Cutting debts advice needed

tazgirl

Hi all,

I’m new to this, so be gentle! Sorry if this is a bit long.

Having just about got my finances on an even keel this time last year, redundancy earlier this year followed by some unforeseen expenses this summer has really racked up the debts and I’m starting to panic a bit. I need to get them down asap as we want to move house next year and borrowing the mortgage we need means paying off as much as we can as soon as we can.

I have around £4,250 of debt on three credit cards (two with Egg and one an RBS Mint card).

- I only owe around £350 on the Mint card, and am paying £50 a month off.
- I owe £2,500 on one egg card, and I’m paying £150 a month and my other half puts £100 a month extra to this, so £250 in total.
- I owe £1400 on the other egg card, and am paying £100 a month off.

Some of this is on 0% with the egg anniversary offer, but most of it is on standard rates (15.9%?) as I don’t want to apply for any more cards in the 12 months before applying for a new mortgage (my other half stupidly made a couple of late payments to credit cards, so I need to keep my credit record squeaky clean to make up for it)

I believe I would be better off getting a personal loan to pay these cards off and repaying that. A £4,500 loan over 2 years from cahoot (who are also my bank) would be £200 a month, so much less than I’m currently paying and I’d be guaranteed to get rid of all these debts in 2 years time. Also, because I can afford to pay more than that most months, I’d go for a flexible loan. This also means if there is any money left over from moving house (we stand to make a profit from our current place) I can repay early as well (and if I need to pay less the month we move I can!).

However, I’ve been playing with the mortgage ‘how much will we lend you’ calculator from Nationwide (because they calculate the loan differently, they seem to be more or less the only people who will lend us what we need to move – we live near London so property prices are a problem), and if I put in what would be my loan repayment the figure they’d lend is much, much less than the figure if I put in my minimum credit card payments (obviously I pay much more than the minimum but they don’t require that information). Therefore I don’t want to shoot myself in the foot mortgage amount wise by trying to sort out my finances.

I need to sort out my bank account and spending as well, as I might be able to afford to pay more off cards, but I can't face it all in one day (or you won't be able to get to the end of my post).

Am I doing the right things?
Taz.

Xbigman

No don't get a loan. You are paying over the minimum on three cards, this is the wrong way to go about this. You should pay the minimum on the two lowest APR cards and pile everthing spare into the third (highest APR) card.

You owe 4250, paying 400 per month off it. So a year and you are debt free.
If you take out the cahoot loan you pay half as much, for twice as long.

You are also looking for a mortgage in a years time? Then this is the year to cut back, over pay even more and go mortgage hunting with no debts and the start of some savings in a years time.
Regards



X

black-saturn

I agree. Try to pay the card off with the highest APR first by paying off as much as you can whilst still only paying the minimum on the others. When that is paid off cut it up and cancel it. Then concentrate on paying the next one off.

Dont get a loan to cover the whole lot. It will only put you in debt for a higher amount for a longer period of time and it is also secured on your home so you will lose that if you dont keep up the payments.

I cant praise ebay enough for helping me to get out of debt. I went through every cupboard and wardrobe and sold loads of stuff. Its amazing what you can get for things like dvds you never watch anymore, cds you never listen to anymore, clothes you never wear anymore, books you never read anymore or ANYTHING else you can find. You might be able to clear £500 of the debt with them alone.

frugglewump

I agree with the not taking out a loan - i did that and have regretted it ever since.

There's a good calculator for paying off debts in order at https://www.whatsthecost.co.uk/snowball.asp

Using the figures you gave in your post & the interest rates for these cards (ignoring the 0% as i don't know how long you have left) it calculates you could be completely free of these debts by october 2006.

Bestthingsinlifearefree

From your post it sound slike you have a mortgage already (am I correct?)

Is there any key reason why you must move house next year ?

IE IS IT ABSOLUTELY ESSENTIAL TO MOVE ? Or is it better to stay where you are ,clear your debts,build up a safety (3 - 6 months salary cushion in the bank in case you get made redundant again and then move).

If this could be postponed it could be worth it as moving house / furnishing a new place throws up lots of hidden costs.

You need to post your income and out goings in as much detail as possible and then people can give you the most relevant advice.

I am not sure a personel loan is the way forward to "clear" the credit cards as you are just swapping one debt for another and a lot of people then run up new credit card debts.

You sound switched on and sensible and if you keep posting here I think you will get your solution.

Just a few thoughts.

Good luck.

tazgirl

Thanks guys - useful food for thought.
All the credit cards are the same APR (15.9), and obviously with the balance transfer that's on 0% I can't seperate that from the rest of the amount on that card. In which case I'll keep plugging away paying them off and forget the loan. If I cut down on spending money on fripperies for a few months, I should be able to throw a significant amount more at the cards, and I've only got 6 months before my student loan is paid off, which will free up another £120 a month to go to credit cards.
While we don't have to move, it'll actually save us a reasonable amount of money (currently getting stiched up with ground rent and service charges on a flat) and the stress it'll relieve will go a long way to helping! It's not guaranteed, so we're going to see where we are money-wise when the time comes!
When I have the time to go through bank statements in detail I'll try and sort out monthly income/outgoings to free up some more spare cash - and give ebay a go!

rprinter

tazgirl - looks like you know what you're doing now.

just remember, when considering the move date, to budget for the selling costs; estate agent fees, legal costs, stamp duty, removals etc etc. If you've paid yr debts off before you put yr present house on the market, you can then use this monthly cash to save for these expenses while you wait for a buyer, and the sale to complete etc

r

lonelyinlondon

I know about the service charge/ground rent problem and can sympathise. I am in key worker housing in london and pay £87/month for service charge and £400/ year for ground rent on a one bed flat!! How about you Taz girl?

southernscouser

I know your reluctant to apply for more credit cards but remember that searches only stay on your file for 6 months so even if you applied for 10 different cards today (for arguments sake) they would not show up when you went for a mortgage in a year.

If you got most of your debt on 0% or a low APR life balance you would pay them off quicker.

Just remember to cancel all cards with £0 balance (not just cutting them up) and lower the credit limits on the ones you do have.

If you post all your incomings and outgoings people will be able to see where you can cut back to pay the CC's off even quicker.