What to do with lump sum?

dazWb · 14 March 2012 at 7:22PM

Good evening

New here, and reading through the threads looks like this is the place to get some advice.

I'm due a lump sum of £2800. I want to use this towards paying off debt, as I want to buy a house next year.

Debts listed below. I'm desperate to clear a credit card. I want to pay off a CC, hopefully giving my credit rating a boost to allow me to transfer the balance of the other CC to a 0% balance transfer card, so I can pay it off quicker. I can then lock up CC2 in a drawer and use only as an emergency card for unexpected bills.

HOWEVER, I'm aware the bank can remove my overdraft facility at any time, so I'd like to not be relying on this constantly. Although it's been like it for 3 years, I always dread "overdraft review" time.

Where do you guys think the best place to put this money is?

Thanks so much for any advice!

My debts:

Credit Card 1 - £2600 16.9% APR (CLOSED account to prevent rate-jacking)
Credit Card 2 - £2750 19.9% APR
Loan - £3950. 24 payments remaining. Will receive 25% of interest back at the end of the term if I don't repay early.
Overdraft - £1750, which I reach most months. Income brings balance back to around £0 each month. Around £20 interest charges each month.

Primavera_2 · 14 March 2012 at 7:47PM

I would say that credit card 2 or the overdraft would be a good place to start.

You don't state what the APR is on your personal loan, so the 25% refund in interest may or may not be worth your while. If it is a substantial sum, it may be worth sticking with the loan and using the interest payment towards another debt.

Hope this is of some help

dazWb · 14 March 2012 at 9:45PM

Thank you Primavera

CC2 or the Overdraft are the way to go.

I'd rather clear CC2 and balance transfer CC1. This would mean I'm still living in my overdraft for the time being. I know this is not ideal, however it's worked for the last 3 years.

Does anyone know what the chances are of HSBC demanding I repay my overdraft in full? The T&Cs say they can do so at any point, how likely is this in practice?

I would try and clear the overdraft over the next 12 months, with one less credit card payment to worry about.

Primavera_2 · 15 March 2012 at 10:01PM

It's a tricky one with the overdraft. Providing you are managing the overdraft well and are not going over your agreed limit, you should be ok. What banks can do on occasions is put you on a reducing overdraft, which means your overdraft limit is decreased by a set amount every month. Nationwide did this with me and reduced the limit every month by £40 until it was down to a manageable level.

DVardysShadow · 15 March 2012 at 10:08PM

dazWb wrote: »

.... HOWEVER, I'm aware the bank can remove my overdraft facility at any time, so I'd like to not be relying on this constantly. Although it's been like it for 3 years, I always dread "overdraft review" time.

In itself a thoroughly good reason to pay off the overdraft and start living in the black. With all your other credit, you have the contractual right to it as long as you pay monthly. If the overdraft were taken away, you might be in serious difficulties.

Googlewhacker · 15 March 2012 at 10:34PM

DVardysShadow wrote: »

In itself a thoroughly good reason to pay off the overdraft and start living in the black. With all your other credit, you have the contractual right to it as long as you pay monthly. If the overdraft were taken away, you might be in serious difficulties.

This was my thinking as well and I did something similar by paying of the overdraft...made life so much easier.

Primavera_2 · 15 March 2012 at 10:59PM

I totally agree. My OH and I both had quite large overdrafts from being students. They are now paid off and it really does make such a difference. I know that this sounds silly, but having a (+) balance in your bank account does give you a psychological boost

OP, if you decide against paying the overdraft off in full, see if the bank will put you on a reducing overdraft to make it a little more manageable for you.

missrlr · 16 March 2012 at 12:16PM

First check the loan APR and then use snowball calculator (link in the stickies at the top of this forum). Have a good play with this and work through the options to figure out the best debt paying strategy

My instant thoughts are pay off OD as the £20 in charges you can use to over pay other cards. Plus also you are in a better situation if any institution changes it's mind about this facility. Once you had cleared it get it reduced to either nothing or a little as possible. Practice living within the salary you get you now have a clean sheet to start from.

I realise the amount you may get is not fixed but then perhaps give yourself a little for a treat and chuck the rest at which ever debt the snowball calculator has worked out will be best for you in the debt clearance scheme.

Also have you done an SOA and worked out what you can cut back on to hammer the debts further? Just a thought.

Travelqueen · 16 March 2012 at 12:23PM

Pay off the overdraft and then cancel it so you don't rack it up again, or at least reduce to something like £100 just incase - I paid mine off so many times I can't even tell you only to get back up to 2.5K within no time again...

However, now I have paid it off, finally, and have been in the black for the last 6 months, its an amazing feeling, makes the rest of the debts feel less oppressive too. Also, you will still be able to make a reasonable payment towards your credit card too.

Obviously if your overdraft has much more favourable terms than the credit card just ignore me.

Good luck.

dazWb · 16 March 2012 at 6:08PM

Thank you all so much for your thoughts.

I will pay off the OD, and reduce my limit to around £100. I have read though that a sudden decrease in OD limit could affect my credit rating? Even though I have initiated the reduction? I could very well be over-thinking this. But I agree with the points around feeling better living in the black, this I'm looking forward to

This still leaves me with over £1000 which I think should be put towards CC2 with the higher interest. Leave it a couple of months then apply for a balance transfer card, once all the credit agencies are updated.

I totally agree with the campaign on this site to get financial ed. in schools. I have nothing to show for this debt other than a car which the loan was for. I have learnt the hard way, graduating from uni, getting a job, and suddenly I'm being offered credit left right and centre! I'm only thankful that at least my debts are manageable and this site exists to help me make the most of my money.

Cheers again guys. :beer:

DVardysShadow · 16 March 2012 at 7:55PM

dazWb wrote: »

I have learnt the hard way, graduating from uni, getting a job, and suddenly I'm being offered credit left right and centre! I'm only thankful that at least my debts are manageable and this site exists to help me make the most of my money.

Cheers again guys. :beer:

Anyone whose finances are in reasonable order and no debts will have far more credit available than is ever good for them. Even in the current climate.

What to do with lump sum?

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