Clearing my overdraft

sxe1989

Hi,

First post and all so apologies if this is in the wrong section.

I'm 20 years old and have an excellent job which pays £28,000 per annum.
After tax, this ends up as £1771.15 which is paid into my account each month.

Being foolish before, and having to pay for some hefty work on my car (which took me by surprise because it pretty much died on me!), I am constantly in my overdraft, which is currently £2,500.

I've been saving hard but with rent & living/general expenses it seems to never clear. I get myself down to about £600 - £700 overdraft when I'm paid but the monthly expenses go out and it creeps up again! Basically, my monthly salary is not enough to clear my overdraft.

I really want to clear this overdraft because I've been in it for as long as I can remember! It's really starting to weigh on my mind and cause me stress.

I was looking into the virgin credit card, which currently offers 0% on balance transfers for 16 months.

My plan of action would be to take out a virgin credit card, and do a balance transfer of £2000 to clear my overdraft. That plus my monthly salary going in would put me well into credit.

£2000 over 16 months = £125 repayment.

£125 a month seems a much more manageable amount for me. That would put my mind much more at ease!
The other factor that is pushing me toward this is I do some freelance work which pulls in a couple of extra hundred pounds every few months, so I could use this money to directly pay off more in a particular month on the credit card - i'm assuming you can do this? Pay off as much as you want per month as long as you reach the minimum payment?

Would like to know peoples throughts really, and see if they maybe had other alternatives that i've yet to hear about.

Thanks in advance!

savingmummy

Welcome!! well done for posting here.
I have no advise on the credit card as i`ve never had one but you will get lots of advise here!

The step you need to take is to ensure this don`t happen again, so you could have an emergency fund set up incase of unexpected pay outs ie, car repair/house appliances etc.
A second bank account may help!
Stop the foolish overspending and stick to budgets, ie, if going shopping set a budget and stick to it!

If you do a full SOA that is 100% accurate http://www.makesenseofcards.com/soacalc.html and post it here we can advise you on what can be reduced or stopped to help you have a bit more each month too!!
What helps is your young, got a good wage and clearly have a good head on your shoulders
Good luck becoming debtfree!!x

Welshdebtor

So does your wages go into your overdrawn account?

sxe1989

Yes, they do.

Tixy

Hi and welcome

Whilst it does seem to make financial sense I'd firstly think about how disciplined you could be 1) to close your overdraft and not request another one, and 2) to make sure you always pay the £125 repayment. The reason being is that you set the dd for the minimum amount (or the total balance but obviously you don't want that!) and then you need to manually pay the rest of the £125. The temptation for people is often to hit a bad month and just pay the minimums, if this happens several times you don't clear the card in the 16months and then end up paying very high interest rates on whatever remains.

The other thing to consider is whether you would actually get the card for the limit you have in mind - its getting increasingly difficult to get 0% deals - do you have any negative things on your credit report? (late payments, defaults, CCJs, lots of address changes?, are you on the electoral roll?)

How much is your overdraft usually just before payday? (as this is really the amount of debt you are in)

You say it seems more manageable to pay the £125 but have you actually worked out if you can afford this? is the maximum point of your overdraft actually decreasing by say £100 each month? if not and it stays the same each month end then you are actually spending all of your salary. Have you written out a detailed monthly budget for all things you have to spend (including an allowance for items such as car repairs etc)? if not then its worth doing this
use this link - http://www.makesenseofcards.com/soacalc.html

You say that £2000 plus your salary will put you well in credit but again your monthly expenses will have to come out, so in the first month you would need to find an extra amount equivalent to £2000 less the max overdraft to make sure you are still in credit at the end of the month.

Do you know what the overdraft APR is on your current overdraft?

I'm not saying its the wrong decision mind, just giving you some things to think about.

Hope it helps.

Welshdebtor

Tixy has touched on my next question lol, how overdrawn are you before your wages go in on average?
Would it be worth opening/using another account for wages?

sxe1989

I usually hit the overdraft limit so we'll say my debt is £2,400.

I'm confident I could get this credit card, I checked my credit report with experian about 2 weeks ago and my rating was excellent (998 i believe).

Welshdebtor, what do you mean about a separate account for wages?

Welshdebtor

Right Day A you are overdrawn by £2500, then Day C comes along which is pay day adding £1771 to your account, thus making your balance overdrawn by £729. By only having one account you are reducing your overdraft (Good) but living in your overdraft/never leaving it (Bad) .
By having an other account for your wages, then all £1771 is yours to share out as needed i.e. debts, bills, food etc etc.
You would then treat your overdraft as a debt and arrange replayments with your bank.

This is similiar to what I have done, but you need it to be with a different bank/group than who you are overdrawn with.

Welshdebtor

Post your SOA as suggested it will allow us to advise better.