Priority Payment?

james07

My girlfriend has three debts:

£250 Barclays Additions overdraft use
£377.14 BarclayCard Visa at:
19.9% Purchase
27.9% Cash
£5,000 (est.) BarclayCard Loan 21.9% APR - zero paperwork for this one.

She recently came into extra £300 cash and wants to know which to pay into.

Now the Additions account doesn't charge much interest but the £11.50 account fee might as well be a stupidly high APR in my opinion.

The loan is a major concern but if the Additions is closed presumably that'll save a small ton which can be used to pay off the loan at the next priority?

Am I on the right track at least? Damn this stuff is complicated!

I have a suspicion she will probably be a good credit risk (profitable to banks) and she should be able to obtain a cheaper loan somewhere (suggestions?) to get rid of this debt quicker.

Advice appreciated in advance!

GeorgeUK

Rather than getting another loan, could she look at possibly getting a credit card such as virgin that offers 0% APR for about a year? The virgin cards allows 0% money transfers as well as balance transfers to credit cards so she may be able to pay of the overdraft with this.

You should usually pay the minimum to all debts and throw anything left at the highest APR.

Just make sure she doesn't spend on a 0% card - this would put a dent in any interest savings she could make.

madmich666

Hiya

I personally would clear the overdraft and then downgrade the account (which is what I did). I would then do a budget, something that is reasonable that you can stick to (I found this difficult to start with) I would try and get a balance transfer for the credit card. If you do get another credit card check which ones do the best balance transfer and then check quidco to see if you would be able to get some money back just for opening a credit card.

I personally wouldn't get another loan and wouldn't recommend it. I did that and then kept going on the credit card... BIG mistake.

Once you have sorted out the budget and done a 0% transfer deal then pay any extra money of the loan.

And remember to cut the cards up... once i did that my debt started going down rather than keep going up.

I hope this helps.

Madmich

Numpty_Monkey

I agree with what the others have said, try getting 0% balance cards or maybe even a low APR lifetime balance transfer, but don't apply for too many, i think (and someone please correct if wrong)about 3 application in 6 months over and it starts effecting your credit score

A few links
Snowball calculator
http://www.whatsthecost.com/snowball.aspx?country=uk
A great tool to working out which order to pay of your debts

SOA calculator
http://www.makesenseofcards.com/soacalc.html
post the results on here and the great and good can go through it and give you more suggestions to save money

james07

Thanks for the advice thus far.

I (ok we) have two issues:

1) Lack of documentation concerning the loan. She missed one or two payments and as a result the total due rocketed. She has now got it back down to just under where it was when it was first started, so she's understandably quite depressed about it. Sadly she does not receive a monthly statement which I think is pretty crazy

2) I have been offered a new job and we'll be moving to the area soon so her costs are likely to increase. I'll be trying to cover our costs where possible as I'm the higher earner by a distance but I'm determined she's going to clear the debt in a more intelligent way now.

Following your comments I am thinking the following:

i) She's unlikely to get a credit card for the full debt outstanding. So max it out with money from the Loan at 0% balance transfer.

ii) I will hazard a guess that this will absorb about £2-4k. Leaves £2-4 remaining. Take out a loan for this, anything less than 20% APR but clearly the lowest possible will cut down repayment time.

Now in terms of interest payments, does ~£5,300 at 21.9%APR with £120 per month payments come to about £1,100 in interest or have I got misunderstood the basic premise of APR completely? I realise for accuracy it needs calculating per month over a year but the simplify does interest = 5300*0.219 ?

GeorgeUK

Hi James

1) I would contact the bank to see if they can supply a statement (free - if they ask her to pay, it may be better sending a SAR). Do you know if she is paying payment protection insurance on this?

2) I can understand that you are keen to get the debts paid off in the most economical way, but what does she say about it? Not saying that you are railroading her into it, but if she understands why certain things are paid first and how much different credit actually costs in the log run, it may be better for her.

Don't forget that only certain cards will allow you to transfer to your current account. These are known on the net as "super balance transfers" but are basically 0% money transfers that are part of the promotion.

The amount she can get in credit will probably depend on her salary, but you should also be aware that you can usually have about 3 credit searches in a 6 month period before your credit score is affected. Too many requests for credit close together though may also make you seem desperate for money so if you intend to apply for both a creditcard and a loan, you may need to be careful and possibly space it out a little. If however you get almost the required amount of credit in the first card application, getting a 2nd card will be a lower limit, but possibly enough to cover the loan.

I had mentioned the virgin card as it not only does the SBT, but the minimum payment is greatly reduced - 3% 1st month (to cover BT fee) then £25 2nd-15th month, This would allow you to pay more towards the debts that are still charging higher interest rates.

jmkgreen

So the basic idea is to make minimum payments on cheapest loans and chuck as much money as you can at the most expensive APR..? Makes sense.

Problem is that I now have to think ahead.

If she has say a budget of £200 per month for debt repayments and gets some of her debt transferred to this Virgin card she could pay the minimum on the cheapest (Virgin, Barclays Visa card) but when the 16 months runs out, then what?

Are we again shopping for a 0% card for the remainder of the debt?

Once again to calculate which is the most expensive is the general rule of thumb:

Interest charged = Debt * 0.APR?

If so, despite having an average APR slightly lower, the vast amount of money on the loan would incur far higher annual interest charges than the smaller Visa card loan.

Not easy to consider really, is it?

GeorgeUK

It's the APR that's the important factor. If you were able to get cards to transfer the loan debt to, even if the debt on the cards was then 21.9% APR, it would be paid off in about 2.5 years.

You may be able to switch to another new 0% promotional offer but also if you have the card with the nil balance, you may be offerred an incentive to keep the card open - 0% for 6 months or low interest life of balance. Then keep shuffling to try to get more deals.