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Advice appreciated-I'm determined to be debt free!

edited 30 November -1 at 12:00AM in Debt-Free Wannabe
20 replies 10.7K views
HarriettPotterHarriettPotter Forumite
180 posts
edited 30 November -1 at 12:00AM in Debt-Free Wannabe
Hi all,

I have used this site for some time now for information and help with my finances. I have also bought and read Martins book.

Unfortunately I am a woman with debt – a lot of debt – and I am working hard to get rid of it. I have moved money about as much as possible to 0% cards, low interest loans etc but the system is starting to fail me now as I can’t get credit so easily. I wondered if anyone here could advise me. I’m not being lazy but I think that I need fresh eyes to look at this as I am just going round in circles weighing up what to do next. I have read the book and I know the general rules but now the book is packed away in a box (I recently moved house!) until I get it out and I just don’t know what to do next. Here is the list of debts: (please bear in mind that when I started out making all this better after graduating I owed over £20k so I am chipping away at it…)

· Egg Loan - £13,451k outstanding at 7.9% – payments are £300 per month
· RBS card – 0% rate just ended, balance is £3200 – I pay around £90 per month. Limit on the card is £4400. I don’t know the new interest rate but my last minimum payment was £76 of which £47 was estimated interest.
· FD card – 0% rate also just ended, and I am now paying the minimum payment of £30 per month. The balance is £900 and the limit is £1000. Again I don’t know the interest rate.
· Barclaycard – I have 0% until September 2005. My balance is £300 and I usually send about £20 per month. The limit is £560
· I also have an overdraft of £1000 and I pay roughly £8.00 per month interest to have this

I earn just over £25k and take home around £1450 per month.

Other outgoings are:

£670 mortgage and bills etc
Mobile never exceeds £30
Petrol £60 max

I have applied for other 0% credit cards but have been refused a couple of times now. I have recently bought a house so could that have something to do with my credit rating? Its rare that I miss payments but it has happened a couple of times in the past year so I guess that is more likely to be it.

Anyway – I feel I have a few options:

1. The Egg loan is a flexible loan so I can take 3 payment holidays a year and could use this to take chunks off other debt?
2. See if Egg will take on all the debt at the same rate so I just pay one person.
3. Apply for 0% or a low life of balance credit card.

I just don’t know. I keep weighing it up but never coming to a decision. In terms of priority I see that the credit cards, the RBS one in particular, are the ones that need dealing with immediately as I feel the overdraft isn’t a huge interest payment and the loan just carries on month by month. The credit cards are what are on my mind the most.

The other day I had a ‘special invitation’ card information thing through from Morgan Stanley – am I more likely to get this or am I being thick and naïve if I believe the ‘pre-selected’ thing?

I budget for everything (I have recently made use of the MSE budgeting spreadsheet) that I do buy - which isn’t a lot - and I never spend on the credit cards anymore and have been better off in cash terms since buying the house even though I have no spare income! This is probably because my boyf is so good with money. Usually I would be in a right mess this time of year (i.e. using the credit cards to get me through the month) but this Christmas I did everything as cheaply as possible over a longer timeframe and I should be ok (although right up to my od limit) until payday.

I save £100 per month in a high interest savings account. Even though my situation is dire I still feel that to live just to pay debts and bills is depressing so my one extravagance most years (not every year – certainly not last year due to buying a house) is to book a holiday and a budget one at that. Currently I have £300 in the savings account which ideally I would like to preserve although I appreciate saving alongside paying debts is not encouraged!

Sorry if I’ve waffled and if anyone has read this I would be really grateful for your advice. I truly am looking forward to debt free days and I am committed to doing this. I just want to know the best way of doing it.

Many thanks in hope of your advice.

HP
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Replies

  • robnyerobnye Forumite
    5.4K posts
    Part of the Furniture Combo Breaker
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    first off welcome to the board.... ;D

    secondly, if you could find out and post the interest rates for the other cards, that will enable us to have a clearer picture and then being able to make some suggestions

    the possible refusal could be due to your new address, it might also be due to the cards/loans/overdraft you already have.

    if you have been refused for credit in the past month, then dont apply for any more.

    check out the t's n c's on the payment holiday with egg, how long can you take this or is it 3 monthly payments.
    smile --- it makes people wonder what you are up to.... ;) :cool:
  • Thank you very much.

    I will go off and check the interest rates and post them up later. As for the Egg thing its a maximum of 3 months in a year that you can take a holiday and not make the monthly payment. These can be consecutive months or separate across the year.

    I really appreciate your time.
  • westernpromisewesternpromise
    4.8K posts
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    Okey doke Harriett, let's take a look at this:-
    · Egg Loan - £13,451
    · RBS card – £3,200
    · FD card - £900
    · Barclaycard – I have 0% until September 2005. My balance is £300
    · Overdraft - £1,000

    So you owe a total of just about £18,900. Frankly….this isn't doing so badly, if it's the position after you've cleared a student loan and bought a house. Both of those are expensive to do. So don’t beat yourself up too badly for finding yourself a bit stretched financially in the immediate aftermath.

    Now let's look at the income side:-
    I earn just over £25k and take home around £1,450 per month.

    Other outgoings are:

    £670 mortgage and bills etc
    Mobile never exceeds £30
    Petrol £60 max

    So you have £1,450 coming in and £760 going out? I reckon you have more than that going out. Where there's a car, there's an MoT test (£42.50 even if you pass without problems), motor insurance, servicing, road tax. RAC membership? Maybe tyres too? Sounds like you do about 5,000 miles a year so you can reckon a new pair of fronts every 3 years or so…Also, you probably have a number of other costs that aren’t avoidable (what do you spend on lunch and at Starbucks every day?) You need to get a grip of that and see what the real position is. Only when you know that can you decide whether your debt load is supportable or not.

    I have applied for other 0% credit cards but have been refused a couple of times now. I have recently bought a house so could that have something to do with my credit rating?

    Very likely. The exact process of credit scoring is kept secret and varies from lender to lender. Broadly speaking, though, credit card companies dislike people who:-

    - have changed address recently or frequently
    - are not on the electoral roll
    - appear to live at more than one address
    - have an address in what they consider a crummy postcode
    - have a lot of credit, yet are looking for still more
    - had a lot of credit searches done recently (meaning they've been rejected by a lot of other lenders).

    Of course they dislike things like CCJs too, but I'm focusing here on the less-than-obvious reasons why they may not like you.

    The good news is that if your credit history suffers from the above, it mostly repairs itself fairly quickly. Get your credit file from Experian and Equifax and see who reports to them on you. If any lender thinks you still live at your last address, write to that lender and correct them. Get on the electoral roll at your current address. Cancel any credit cards with a zero balance that you no longer use (store cards, for instance). Make sure any old credit accounts are listed as settled, not left open with a zero balance.

    Re-request your file every month and see how it's looking.

    As a homeowner, you are a better credit risk than otherwise, but a very recent homeowner you present a bit of a conundrum to lenders, who can’t easily tell whether you are legit, or some sort of debt-dodging drifter. They need to feel comfortable that they know where to send the Terminator if you default :-)
    1. The Egg loan is a flexible loan so I can take 3 payment holidays a year and could use this to take chunks off other debt?

    Definitely, but as Martin would say, hit the worst first. You need to establish what's the interest rate on all the debts outline above, then use your payment holiday to pay them down in succession, starting with the worst first.
    2. See if Egg will take on all the debt at the same rate so I just pay one person.

    Sure, why not. It's not a bad rate, though improvable.
    3. Apply for 0% or a low life of balance credit card.

    Let your credit file settle down a bit first. There's been a lot of commotion there lately :-)
    In terms of priority I see that the credit cards, the RBS one in particular, are the ones that need dealing with immediately

    Bingo. Kill that first, then the overdraft. The latter sounds like it's at about 9.6%. Do you get an annual pay rise of 9.6%? No, thought not. So it's growing faster than your ability to pay it. Which means it will eat more and more into your disposable income (such as it is) unless you deal with it first.
    The other day I had a ‘special invitation’ card information thing through from Morgan Stanley – am I more likely to get this or am I being thick and naïve if I believe the ‘pre-selected’ thing?

    The latter - you're pre-selected to be credit scored, but they needn't accept you, so it means little. It does tell you that MS don’t consider your postcode to be crummy, though, which is good to know. If they did, they wouldn't have wasted the stamp writing to you to persuade you to apply.
    I budget for everything (I have recently made use of the MSE budgeting spreadsheet) that I do buy - which isn’t a lot - and I never spend on the credit cards anymore and have been better off in cash terms since buying the house even though I have no spare income! This is probably because my boyf is so good with money.

    All good news. Whenever I've gone out with women who earned less than me, I always split bills in line with disposable dosh. I.e if I earned 3 times what she did, half each wasn't fair on her and me paying everything wasn't fair on me. So the usual split would be I pay three-quarters of restaurant bills and she paid a quarter. This is, of course, after the first hot and heady rush of romantic feelings had worn off, i.e. about 2 weeks into the relationship when my inner tightwad had started to assert itself once more. I'd suggest some arrangement like this to your blurk if you don't already.
    Usually I would be in a right mess this time of year (i.e. using the credit cards to get me through the month) but this Christmas I did everything as cheaply as possible over a longer timeframe and I should be ok (although right up to my od limit) until payday.

    I recommend you invest in Microsoft Money 2004 (2005 is apparently pants), Quicken, or one of those money management software packages. If you get last year's version it's dirt cheap and just as good. You can use it to predict your balance as far ahead as you like, if you're prepared to input the necessary data. Invaluable budgeting tool.
    I save £100 per month in a high interest savings account.

    Laudable, but wrong. Your high interest account is paying you 5.35% after tax even if it's in an ISA. Meanwhile you're paying 15% to RBS, 10% to the bank, 7.7% to Egg….you are effectively borrowing from RBS at 15% in order to deposit at a third of that.

    You are better off taking the £300 you have in there and using it to clear the Barclaycard. Then shift £560 off the RBS card to the Barclaycard to take advantage of the 0% deal. Saves you about £75 in interest between now and September.
    Even though my situation is dire I still feel that to live just to pay debts and bills is depressing so my one extravagance most years (not every year – certainly not last year due to buying a house) is to book a holiday and a budget one at that.

    Understandable, and not necessarily bad. A diet you can’t stick to is a bad diet.
    Sorry if I’ve waffled and if anyone has read this I would be really grateful for your advice. I truly am looking forward to debt free days and I am committed to doing this. I just want to know the best way of doing it.

    You need to take the time to figure out where every penny goes, and then use this site and Martin's book to make sure you optimise every penny. The value of his spreadsheet is that it lists everything you spend on, and is in effect a checklist of everywhere you can save money. Whatever you save, you chuck at your debt till you're debt free. Is your gas and electricity as cheap as you can get? What about the phone? What about your mobile phone? Internet? Food shopping? Do you have anything you can flog on eBay? Old college course textbooks?

    In summary: organise and then optimise.

    Try to chill a bit too. I know that's easy to say, but you sound stressed to me. This is important, sure, but it’s not really urgent and it shouldn't occupy your every waking thought. You have a couple of years of graft ahead of you, but you have something to show for being in debt. You've got your own place, for instance, and people will understand if you minimise going out as a result - just candidly admit that you're totally skint from doing the new place up. Everybody is, believe me, and you and bloke can just stay in and cook meals and stuff instead of going out.

    So be methodical - you are methodical, because otherwise you wouldn’t have survived doing a degree course - and once you have your plan sussed, just go with it.

    WP
  • Some excellent analysis there, WP. I know whom to turn to, when a friend of mine comes to me with debt-related problems in future !!!
    It's always the grass that suffers, irrespective of whether the elephants are fighting or making love !!!
  • Wow - Western Promise - are you my guardian angel? Will you marry me? ;D Just joking...

    In seriousness thank you so much for that, I didn't expect such a reply and just from reading it through once its ordering things in my messy head. I'm really grateful.

    I have had a look and found out that my Barclaycard is definately 0% until September, the RBS is 17.9% and the First Direct is 15.9%.

    You are right about the budgeting side of things and there are things I haven't accounted for here. I have counted for them in the budgeting tool though so I will finish that off and see where it leaves me month by month. I do, however, regularly use this site to ensure that I am getting the best deal on things like bills, insurances and general expenditure. I got last years MOT free, (dont know why - Peugeot just offered it to me!) but I doubt that will happen again, and I work in a school so I get a dodgy, but free, school meal each day!

    I will read your reply again as I need to prioritise and work out what to do first. First thoughts - would it be good to do as you say and get rid of that Barclaycard with the savings and then move some of the RBS over to it? Then what about taking payment holidays from the Egg loan and getting rid of the First Direct card in the next three months - or should I concentrate on reducing the RBS because of the high interest rate?

    I really appreciate your help. Its a real eye opener to have someone else's view on the situation. I am so going to do this!!
  • westernpromisewesternpromise
    4.8K posts
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    Wow - Western Promise - are you my guardian angel?  Will you marry me? !!
     

    Milky_Mocha wants to marry me too. Form an orderly queue.
    First thoughts - would it be good to do as you say and get rid of that Barclaycard with the savings and then move some of the RBS over to it?

    Yup. You'll reduce your dearest debt by £500 for the next 9 months. Even if you end up having to transfer it back to RBS at the end of that time, you'll have saved (9/12) * 17.9% x £500 in the meanwhile, i.e. about £70.

    On your ~£25k a year, it takes you a whole day to earn £70 after tax. So, do you make one teeny phone call that saves you £70, or do you work a day for RBS' benefit instead? Your call :-)
    Then what about taking payment holidays from the Egg loan and getting rid of the First Direct card in the next three months - or should I concentrate on reducing the RBS because of the high interest rate?

    It's often tempting to try to eliminate cards, but it's more efficient to eliminate debt. The card is just a vehicle for the interest rate, so that's what you should focus on. First Direct charge you 2% less per annum than RBS does, so if you pay FD off first, you are chucking away about £20 a year, compound, until the last of the two debts is gone.

    OK, it's not a huge amount - but would you deliberately chuck £20 away while walking down the high street? Of course not!

    Incidentally, have you thought of confiscating cigarettes off the kidz and selling them on eBay? Just kidding...
    I really appreciate your help.  Its a real eye opener to have someone else's view on the situation.  I am so going to do this!!

    You're welcome. You're in the right place.

    I thought I was savvy with money until I came here. You know, I had my five grand of 0% credit card money on deposit at 5% and figured I had it sussed.

    Then I came across people here who'd blagged £70,000 of it, which they were using to engineer interest-free mortgages! Thinking big or what?

    This site also taught me about using call18866 for phone calls, as a result of which my phone bill has dropped from £70 a quarter to £3. And the site also keeps me posted about which cashback credit card to use, so that last year, I collected £377 for doing what I would have done anyway. It's always possible to optimise.

    Keep us posted.

  • This site also taught me about using call18866 for phone calls, as a result of which my phone bill has dropped from £70 a quarter to £3. And the site also keeps me posted about which cashback credit card to use, so that last year, I collected £377 for doing what I would have done anyway. It's always possible to optimise.

    Agreed. One fundamental thing I've really learnt from this site is that there is always slack in the system. You may be saving £££s currently, but there is always the £X extra that you might have missed out on, which one can catch up on thro' MSE !!!
    It's always the grass that suffers, irrespective of whether the elephants are fighting or making love !!!
  • SpendlessSpendless Forumite
    21.6K posts
    Part of the Furniture 10,000 Posts Name Dropper
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    Can I just add something into the equation about the FD CC.

    I have one and unless you spend £1200 p.a on it you are charged £20 for having it.

    I'm pretty sure that they count the year from the date you first tookout the card.

    If you are within your dates of a year and not going to be charged this £20 then fine but if not shouldn't the OP be taking this into account when deciding which debts to clear first ???
  • Milky_MochaMilky_Mocha Forumite
    1K posts
    Part of the Furniture 500 Posts Combo Breaker
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    Milky_Mocha wants to marry me too. Form an orderly queue.  

     


    Don't try to jump in front of me, Harriet. I'm watching you! ;D

    Good luck in all your debt-clearing endeavours though. And congrats on what you've achieved so far.
    The reason people don't move right down inside the carriage is that there's nothing to hold onto when you're in the middle.
  • Shucks... all the best ones are always taken... ;)

    Ok I'm going to press on with that first step and pay off the BCard with whats in my savings then move a chunk of the RBS over to BCard.

    And get this, last night I came home to a letter from RBS informing me that my credit limit has been raised to £5800!!! They make it so easy to get into more debt...

    Just a query - is it worth asking BCard if they would like to increase my limit to take advantage of the 0% or would that constitute a further credit check?

    Many many thanks for all of your support. I will keep posting progress on here if its ok. It will really motivate me to do that and it will also demonstrate to me that I am making some progress! Sometimes it doesnt feel like its moving at all!

    HP
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