pay off credit cards or loan first

[bookworm_1]

I have just recieved an endowment cheque for �7000.00 at the moment I have an outstanding loan of �7302.00 and credit cards of �6351.68. I am on working tax credits of �171.00 pounds per month which i asume will cease when the endowment is declared to the inland revenue. I have a pension of �254.00 per month which pays �202.00 to pay the loan and �20.00 mobile phone per month. The credit card payments come to �150.00 per month which takes up the working tax credit income. What is my best option, to pay off the loan and release my pension income or the credit cards, I have savings to make up the deficit to pay the loan.

Any advice would be much appreciated.

[acw]

Right - I'm no financial adviser, but it seems to me that the key here is interest rates.  Check the APR on both and pay off the one with the higher APR.

Also - if one has APR that goes up in chunks, then perhaps paying of enough to owe less than �5000 on one will lower your interest payments on that to free up money to pay the other. 

Check the interest rates and make your decision based on that.  Or contact a debt charity like CCCC here

Good luck!! :-) 

[Sammy Snake]

I would agree with paying off the one with the highest interest rate first.  The question has to be asked though, if you have savings, why haven't you used this money to pay off or reduce your loan and/or credit cards?

The interest earned on your savings will be less than the interest you are paying on your debts so it would make more sense to pay them off.

[kempie]

With regard to your endowment, if it is a maturing policy, i.e. has not been cashed early, it should incur no tax liability and since the Working Tax Credit is assessed on taxable income and not capital you should find that it has no bearing on your eligibility for WTC. However HM Revenue & Customs rules are far more complex than first appear so I may well be proved wrong.

I would also echo that APR is the crux issue with regard to repayment of loans/credit.

[bookworm_1]

Thanks for your replies, my first thought was the credit cards as they incure 10.9% and the loan 8.2%, my only worry was a reduced income if I lost working tax credit. I will look into the rules on working tax credits, just to be sure. I have cashed the endowment early as it was nor performing well at all, and I have managed to pay off the mortgage it was set against. My aim now is to pay off the extra income and settle the loan early.
thanks once again.
Aiobeal

[frugalmummy]

Take a look at Cheapskate Monthly. Think you'll find ita great help.