Graduate overdraft not reducing

Alleycat · 18 September 2005 at 11:45PM

Hi all,

Sorry if this question has been asked before or its the wrong board, but its late, I'm tired and the little munchkin is due to wake up some time soon!

Anyway, I have had a graduate overdraft for 5 years now and although it has been reduced slightly it is stuck at £2850. We have other debts that we have been paying off over the last couple of years, and as this is at a better interest rate, it has kinda been left to its own devises. But now I really want to tackle it and whilst regularly perusing the boards I am (I think) becoming a little more savvy in the world of money saving. After reading about 0% balance transfers, my partner has transferred his two credit cards to Mint, and I was wondering if something similar could be done with an overdraft?

I have had a look at Martin's article about Super Balance Transfers and am wondering if this would be a sensible option for me to consider.

The current monthly interest rate is 1.22% and so around £35 per month. I am unsure if this is relevant, but credit interest is 0.10%.

Since being back at work part-time after maternity leave, we are breaking even with about £100 being saved each month (for our move to London in April next year). I really want this to change and hate having this huge overdraft still hanging round my neck.

Help!! I am getting really confused and don't really know what to do for the best, if anything. We have started cutting costs via food bills, swapping to cheapest gas/electric provider and have (I think) a cheap internet service provider, but this is one thing I am really unsure of and don't want to make any mistakes if possible.

Thanks in advance,

Alley

nelly_2 · 19 September 2005 at 8:26AM

If what you are saying is, you are paying £35 a month out in interest... then the £100 a month you save would be put to MUCH better use paying that off rather than saving.

Example If you save £100 a month and get 5% interest on it. But a debt is costing say 15% interest your losing 10%, your taking 1 step forward and 2 steps back.

In the long run you will save up quicker by getting rid of the debt.

Hope this makes sense.

Alleycat · 19 September 2005 at 9:09AM

Hi,

I understand what you are saying, but we need around £700 cash for April. I would worry that if I used this to pay my overdraft, the bank would reduce my limit and therefore I would not have this money for the move.

We are slowly cutting our expenditure and I was thinking to use this money to pay the overdraft? Once we are in London we will then need to save around £2000. This should take around 6 to 9 months as we will be living with my parents for this time and I will be working full time (salary £25'000). This should leave us with around £900 once we hae paid my parents board. Obviously some of this will be used to service debts, buy food etc and the rest will be towards moving out.

Unfortunately April is when we HAVE to move and so can't extend that date until we ae slightly less in the red.

Alley

dinkylou · 19 September 2005 at 2:31PM

If you can do a balance transfer to a card, then do (dont forget not to spend on the card afterwards) but dont forget that unless you transfer to a card where the rate is low for the whole loan then you only have a short period with no interest and then you're back to current position.

Otherwise, it might be a better option to get a low rate loan as the rate you are paying on your overdraft (around 15%) is quite high really.

I had a graduate overdraft which was interest free for the first 3 years and then they transferred to a normal overdraft (like yours now) without mentionning that the rate then goes up to about 15%.

They assume that you ll just stick with it anyway.

Alleycat · 19 September 2005 at 3:10PM

Dinkylou,

Is 15% the apr as it says on my statement 1.22% per month. I have always been confused by that sort of thing!

Shadowplay_2 · 19 September 2005 at 3:23PM

Annual Percentage Rate (APR) is the equivalent interest rate considering all the added cost to a given loan or overdraft. Naturally, it is a function of the loan amount, the interest rate, the total added cost, and the terms. The APR would equal the interest rate if there is no additional cost to a given loan or overdraft.

1.22% if the amount of interest you have paid for that given month.

Hope this helps a little

tomstickland · 21 September 2005 at 9:31PM

If there were no other costs etc then the APR would be the monthly interest rate multiplied by itself twelve times.

Eg: 1.22% monthly interest rate multiplies the amount you owe by 1.0122 each month. The annaul rate is then 1.0122 to the power of twelve (ie: 1.0122 x 1.0122 x 1.0122 x 1.0122 .....twelve times). And that comes out as 1.1566 ie: 15.6%. I've made no allowance for inflation in that though.

Alleycat · 21 September 2005 at 11:28PM

So, I am assuming that 15%ish is quite high?

Aargh, I don't know what to do! Think I shall have a look around at interest rates on loans etc to see if I can get a better deal. Obviously the fact that I am not 'committed' to pay back anything (apart from the interest) each month makes it easier to leave it which isn't good. Maybe if I had to make regular payments with lower interest I would actually be tackling it by now.

Thanks,

Alley

johannamse · 22 September 2005 at 8:36AM

Hi Alleycat,

If I were you I would apply for an MBNA group card (eg Virgin), and get 9 months interest free. On this card you only HAVE to pay £5 per month (but if you are currently paying £35 pm - keep paying this - you will knock £315 off the debt at end of 9m), by the time this is up, you will be in London and you will be on an increased wage, so will have no problem getting another 0%. Then you can really hammer it! I know what you mean about getting used to a debt, youve had it stuck in one place for AGES, get it moving and get it down.

Alleycat · 22 September 2005 at 2:11PM

Thanks John,

However, after signing up for the free trial with Experian, my credit rating looks pretty shoddy. I don't have any credit cards or loans, though my previous card I defaulted on (paid balance in full though) and my previous loan I also defaulted on (agreed short settlement figure and paid that but still showing as outstanding - need to get that sorted). These were all over 18 months ago now, but obviously will still show. Therefore, I now doubt I would be able to get a reasonable deal on a credit card and/or loan.

In this case, although I would hate to have a loan with them, should I have a chat with Barclays as this is who my o/d is with? Or should I shop around? I guess as long as I can get something with a lower apr than 15% it is better than my current situation?

Sorry for all the questions, I just want to make sure I get this right. I would have been soo lost if I hadn't found this site and all you wonderful people!

Alley

johannamse · 22 September 2005 at 2:51PM

If you have a weak credit rating then I doubt you will be able to get a loan off of someone else. Your best bet for a loan is with a company you already deal with (either through current ac or credit card). Or, what about an overdraft with another bank? I know A&L do a £2500 od at 0% for a year (i think). To be honest with you, am I right in thinking they are offering you a loan at the same rate as the od, I would not take it, because it will be a lot more inflexible than the current overdraft. All they will do is take a bigger amount off of you per month. At least at the moment you only pay £35 off, and if you CHOOSE to pay more you can, or cannot. How is your partners credit score? Could he get a 0% card? If all these options are closed to you, I would just start cutting back and putting as much as you can into the od. EVery penny really does count, and when your credit score is improved/ and / or you earn more, you will have more options opened to you.

On a seperate issue...you need to start building up your credit score, so apply for a capital one accept anybody card, spend a little on it per month and pay it off in full each month.

Graduate overdraft not reducing

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