What credit card to pay off?

[IfIhadamilliondollars]

I have a monthly loan of £200 per month which is due to end in November 2010, a mortgage, fixed rate due to end in November 2010, and 3 credit cards.

One of my credit cards is at zero with 0% balance until feb 09 and I have £1200 that I can put on it. I had been paying £60 on to this card per month, and can now put £200 per month onto it until Feb 09, thus paying off the entire £1200, which is why this is possible.

So, what I want to know is what should I pay off?

Credit Card 1: £4000. a 18% interest after low interest period ended. Paying £90 per month to this. If I pay this off the amount would reduce to £2800, and repayments would be around

Credit Card 2: £1200 exactly. 22% interest. Paying £25 per month to this. This card would be cut up and account closed if this is payed off. Would be nice to get rid of this (old student debt). However, for some reason this account does not appear on any of my credit reports. (I am thinking this might mean I should pay off those debts that are accessible by credit reports, for when I come to renegotiate my mortgage, less debt).

Or

Mortgage - reduce this by £1200 to look better when I come to renegotiate my mortgage in 2010. Also, overpayments mean I can access that money in an emergency (i am due my second child in November so that is a possibiity)

or £200 per month towards the loan, which will mean I finish paying 6 months early, thus freeing up £200 per month in Feb 09. I cannot pay the £1200 directly onto it and reduce payments, as it will not allow credit card payments to it, but overpayments to end the term early are allowed.

WWYD? thanks

Sorry, I meant 0% ends feb 2010, not 09.

cc2 - it has highest interest and you should be looking to reduce cc debt ahead of mortgage which is already at much lower rate. Why not save the £1200 in an interest bearing account rather than put on a cc ?

22pc and 18pc are very very high interest rates!! I would attack these two first.

Can you transfer any of the monet of the 18% and 25% cards to something with a better rate of interest?

It sounds like there is a degree of flexibility in your mortgage? Could you use the mortgage to pay off the 18% and 22% credit cards, and then use the £1200 for the mortgage?

LIZS - I had considered saving but I am working hard on getting my credit rating looking as good as I can, so when I come to remortgage, I can get a much more favourable rate, and my credit rating does not take into account savings does it? Also, i do not think I can save as much with the interest as I will save by paying off any debt I have.

Ok tdiddy, so which of the two credit cards would you reduce? On the basis of me trying to improve my credit score as well as reduce the debt, I have considered reducing the CC1 debt but I also like the idea of getting rid of a credit card completely and CC2 is higher interest (but a lower amount). If I did this, in Feb 2010 I will only have one credit card, which is pychologically positive, but it will be a high amount and my credit score will not reflect the amount I have paid off. Does that make sense?

I agree, they are both high interest. They are longstanding debts that I have slowly slowly reduced over the years and am now in a financial position to make a bit dent in them.

bigstripeytiger Oh that sounds complicated! Not necessarily that it won't work, but that its a bit hard to get my head around. Maths has never been my strong point, as is apparant by both the debt I have, and this post! I do not have any accessible collateral right this second in my mortgage to take out first in order to pay off the debts. But it is flexible, as in any overpayments can be 'drawn down'. I would like not to ever do this of course.

I doubt right now that I will get a preferential rate on a CC. I have had missed payments in the last 12 months, had an issue with virgin re an account I closed and they gave me missed payments on my credit score. They have said they will undo this as they admitted liability but it has taken 4 months to sort it so far, so 4 months of missed payments, and it will take them a while to take them off . Also, as I have £4000 plus a loan, plus a mortgage, I am sure they will see I have too much debt already and not trust (with good reason for some people) that I will actually be consolidating).

IfMillions - i would prioritise the economics/interest costs over credit score. Take care of the former and the latter will eventually fall in line. So gor for the higher interst CC IMO.

CC#2 definitely. I reckon you should still try to look for a new deal for the other card too - even a 0% card will be on your credit record, so you can pay it off and show a clean record.

tdiddy You think? High interest first then? perhaps when I get to feb 2010 I can extend/replace my 0% cc, but I am not counting on it, as who knows how the cc companies will act then in terms of what they are offering.

It would be nice though, to get to feb 2010 and have just one credit card.

Medee - I will look for another 0% or low% card, but they won't know yet that I will be paying off the current 0% card. It is currently at £0, although it will show up with credit checks it will be at £0 won't it? So if I search for 0%, I should do it before I transfer the 22% card across?

Why are you looking to remortgage?

IFMillions - can you have a holiday on your mortgage so that you can pay both CC2 and CC1. 18pc interest is CRIMINAL and ought to be your main priority.

Try to get to the stage where you are not reliant on credit other than your mortgage. Crdit is too expensive for you right now and you really shouldn't be borrowing at those rates. If you do that, your credit score will improve over time but until that, you need to get rid of the bloodsuckers.

blowbroth,in an ideal world, I would like to be in a position to buy a house (currently in 2/3 bed flat) in early 2011 and will more likely get a better interest mortgage/higher mortgage with a good credit rating, especially as my income would be a little reduced due to reducing my hours a little with baby number 2.

Even if I am not in a financial position to move to a bigger property, when my fixed rate ends it will go to the mortgage co's standard variable, which is currently at around 4.7%, I would like to be in a position to take advantage of a lower rate, should they exist at the time, and if they do not exist, not be in a position to have a very high rate if they have gone up. I want to be in a position to choose to stay with this mortgage company if it is the best decision, rather than be forced into a position that does not suit me/is more costly.

tdiddy I agree. I assure you i never had those rates when I took them on! But, with Dh losing his job and having DD at a time we had not intended (a little earlier) the paying off quickly never happened (the debts are an accumulation of both crap financial management and student debts, for both of us, so i say i, but i am meaning we). And as these debts are paid off, we will not be having credit to pay for anything again, apart from mortgage.

Once the £200 loan and the ccs are gone, that is going to be £315 per month more for other things (ie a garden for the children) as it stands now, before i do any transfers. That is what I keep reminding myself of when I am tempted to spend even a penny of this on something else.

did you say what your fixed rate is and when it is due to end? Only asking as if that is closish then it might be prudent to reserve a new deal from now. It costs nothing to start the process.

Also, some fix rates are worth redeeming early if the rate is too high.