on savings (this was the advice we were given when buying a house a few years ago).

Thanks all! Appreciate the opinions