Clearing my debts - Personal loan vs credit card?

SpenderAholic

Hi everyone,

I am trying to put together an action plan to get rid of all my existing debt, and I’m hoping you might be able to help me!. These are the basic details:

Debt:
Edd credit card: £800 (account was closed by them 12 months ago and I’ve been paying the minimum repayments ever since - so stupid I know)
Citibank Overdraft: £2500 (my salary is paid into this account but I'm up at the limit by the end of every month)
Loan from my brother: £2200 (money lent at a time when he was in a much better position, and my guilt at owing him so much money is killing me!)

Incomings:
Salary: £2650 per month
Free cash: £500-£700 per month depending on bills

Credit History:
I’ve recently received my credit file from Experian and Equifax and they both look fine. I didn’t obtain a credit score as such, but there’s nothing bad on my file in the past twelve months. I had a late payment on my phone contract two years ago, but that is it. The last action on my files was for a check for a BT landline account which went through. I applied for a home loan three years ago and was declined which had me worried and made me stick my head in the sand about my finances, rather than finding out more. But now having recently seen my credit files, I think this may have been because I wasn’t on the electoral roll at the time. I am now on the electoral roll in my current address (as of February), I have lived in this address for two years and have been with my current employer for two years.

I have been intending to knuckle down and pay off the debts for the past 18 months, but I work in the fashion industry and every month it seems far more important to buy that latest must-have bag/dress/shoes. Thanks to a recent brush with redundancy, I am determined to get my finances on track, pay off my debt and start saving for that house deposit I desperately need. My idea is to consolidate my debt and pay off the balance within 12 – 16 months. I had intended to apply for a personal loan, but was thinking a credit card with 0% interest might be better…the concern is applying for a card and not receiving a high enough limit, therefore wasting a credit check and note on my file. I also think the temptation to run the credit card back up would be really tempting. The advantage of a personal loan is that I’d be tied into making set repayments.

So, would anyone have any advice on what you think I should do? My ideal scenario would be to pay off the debt at the lowest interest rate possible, and in a way that was least damaging for my credit score (for when I finally get my house deposit together and apply for a loan!). And if you have any recommendations on which loan or credit card you think might be best, I would absolutely love your input.

Sorry for the essay length of my post, and thank you in advice for any help you’re able to provide!

Best,
Shopaholic in mourning

RAS

What is the APR on those accounts?

And spending £2000 per month is a LOT.

if you pst a full SOA, there may be ways of finding more money to clear the debt.

earplugs

you might want to think about opening a basic bank account for your wages to be paid into, so that you can deal with your citibank overdraft as just another non priority debt?

heres a link to the financial services authority factsheet on basic bank accounts:

http://www.moneymadeclear.fsa.gov.uk/pdfs/bank_accounts.pdf

As RAS said, best to put together a full SOA so you know your financial position exactly.

Good luck for the future!

lxpeanut

I think the first thing you need to do is open a new bank account without any overdraft then pay money into your old account to clear the overdraft. If you had an active credit card then transfering it to a 0% one would make sense. But moving your overdraft onto a card or loan would probably be a bad idea. The best thing to do is snowball the debts and put your money into clearing the highest interest debt first. Yes this will probably mean the debt to your brother is last but once your other debts are clear then you can pay him off quickly.

angelflower_2

one main thing I would say

NO MORE LOANS!!!

You need to stop it here. I would advise that you open your new account (as advised above) and have your salary paid into this.

You need to budget to allow yourself some money for spending on what you feel is necessary for your work and build that into your normal budget. With whatever is left over, you need to throw this at the largest APR. I suspect this will be the credit card and if you throw as much as the £500 - £700 a month left over, this will be clear in 2 months. The citybank overdraft should then come next and you could clear this in 5 months. By this time, you will have enough disposible income to clear off the family (which must take last place as its costing you nothing in interest) in only another couple of months.

At this rate, you will be debt free in under a year.

Hope that helps

laura2481

Hi! I would say don't consolidate too. It would be very tempting to only pay the minimum on your loan and then run up the credit card or overdraft again and leave you owing even more! angelflowers advice above looks very good