What's the best way to tackle my debts?

megwump

Hello all,
I have recently separated from my partner and am moving out on my own, which is desparately sad but does, amongst other things, put me in a stronger financial position. I'd like to get my debts paid off in 3 years or less and am not sure the best way to go about it. The details are:

Loan at 11% (11.6 I think), balance £8544 - just over 3 years to go. Fixed monthly payment of £344.56
Credit card at 17.9% (just reduced from 21.9% simply by phoning and asking them), balance is about £5700, minimum payment is a little over £80, but I pay £150 per month (limit is £6300 and the card is expired, I am just paying it off)
Bank of Mum & Dad at 0%(!), balance £2500 - no repayments being made at the moment.

Paying £500 a month on my debt is the maximum I'm prepared to spend - it leaves me enough money to live on in comfort.

I'm trying to figure out if I'd be better off consolidating into one new loan, or sticking with the existing loan and managing the other two debts separately.

Advice appreciated

megwump

Oh, and I should add - I had a couple of bank charges because I went overdrawn accidentally, so I do have a couple of charges against me inside the past six months. I am closing the account that has these charges on them, so don't know if that makes a difference.

I've checked my credit report and there's no financial association between me and my ex - my credit score is good, but I was turned down for a new loan in September because of bank charges.

lucielle

Please don't consolidate. Post up full details of income and expenditure and we'll see if we can help. Well done for posting.
L

Pollycat

Hi megwump & welcome

Here's the link to the SOA template:
http://www.makesenseofcards.com/soacalc.html

I'd agree with lucielle re consolidation, once all credit cards are paid off some people are tempted to start spending on them again and end up with the consolidated loan PLUS new credit cards debts.

megwump

Income - 1887

Expenditure -

Rent - 550
Council tax - 80
Contents insurance* - 12
Water* - 25
Gas* - 50
Electricity* - 50
Car Insurance* - 50.51
Mobile - 20
Road tax - 3 (I intend to put 3 aside per month, it's 35 per year)
MOT/maintenance - 21 (putting aside to cover annual costs)
TV license - 12
TV/Broadband/Phone - 30
Fuel - roughly 80
Breakdown/recovery - probably about 10 - I need to renew
Food and drink - 200

Total - 1193
The items marked * are because they're going to change in the next month when I move house into my own place - I'm expecting them to be lower, but erring on the side of caution.

Total plus £500 on debt leaves me with about £200 a month disposable income for shopping, nights out, holidays etc and my god I need them after coming out of this relationship. If I have to trim it a bit then I'd consider it, if it was the only way to be debt free in 3 years.

megwump

Pollycat wrote: »

once all credit cards are paid off some people are tempted to start spending on them again and end up with the consolidated loan PLUS new credit cards debts.

This is why I want to keep some disposable income in my budget. I have no interest in borrowing more money, and don't have access to any more credit at the moment.

RAS

Looks pretty sensible but would you be better off putting aside some of the £200 specifically for Christmas, birthdays, clothes and holidays? Gives you less free money but makes explicit some of the spends.

That way you have a lump sum available at the right time.

poorandindenial

Hi megwump

Can you post the current balances and APRs for exach of your debts??? - IGNORE ME, I [EMAIL="DIDN@T"]DIDN'T[/EMAIL] READ THE FIRST POST PROPERLY - duh

Consolidation is generally not a great idea not only because of the issue about running the debts up again, but also because it tends to lengthen repayment and therefore the amount of interest that you pay over and above the capital you borrowed and you may well only get pants rates of interest if you struggle to access credit.

Check out the snowball calculator at www.whatsthecost.co.uk and it will tell you what your debt free date is based on £500 a month payments, it will also show you how much you will spend in interest.

You can use it to check whether a loan is a good idea too. If you do go down the loan route you may well end up better off getting a longer term flexible loan and overpaying it or saving towards a lump sum repayment as longer loans attract better rates of interest. BUT be very careful with the small print and watch out for early redemption penalties.

If you have a Barclaycard it is worth seeing if they will do a 6.9% life of balance balance transfer - but make sure you clear the card first and don't forget to factor in the balance transfer fee

There may be loads of options available to you but it really depends on the sort of debt you currently have.

You may want to give yourself extra leeway on your SOA to cover things like birthdays, entertainment, clothes, holidays etc etc (the SOA calc that someone else linked to is useful to check for things that you may have missed) although that may actaually be covered in the over estimation for your gas and electric (I live ina one bed flat with only electric and I pay probably an average of £30-35 a month over the course of the year)

poorandindenial

I just popped your info into the snowball calculator and your debt free date (DFD) comes through at July 2012 if you throw your money at your current debts as they stand

It has done it so that you would pay your parents £5 a month until March 2012 and then everything you have after that so it may not be that accurate. Would your parents need you to repay them sooner rather than later or are they able/willing to wait?

Numpty_Monkey

Breakdown/recovery - probably about 10 - I need to renew

this is from this weeks email
[FONT=Arial,Helvetica,sans-serif]RAC cover £9, AA £10. Special cashback deals are currently cutting the cost to a minimum. See the Deals Note: Breakdown Cover Deals. Related Guide: Cheap Breakdown Cover[/FONT]

With any insurance due the comparissons and use the cashback sites, also good for gas and electricity

[FONT=Arial,Helvetica,sans-serif]
[/FONT]

megwump

If I were able to get one of the best deals around for a personal loan (which according to this site is 8-8.2% at the moment, for 15k), then the snowball thing suggests £500 a month would get me debt free in 34 months, paying £1717 in interest. Being more realistic and putting a higher interest rate on it gets me into the realms of £2500-£3500 in interest.

If I went for the fixed payments on my loan, 5% on credit card and £80 on parents loan, then it suggests I'd be paying out far more than the £500 I can afford and end up paying £2603 in interest.

My folks really don't mind when they get the money back, but I want to pay them, ideally in a lump sum - so the idea of getting a new loan is appealing. It does seem a sensible option, but I guess the first step should be to try and get a better credit card deal.