Advice appreciated-I'm determined to be debt free!

Okey doke Harriett, let's take a look at this:-

· Egg Loan - £13,451
· RBS card – £3,200
· FD card - £900
· Barclaycard – I have 0% until September 2005. My balance is £300
· Overdraft - £1,000

So you owe a total of just about £18,900. Frankly….this isn't doing so badly, if it's the position after you've cleared a student loan and bought a house. Both of those are expensive to do. So don’t beat yourself up too badly for finding yourself a bit stretched financially in the immediate aftermath.

Now let's look at the income side:-

I earn just over £25k and take home around £1,450 per month.

Other outgoings are:

£670 mortgage and bills etc
Mobile never exceeds £30
Petrol £60 max

So you have £1,450 coming in and £760 going out? I reckon you have more than that going out. Where there's a car, there's an MoT test (£42.50 even if you pass without problems), motor insurance, servicing, road tax. RAC membership? Maybe tyres too? Sounds like you do about 5,000 miles a year so you can reckon a new pair of fronts every 3 years or so…Also, you probably have a number of other costs that aren’t avoidable (what do you spend on lunch and at Starbucks every day?) You need to get a grip of that and see what the real position is. Only when you know that can you decide whether your debt load is supportable or not.

I have applied for other 0% credit cards but have been refused a couple of times now. I have recently bought a house so could that have something to do with my credit rating?

Very likely. The exact process of credit scoring is kept secret and varies from lender to lender. Broadly speaking, though, credit card companies dislike people who:-

- have changed address recently or frequently
- are not on the electoral roll
- appear to live at more than one address
- have an address in what they consider a crummy postcode
- have a lot of credit, yet are looking for still more
- had a lot of credit searches done recently (meaning they've been rejected by a lot of other lenders).

Of course they dislike things like CCJs too, but I'm focusing here on the less-than-obvious reasons why they may not like you.

The good news is that if your credit history suffers from the above, it mostly repairs itself fairly quickly. Get your credit file from Experian and Equifax and see who reports to them on you. If any lender thinks you still live at your last address, write to that lender and correct them. Get on the electoral roll at your current address. Cancel any credit cards with a zero balance that you no longer use (store cards, for instance). Make sure any old credit accounts are listed as settled, not left open with a zero balance.

Re-request your file every month and see how it's looking.

As a homeowner, you are a better credit risk than otherwise, but a very recent homeowner you present a bit of a conundrum to lenders, who can’t easily tell whether you are legit, or some sort of debt-dodging drifter. They need to feel comfortable that they know where to send the Terminator if you default :-)

1. The Egg loan is a flexible loan so I can take 3 payment holidays a year and could use this to take chunks off other debt?

Definitely, but as Martin would say, hit the worst first. You need to establish what's the interest rate on all the debts outline above, then use your payment holiday to pay them down in succession, starting with the worst first.

2. See if Egg will take on all the debt at the same rate so I just pay one person.

Sure, why not. It's not a bad rate, though improvable.

3. Apply for 0% or a low life of balance credit card.

Let your credit file settle down a bit first. There's been a lot of commotion there lately :-)

In terms of priority I see that the credit cards, the RBS one in particular, are the ones that need dealing with immediately

Bingo. Kill that first, then the overdraft. The latter sounds like it's at about 9.6%. Do you get an annual pay rise of 9.6%? No, thought not. So it's growing faster than your ability to pay it. Which means it will eat more and more into your disposable income (such as it is) unless you deal with it first.

The other day I had a ‘special invitation’ card information thing through from Morgan Stanley – am I more likely to get this or am I being thick and naïve if I believe the ‘pre-selected’ thing?

The latter - you're pre-selected to be credit scored, but they needn't accept you, so it means little. It does tell you that MS don’t consider your postcode to be crummy, though, which is good to know. If they did, they wouldn't have wasted the stamp writing to you to persuade you to apply.

I budget for everything (I have recently made use of the MSE budgeting spreadsheet) that I do buy - which isn’t a lot - and I never spend on the credit cards anymore and have been better off in cash terms since buying the house even though I have no spare income! This is probably because my boyf is so good with money.

All good news. Whenever I've gone out with women who earned less than me, I always split bills in line with disposable dosh. I.e if I earned 3 times what she did, half each wasn't fair on her and me paying everything wasn't fair on me. So the usual split would be I pay three-quarters of restaurant bills and she paid a quarter. This is, of course, after the first hot and heady rush of romantic feelings had worn off, i.e. about 2 weeks into the relationship when my inner tightwad had started to assert itself once more. I'd suggest some arrangement like this to your blurk if you don't already.

Usually I would be in a right mess this time of year (i.e. using the credit cards to get me through the month) but this Christmas I did everything as cheaply as possible over a longer timeframe and I should be ok (although right up to my od limit) until payday.

I recommend you invest in Microsoft Money 2004 (2005 is apparently pants), Quicken, or one of those money management software packages. If you get last year's version it's dirt cheap and just as good. You can use it to predict your balance as far ahead as you like, if you're prepared to input the necessary data. Invaluable budgeting tool.

I save £100 per month in a high interest savings account.

Laudable, but wrong. Your high interest account is paying you 5.35% after tax even if it's in an ISA. Meanwhile you're paying 15% to RBS, 10% to the bank, 7.7% to Egg….you are effectively borrowing from RBS at 15% in order to deposit at a third of that.

You are better off taking the £300 you have in there and using it to clear the Barclaycard. Then shift £560 off the RBS card to the Barclaycard to take advantage of the 0% deal. Saves you about £75 in interest between now and September.

Even though my situation is dire I still feel that to live just to pay debts and bills is depressing so my one extravagance most years (not every year – certainly not last year due to buying a house) is to book a holiday and a budget one at that.

Understandable, and not necessarily bad. A diet you can’t stick to is a bad diet.

Sorry if I’ve waffled and if anyone has read this I would be really grateful for your advice. I truly am looking forward to debt free days and I am committed to doing this. I just want to know the best way of doing it.

You need to take the time to figure out where every penny goes, and then use this site and Martin's book to make sure you optimise every penny. The value of his spreadsheet is that it lists everything you spend on, and is in effect a checklist of everywhere you can save money. Whatever you save, you chuck at your debt till you're debt free. Is your gas and electricity as cheap as you can get? What about the phone? What about your mobile phone? Internet? Food shopping? Do you have anything you can flog on eBay? Old college course textbooks?

In summary: organise and then optimise.

Try to chill a bit too. I know that's easy to say, but you sound stressed to me. This is important, sure, but it’s not really urgent and it shouldn't occupy your every waking thought. You have a couple of years of graft ahead of you, but you have something to show for being in debt. You've got your own place, for instance, and people will understand if you minimise going out as a result - just candidly admit that you're totally skint from doing the new place up. Everybody is, believe me, and you and bloke can just stay in and cook meals and stuff instead of going out.

So be methodical - you are methodical, because otherwise you wouldn’t have survived doing a degree course - and once you have your plan sussed, just go with it.

WP