Card versus loan to clear overdraft?

bunique

Hi all,

First time poster but semi-regular reader, hoping someone can help me come to a decision!

I have a £1500 overdraft on my HSBC account. I have had the overdraft since starting university in 2002, and have pretty much lived in it since then. I am rarely in the black for long as my wages have sadly not reached dizzy heights yet! I was convinced they were going to cancel it without warning, but have received a letter this week saying they are renewing it for another year on the current terms at the end of November.

However, prior to this I have been trying to work out the best way of getting rid of it. It's psychologically driving me demented being constantly in the minuses. I have never gone beyond my overdraft and last month had £300 left in it but I would like to call my salary (funnily enough, around £1500 per month!) my own and not the bank's.

I also have a c.£570 debt with egg. This was a credit card with £1650 limit which I cancelled the use of and I now pay £100 per month back on it. The other debts owed are an 18 month interest free credit of £46/month with 12 months to go on it. I have no other loans or credit cards.

I have checked my credit report with both Equifax and Experian. These show the above two debts, plus my O2 phone account, also always paid on time. I reduced the "limit" on my egg account to £600 yesterday so my credit record doesn't show I have access to lots of credit, as I don't! I have registered to vote at my current address but this is not yet showing up on either report. I will check again before my 30 day free trial is up.

Anyway, after that essay, my question is this. Which of the following would be my best option:

1. take out a loan for £2000, clear the remaining Egg debt, clear the overdraft, transfer the £100/month to repay the loan - I could probably afford a bit more than this
2. apply for a credit card and transfer the remaining egg debt and overdraft, if tranferring overdrafts is possible, then transfer the £100 to that each month and not use the card for anything else.
3. carry on paying the Egg debt until it's finished (Feb or so), then put the £100 into a savings account until November to pay off a chunk of the overdraft and reduce it next November (I know people will say "just save £100 each month" but it always "goes" somewhere :think:)
4. an alternative option?

If I'm having this much trouble deciding which road to go down, God help me when it comes to actually choosing a loan, card or savings account!

Many thanks for your help!

CLAPTON

yes there is an important additional option

work out a proper budget ... a good format is here
http://www.makesenseofcards.com/soacalc.html

you say you have been paying interest to the banks for the last 7 years ..whyever have you been doing that?

you need to reduce your spending for a while until you pay off these debts.. fortunately they are relatively modest.

so the step you nned to take
-work out the budget and find out exactly where every penny goes
-start a spending diary and write down everything you spend so you can check that budget and see if it's right
-try to increase your income..parttime job maybe?
-try having a no spend 6 months until the OD is gone
- no new credit (unless replacing an existing debt)

its impossible to say anything aboutr the existing debts without knowing the APRs and the likely APR of any new loan.

gnaril

Your under most circumstances better off getting a loan.

That way you got a fixed term it aint a massive amount you need so should be accessible from your bank.

Pay off everything with this loan. sort your repayments so they are affordable for example over 2 or 3 years.

You could go down the balance transfer route but i wouldnt really advise it. Sure you would get the initial offer or the low 3.9 lob or whatever but with the rates so easily subject to change and the fact cause there is a minimum payment it will likely lead to you just paying this on some occasions thus increasing the length of time you have the debt.

Well thats my opinion

YorkshireBoy

Some comments/questions...

By how much have you been reducing your overdraft each month over the last 6 months? If you haven't, then a) where is the money coming from to repay the loan/credit card? and/or b) what's going to change to free up this cash?

Lowering your Egg limit was probably a bad move. As it was you were using 34% of your available credit, whereas now you're using 95% of it. You look, to a credit card's automated credit scoring system, as though you're maxed out and are saying to your next provider "I've spent all I had available and now I want more".

Depending on your spending profile over the month, and your overdraft EAR, you may find you pay more interest on a loan than you're paying now in debit interest.

An MBNA card, or MBNA run card such as Virgin, card may help you restructure your debt and save on interest because it allows a transfer of 0% cash (4% fee applies) - for up to 16 months - into your current account. However, you need to closely read, and understand, CLAPTON's post #2 above before embarking on this route.

TFD_2

You've done well getting a helpful rather than patronising post from YorkshireBoy, so make the most of it and take on board those wise words he's shared with you

bunique

Thanks for the responses - I'm replying from my phone so apologies if I miss anyone's points - I will reply to any I miss tomorrow!

My overdraft was actually interest free until relatively recently. I don't have the current rate to hand (I'm in bed!) but I know it is much lower than the interest on my egg card, as is expected. I'll double check these both tomorrow.

I do budget and there are definite areas to make savings in - I think I have just had it in my head for months that hsbc would cancel my overdraft without warning that I was looking for a quick fix as opposed to a sensible saving fix! Now I know they have agreed it until next November I can refocus maybe.

I relocated 6 months ago. Prior to that I was earning £200 more per month in my previous job and concentrating on reducing my egg balance, which I have by £1000 this year. Everything else I built up went on first month rent and deposit on the flat I moved to. I kept my egg repayments at £100 despite the wage drop in order to try and clear it faster, sticking with the principle of clearing the one with the highest interest first. It seems I might be best off sticking with this until it's gone and saving where I can in the meantime.

YorkshireBoy - !!!!!! about the egg card! I thought I was doing myself a favour but now I see why that might not be the case! A lesson learned. With regard to your first paragraph, if I've understood correctly (never a guarantee), the £100 comes from my wages which obviously really is from my overdraft. My intention with the loan/card was to clear the egg card debt and transfer this £100 payment to repay the loan/card which would also be large enough to clear the overdraft which would be cancelled.

Having read these replies though I think I'm erring away from taking on debt to repay debt. I guess it's back to the budget...

Thanks again