What should I pay back?

C

colly

Registered User
Messages
184
I had to take out a temporary loan there - I have about 20k borrowed for my car, but when I bought it I still hadn't sold my other one so I had to get a top-up of 6k to secure the deal. I have now sold my other car and have the 6k in cash. I was just going to pay it straight back, however I have a pretty large credit card bill of 6k and I though maybe instead of paying interesest on it, maybe I should pay the credit card off, then just up the repayments on my loan and try to get it cleared as soon as I can. Currently its a 4 year term but I'd like to get rid of it quicker if possible.

I'm not happy with the amount that I am now in debt but I can;t see myself needing to borrow any more any time soon and I haev just got a better job so can afford bigger repayments. So, is it a good idea to use a loan to pay off a credit card, or is that generally a big no-no?
Cheers
Colly
 
colly said:
So, is it a good idea to use a loan to pay off a credit card, or is that generally a big no-no?
Cheers
Colly
Click to expand...

Generally it is better to pay off higher interest rate debt first so you probably should pay off the credit card (assuming the rate is higher on it) especially since you are intending to accelerate payments on the other loan just check you can do this without incurring penalties as this could change things (e.g. if the loan is fixed rate there could be penalties for repaying early).
 
In pure financial terms, you are probably paying higher interest on your credit card than on your car loan. As a general rule, you should pay off the highest interest loan first. Check the APR rates to be certain on this. The danger is that you will start letting your credit card bills run up again, so you'll need to discipline yourself to avoid this scenario.

Also, note that if your car loan is a fixed rate loan, you may not be permitted to make lump sum repayments.
 
It's actually a personal loan for a car, so I think I should be ok...

You are correct I'll have to be more strict with Credit card use. Dangerous little buggers they are. MBNA are also due a phone call for constantly upping my credit limit. It has just gone to 10k without me asking, completely ridiculous! I'm going to get it put back down to 2k.
 
You would definietly be better paying off the credit card loan as interest can be double the car loan.
 
You must log in or register to reply here.
Back
Top