A hundred wagon loads of thoughts will not pay a single ounce of debt

equality7-2521

I am a little surprised to be writing this post, as I've been a regular visitor and reader of MSE for several years now, and always wondered how some people ended up with a lot of debt, thinking that "surely they could see that coming!?". Well- I think I've had my lightbulb moment, a combination of things, ironically it started when I realised I had a decent amount of money saved up, but that it would be better to pay off some debt with it. Only then did I realise that the debt I have is a lot more than I thought. Strangely, I had a day of that feeling you get when you look over the edge of a tall building, but actually feel quite good to have had a short-sharp-shock before anything really serious happened.

Although I have quite a large amount of debt, it is manageable if I make big changes to the way I've been living. I don't have any dependents, I don't drive to work (I walk or cycle), I don't have expensive hobbies, what I've come to realise since the turn of the year is that most of the money I get goes to paying down debt. And that for several years although I thought I must have paid off a lot of debt, I've actually been increasing it. My main problem in the past has mainly been buying things I don't need on credit card, assuming I will pay them off, as well as paying a large amount of money in interest payments.

I work with a guy who is a muslim, and who doesn't use credit cards at all, and when I realised how jealous I was of him, I realised it is time for something to be done. I've created my own budget, I've lived to it for nearly a month (I feel almost sick at how much I spent on food this month compared to the last several months), and weirdly I enjoy the value of money, which is something I think I lost when I started earning money and using credit cards.

My main goals are to become debt-free, initially with getting rid of the credit cards as my main concern, I've listed my SOA I created, which prompted me to cash in ISAs, collect extra money I was owed etc.


Monthly IN
==
My salary - £2250
Additional work: random, I get some extra money each month from freelance work, but it varies, this income could be increased
--
total: £2250

Having grabbed together other money I owe, and putting some plans in place, this week I receive:
£3500 from an ISA I have just closed
£950 from Nationwide in overpayments I made to my mortgage (adjusted mortgage rate included above)
A 0% credit card that I can do a balance transfer from (credit limit £6500)
Some extra money (probably £300 or so) from people I'm owed money from

Monthly OUT:
==============
Mortgage/Rent - £377
Council Tax - £91
Electric/Gas - £50
TV License - £12.50
Virgin £38.00
Phone - £20 contract + up to £5 extra
Food - £200
Social - £100 * currently lower than normal due to debt, usually would be maybe £200
Buying things (clothes etc.) - £50 *this is currently low until I get my debt paying moving
Home Insurance £15
Lovefilm - £7.99
Github (an online software service I use to protect my work) - £8.00
--debt payments--
Loan (Smile) - £276
Virgin Mastercard - £385
Halifax Mastercard - £80
--
Total: £1,715

Cards & Interest rates
==
Virgin (27%) - limit: £18,800 - balance £18,000
Halifax (20%) - limit - £5,300 - balance £5,000
Smile loan (?? 7%) - balance £5,900 (2 years remaining)


A few extra points:
* I plan to stop using *all* credit cards for spending.
* My intention is to use the 0% card, the savings and all extra to the Virgin card, then pay everything I can to that. The interest payments will come down when I pay those lumps in, so plan to pay £350 extra per month to virgin and £75 per month to Halifax (I estimate the Virgin payments will be perhaps £225 after this month?)
* Virgin interest is now extortionate!! This has changed several times in the last year, I got the card before April 2007, but not sure if that means anything, in some dealings I've been offered services to investigate this, but there will be at least some payment fees (bank issues, late a day or two etc. but I don't have any payments that have not been met)
* I will phone Virgin to ask if they will reduce the interest as it has jumped considerably
* Because I plan to make high payments (£350, increasing as the interest comes down), I don't know if there is a benefit sticking with that, or if getting a loan would mean that I would add X% to the total balance
* I applied for another 0% credit card but couldn't get one, I suspect I can only have one or my credit rating won't allow it
* As I pay down my debt, should I ask Virgin to reduce my credit limit (does it help in future?)
* I plan to have a few months making as high payments as I can, and then as the interest I pay comes down, start to apportion more money into perhaps the social/clothes part of the budget as well as get back on track with savings plans (small though, as I'd like to build up a little reserve so that I buy things from savings, not cards).
* I plan to sell some things I have, but also, am looking to cut the crazy interest I am paying. I phoned about loans, but just now (between moving and cutting down bills), I end up with a high APR 13.9% as it looks like I will be adding the debt rather than paying off with the loan.


I think that I've learned (although I'm annoyed at myself for not sorting this out sooner) the value of spending less than you earn, and am enjoying thinking of ways to get more money. I've even closed down bank accounts I had as a child that had a couple of quid in them and am gonna send that it to the credit cards! I suspect the next 6 months will be quite a squeeze, but that with some bigger payments now and getting things on track, I'll notice the interest I am paying drop, which should free up more money.

All advice is welcome, and I know that debt is hard, but that a lot of people have it a lot harder than me, and that staring this thing right in the face is the best thing that could have happened to me. Strangely I've started to eat a lot better, feel a lot better for it (no rubbish takeaways just because I can) and hope that I can get out of debt quickly, but that I won't lose the lesson that it has taught me so quickly.

GeorgeUK

Welcome to the board.

While it is usually best to pay off the larger debts first, i would be tempted to pay off the Halifax card in full. Once you get a nil balance statement for this you could then try to see if you can get a life of balance transfer which may be around 7% or 8%. This would allow you to transfer more money to a lower APR. The added benefit of that would be that as an existing customer, you don't usually need a credit check. You don't always get a life of balance transfer offerred - sometimes it is 0% or a low interest rate for about 6 months. It might be worth trying though.

I would also advise keeping a spending diary. Write down every time you take money from a cash machine and keep your receipts. You may find that there are extra things you haven't thought of that you can find a cheaper alternative for.

It may also be worth looking at you utility meters and see if you are in credit with your supplier or not. Also check the comparison sites to see if you are getting the best deal - same for insurances. Look at uswitch and moneysupermarket and try using a cashback site like quidco to add even more value.

Do you have any old credit cards that hanven't been used for a while? Could you get a balance transfer offer on these?

Check your credit file (free at experian if you cancel within 30 days). Make sure that everyting there is correct and that you are listed as being on the electoral roll.

Don't apply for any more credit. You can usually have about 3 credit searches in a 6 month period before your credit score is affected. It is also better to speace out applications so it does not look like you are desperate for credit.

You say you applied for another 0% card, but got rejected? I am currently putting in an appeal as i was rejected. Check your credit file to see if there is anything incorrect on there and try asking again - the worst they can do is say no. If they realise you are taking charge of your debt and reducing your liability, a person looking at the appeal may come up with a different answer than the computer.
http://forums.moneysavingexpert.com/showthread.html?t=2261253

Forget about the April 2007 thing. That is to see if the credit agreement is properly executed and if it isn't, the debt may be unenforcable. The creditor is still allowed to put a default on your credit file though so we only advise this to people with serious debt that already have a damaged credit rating.

I wouldn't ask to reduce the Virgin credit limit. There are pros and cons to doing this, but i think you shoudl leave it - at a later date you may be able to apply for a 0% card with the same card issuer (MBNA) and be able to use the excess/unused limit on that card for the new 0% one. There are other reasons, but this would be my main one right now. Worth giving them a call to see if they'll reduce the limit though.

Also have a look at the SOA calculator. It's the same income/expenditure as you've already done but more detailed and you may find you have more expenses than you originally thought.
https://www.makesenseofcards.com/soacalc.html

equality7-2521

GeorgeUK wrote: »

Welcome to the board.

While it is usually best to pay off the larger debts first, i would be tempted to pay off the Halifax card in full. Once you get a nil balance statement for this you could then try to see if you can get a life of balance transfer which may be around 7% or 8%.

You say you applied for another 0% card, but got rejected? I am currently putting in an appeal...

Also have a look at the SOA calculator. It's the same income/expenditure as you've already done but more detailed and you may find you have more expenses than you originally thought.

That is very interesting, as my initial plan was to cut down my loan (as it would be 275 a month to pay to cards), but I see what you mean, I could use my 0% card against Virgin, cutting the interest, and using the rest of my money to pay off Halifax card to nil.

I may appeal the other card that rejected me, but have to say if I pay off Halifax, I get the ~80+75=£155 extra to pay towards my Virgin card per month. So that looks a good way of doing it.

I should have said, that I followed the SOA plan, though currently I pay myself a set amount each month, which I live off, which contains the social/food stuff, and as you say, things maybe not included above, like presents, other costs etc. as I said in the budget, it's reduced from normal, but I think once I shift some interest away from the cards by making payments, I can perhaps give myself some extra money, or save a "buffer" and then maybe keep that at a certain level, putting any surplus back into payments.

Thanks for the great advice, I think I'd be happier cutting one card out completely.

GeorgeUK

Here's another tool for you to play aroudn with. Might want to wait until the morning though. It basically calculates the amount of interest you will be paying over the term of your debts and you can use it to work out the most economical way of repaying the debt.
https://www.whatsthecost.com/snowball.aspx

I would keep hold of all the cards until you were paying a lower rate on the full debt. There's nothing to stop you cutting up the card and keeping the remains if you need the details on it. It's the only hobby i can afford, but i like working out how to pay the least amount of interest to the banks

equality7-2521

GeorgeUK - excellent advice on the utilities credit, I just checked, and although I thought I'd been paying a consistent £50 in my budget to Scottish Power, I have a credit with them of over £150!!!! It looks like my monthly utilities bill is less than I pay, so should balance this up. Great advice again, and I will get that extra £150 and send it to Halifax. I'm determined to get the Halifax card sorted as soon as possible.

Apricot

The title of this thread sums me up so well! I think about all these ways I could be earning extra money & cutting back to pay off my debts but I only get around to making the changes 10% of the time.

I'll be following avidly - good luck!

bargainbetty

Sorry if I am repeating someone else, but definitely consider using the spare card to empty the Halifax card, and maybe a bit of the Virgin card too.

Then, shift everything you can from the virgin card to the now-empty Halifax card. Call Halifax and ask for a low-life-of-balance rather than 0% for six months - you won't need to switch again in a short time. You could even ask them to increase the credit limit to get your entire virgin card shifted (after you have paid the big chunks of cash into it.) Since your loans are fixed interest, leave them for now, and just throw everything you have at the cards!

If you do get the Virgin card empty, save it. Cut up the card, but save the papers. That way, if your 0% of low rate expires, you can shift that debt back to a deal with them. 3% every six months is better than 27% APR.

Good luck x