Struggling with debt? Ask a debt adviser a question

StepChange_Allen · 2 May 2017 at 2:07PM

Katie-Jane wrote: »

Hi,

Nothing major, just after a bit of advice.
My husband and I are fairly newly married and we are now desperate to pay off our debts and start saving for a mortgage.
I currently have £9k on a personal loan with a 3.6% interest rate. I also have an interest free credit card with a limit of £8000, but a balance transfer fee of 3%. I also have £1500 in a Help To Buy ISA.

I really want to pay off my loan as quickly as possible so I can properly start saving. A few people have told me to transfer my loan onto an interest free credit card. I am nervous about having such a large about of money on a credit card.

Is this the right thing to do? It would cost me £240 to transfer the £8000 to my credit card, which seems a lot but I'm paying over £500 interest on my loan anyway. Also do I use my Help To Buy ISA savings to pay a chunk of the loan off or leave it in the ISA?

Does any of this really make much difference in the grand scheme of things?! I'm just really keen to pay as much off my debts each month as possible.

Thanks in advance,

Katie

Hi Katie

Thanks for your post.

This sort of re-financing is our main area of expertise to be totally honest, as we usually help people find debt solutions when they can no longer afford their minimum payments. I personally have quite a bit of interest in this sort of thing but even then, it's hard to say for sure what you should do. I'll make a few suggestions though:

1. The interest on your loan is probably front loaded, meaning that it's all on from the start, so by transferring it you're unlikely to save money on interest; and like you say, increase the debt with a balance transfer fee.

2. Can you overpay the loan without paying a penalty? If you can, then you could do this to become debt free quicker.

3. If you consider the balance transfer, please make absolutely sure that you can clear the whole amount before the interest-free period ends, else you'll incur further costs.

4. Whether you use your savings is completely up to you. If you can't overpay your loan it probably won't help. The general rule of using savings to pay debts is that if the interest rate on the debt is higher than on the savings, use the savings to pay off the debt (whilst perhaps keeping something for a safety net). Here it's likely there's no further interest going on the loan so it's probably not necessary to use the savings.

I hope this makes sense. For further thoughts you could look on the MSE pages on borrowing, I find they're very useful.

Allen

StepChange_Allen · 2 May 2017 at 3:39PM

emylou wrote: »

Hi,

I have recently been on the Step Change website and spoken to a advisor on the phone for some next steps however due to them not being open from now until Tuesday I presume I wondered if this would be a quicker method of communication.
Long story short, OH has 3 CC's with total debt of 14k. We can currently afford the minimum payments on them and I have looked into Snowballing so we pay the highest interest card off first. However, we are due our 2nd baby in less than 7 weeks & my maternity leave pay will be reduced to half & then basically 1/4 of what it is now. I have put some money into savings to "live on" but this was before I knew about OH's debt. So the debt remedy tool currently says we are ok but when I input my maternity pay instead of current wages it advised we take out a DMP. OH is not keen on this as he says we won't be able to get any credit or remortgage for 6years. What are the pros & cons to a DMP? Also, if we go on a DMP whilst I am on maternity leave once I return to work can we come off it or are we on it until all the debt is paid? (We also might get some money contributions from the family members who ran up the debt with my OH but I am not holding my breath about those!) Will our credit be affected for a specific time span if we go on a DMP like an IVA? We were just about to look at our mortgage rate as the fixed rate is due to end in July & if we could get a lower monthly mortgage fee that would be helpful right now but should we do that if we may have to have a DMP or would it be better to do that now anyway? I have taken the cards from him so he is not tempted to spend any more & have told him we need to be more careful with our money but not sure how much he is taking in as he is worrying about his Dad who has been in hospital for 7 months and doesn't seem to be getting much better which could cause further cost implications for us as he is the next of kin and his Dad may need to go into a care or nursing home. Anyway, I am not sure if/when that will happen at the moment so trying to focus on our current issues. Hope this makes sense.
Thanks for reading!

Emylou

Hi Emylou

Thanks for your post and congratulations on the impending arrival!

I'm sorry to hear about your father-in-law's ill health, best wishes with that.

Unfortunately we can only answer your posts during office hours, so sorry that you didn't get a reply before we were open again.

I'll try and answer your questions as best I can point by point, but won't be able to give actual advice without seeing your budget.

The pros and cons of a DMP depend on your point of view really. All the benefits, risks and possible consequences of a DMP are covered in the personal action plan we provide you, so I'd advise to have a good read through of that first.

There's no contract to be in a DMP so you don't have to be in it forever, but once your husband's original credit agreements are broken you can't go back onto them, so people usually end them when the debt's paid off.

Your husband's original credit agreements would be terminated by your creditors around the start of the DMP, and the resulting defaults stay on a credit record for six years - this is the same for any debt solution. The DMP is likely to have the least severe impact on a person's credit rating.

A debt advisor will be able to discuss whether a DMP would work given that your income is going to reduce significantly in the fairly near future. Please give us a call to talk it through.

I'm afraid I can't give you mortgage advice as such, but if you're at the end of your fixed term and can get a cheaper deal, I don't see why you shouldn't. You're more likely to get a good deal before your husband affects his credit rating with a debt solution.

I hope this is helpful.

Allen

StepChange_Allen · 2 May 2017 at 3:55PM

OHmeOHmy wrote: »

Hopefully I can receive some advice, first time on the forums so please be gentle.
My sister has been taken in to hospital with psychotic depression, she has been ill for some time, but always been very secretive and independent. Since she has been in hospital, I have been trying to look after her money etc. It has come to light that she has not paid her council tax for many years and it Is now with sheriff officers (Scotland). They also have rent arrears and she has a mobile phone debt too. Luckily no credit cards etc.
She lives in a council house and is on ESA, but because her young son stays with her and he works full time on a low income, they are not entitled to any housing benefit, although I have now managed to get a slight reduction in their council tax for this year. I would like advice on how to deal with the sheriff officers, how do I go about arranging to pay a small amount back, as it is they have nothing spare.
Thank you for reading and I hope this make sense to someone out there.
Yours hoping for a miracle!

Hello

Welcome to the forum and thanks for posting.

I'm sorry to hear about your sister's health problems, I'm glad she's got you looking out for her.

It's difficult to give accurate personalised advice without knowing much more about her financial situation, but there is basic general advice on dealing with Sheriff Officers on our website: www.stepchange.org/debt-info/debt-collection/sheriff-officers

It may be best for your sister to register with us so that we can help further. She or you (if you know her income, spending and debts) can complete our online Debt Remedy tool for some free impartial advice. You can then get in touch with a debt advisor to look over things and cover any questions you have as you're going through it if required. The tool is available here: www.stepchange.org/Debtremedy

I hope this is helpful.

Allen

OHmeOHmy · 2 May 2017 at 7:54PM

Thank you, I shall have a look, and get in touch.

kango900 · 2 May 2017 at 9:22PM

Hi,

I'm just worried about something. I owe around £15,000 to 2 creditors ( credit cards) I have agreed to pay monthly instalments to clear the debt but will take sometime, this has been arranged by ourselves and not through a court. I'm now looking at getting a mortgage, my concern is can the creditors force me to sell the house through a court order in order to clear the debt more quicker. I just don't want to buy a house for it to be taken from me straight away to clear my debt.

Thank you.

StepChange_Allen · 3 May 2017 at 9:48AM

kango900 wrote: »

Hi,

I'm just worried about something. I owe around £15,000 to 2 creditors ( credit cards) I have agreed to pay monthly instalments to clear the debt but will take sometime, this has been arranged by ourselves and not through a court. I'm now looking at getting a mortgage, my concern is can the creditors force me to sell the house through a court order in order to clear the debt more quicker. I just don't want to buy a house for it to be taken from me straight away to clear my debt.

Thank you.

Hi there

Welcome to the forum and thanks for posting.

Orders for sale of a property are extremely rare so I wouldn't let this affect your decision to try and get a mortgage. Organisations like HMRC and the Child Maintenance Service are known to be a little more likely to do this for large debts, but banks and other financial institutions do this very rarely. This isn't a guarantee, but it wouldn't stop me.

Please be aware that if the credit agreements for the debts you mention have been terminated then this will have affected your credit rating and hence getting a competitive mortgage may prove tricky.

I hope this is helpful.

Allen

Katie-Jane · 3 May 2017 at 9:54AM

StepChange_Allen wrote: »

Hi Katie

Thanks for your post.

This sort of re-financing is our main area of expertise to be totally honest, as we usually help people find debt solutions when they can no longer afford their minimum payments. I personally have quite a bit of interest in this sort of thing but even then, it's hard to say for sure what you should do. I'll make a few suggestions though:

1. The interest on your loan is probably front loaded, meaning that it's all on from the start, so by transferring it you're unlikely to save money on interest; and like you say, increase the debt with a balance transfer fee.

2. Can you overpay the loan without paying a penalty? If you can, then you could do this to become debt free quicker.

3. If you consider the balance transfer, please make absolutely sure that you can clear the whole amount before the interest-free period ends, else you'll incur further costs.

4. Whether you use your savings is completely up to you. If you can't overpay your loan it probably won't help. The general rule of using savings to pay debts is that if the interest rate on the debt is higher than on the savings, use the savings to pay off the debt (whilst perhaps keeping something for a safety net). Here it's likely there's no further interest going on the loan so it's probably not necessary to use the savings.

I hope this makes sense. For further thoughts you could look on the MSE pages on borrowing, I find they're very useful.

Allen

Hi,

Thanks for your advice.
I've spoken to my loan provider who gave me a settlement figure. If I settled the loan now I would save around £350 in interest. I also asked if I could make regular over-payments by setting up a standing order. He said I wouldn't be able to set up a standing order as each time I make an over-payment they have to get my loan re-quoted. He also mentioned something about little over-payments not having any effect on the interest I pay? He suggested I make lump sum over-payments as and when I can.
After speaking with the loan provider I decided I would much rather have the balance on a credit card where I can clearly see the amount left and can make payments whenever I like.
I then spoke to my bank about my credit card. She said I cannot do a money transfer, only a balance transfer. I asked her about using my credit card to pay off my loan, she said I could do that as I have 0% on purchases for at least another year. But she said not all loan providers allow credit cards as means of payment.

I have a payment due to come out for my loan within the next few days, so after it has been paid I will call the loan provider to get an up to date and accurate settlement figure then ask if I can pay it off with my credit card.

If I am not able to do this do you think it is a good option to find a 0% money transfer card to pay off the loan? Is it likely I would get a £8000 credit limit when I first took the card out?

Thanks again,

Katie

StepChange_Allen · 3 May 2017 at 1:39PM

Katie-Jane wrote: »

Hi,

Thanks for your advice.
I've spoken to my loan provider who gave me a settlement figure. If I settled the loan now I would save around £350 in interest. I also asked if I could make regular over-payments by setting up a standing order. He said I wouldn't be able to set up a standing order as each time I make an over-payment they have to get my loan re-quoted. He also mentioned something about little over-payments not having any effect on the interest I pay? He suggested I make lump sum over-payments as and when I can.
After speaking with the loan provider I decided I would much rather have the balance on a credit card where I can clearly see the amount left and can make payments whenever I like.
I then spoke to my bank about my credit card. She said I cannot do a money transfer, only a balance transfer. I asked her about using my credit card to pay off my loan, she said I could do that as I have 0% on purchases for at least another year. But she said not all loan providers allow credit cards as means of payment.

I have a payment due to come out for my loan within the next few days, so after it has been paid I will call the loan provider to get an up to date and accurate settlement figure then ask if I can pay it off with my credit card.

If I am not able to do this do you think it is a good option to find a 0% money transfer card to pay off the loan? Is it likely I would get a £8000 credit limit when I first took the card out?

Thanks again,

Katie

Hi Katie

Thanks for getting back in touch.

It's really up to you if you wish to get a new card to balance transfer this loan to, I can't be sure whether it's a good idea or not because I don't know your situation in enough detail. There's no obvious reason why you shouldn't, other than if there's risk of you not paying it off during the interest free period. This is because if you don't, the interest rate on most credit card would mean you pay a lot more back than you borrowed.

There's quite a lot of useful information on balance transfer credit cards on the main MSE site here: www.moneysavingexpert.com/credit-cards/balance-transfer-credit-cards

In terms of whether you'd get an £8000 credit limit on a new card, this would depend on your credit rating and various other factors that each lender take into account in their decisions.

I hope everything goes well whatever you choose to do.

Allen

Rachel2475 · 3 May 2017 at 7:49PM

Hi I have just paid a settlement figure to my IVA company as creditors agreed to let me settle early! Can I now sell my house or do I need to wait for my completion certificate

rcunningham87 · 4 May 2017 at 9:51AM

Hi Guys,

I've got myself into a bit of a pickle and have an "Average" credit score according to Experian. My aim is to improve this ASAP and look to get a mortgage in the next few years (But only after my cards and debts are paid off etc.)

I have 2 credit cards I currently pay the minimum (I'm able to pay off more each month but this could take longer than I'd like). I'm looking to get a P2P loan to pay off the cards and get a newer car. But I'm worried that I'll be refused the loan and it'll affect my rating even more.

My question is, is it better to keep one of the cards and pay it off in full each month to improve my credit rating?

I guess my question is, what is the quickest way to improve my credit rating considering my situation and get debt free?

Thanks in advance.

Struggling with debt? Ask a debt adviser a question

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free