More like £3,000.
:smack:
This. In my mind, there isn’t even a debate here.
Someone upthread mentioned that it’s sometimes better to be in debt than to clear out your savings account. This might be true if you were paying a reasonable interest rate, but this doesn’t apply in your case.
Goodness! Pay that sucker off and then take those payments you were paying and build your savings account back up.
You don’t even need to understand compound interest in this case. Just add up the interest you’re paying per year!
If you’re paying 25 a month on a debt of 1000, that’s 25*12 = 300, which is 30% a year. In actuality, you’re paying more than 30%, since as soon as you start paying off the debt, the principle is lower than 1000. Knowing how compound interest works lets you know exactly how much more than 30%, but it doesn’t really matter if you’re paying 31% or 33%… they’re all absolutely terrible interest rates.