Considering my options...

eskkar

Hi all
First time MSE poster looking for a bit of advice with debts please!

I am currently hovering very close to the bottom of my overdraft limit - at the end of the month my balance is pretty much minus £5k. At the start of the month it's around minus £3.5k but always seems to go back down. I know I need to start some serious money budgeting and will be doing so, however I think at best I will only be able to dig myself out to the tune of around £200 a month, tops - my new second job will hopefully help there.

I'm wondering whether to take out a personal loan for £5k so I can wipe out my overdraft and start from scratch on a massive money saving kick and hopefully avoid getting back into this situation. My question is though - is this the best thing to do, or should I just slowly dig out instead? I think my credit file is pretty good - no major defaults and very little credit card debt - but I haven't spoken to my bank about extending the overdraft further or anything like that. And, come to think of it, is that something I should be asking anyway?

So as I see it I have two options...

a) take out a loan, get rid of my £5k but risk paying for it for years
b) dig myself out slowly, without a loan, but risk going over over-draft when big payments like the car MOT/insurance (cycling not an option!) come in over the summer

Is there a plan C? Any advice gratefully received please!

Apricot

Plan c would be get yourself a new bank account without an overdraft and get your wages paid directly into there. Then set up a standing order for £200 per month to pay off your OD?

daviesalie_2

Hi eskar, there are a few things to consider. Firstly do you have the self discipline to ring the bank every month to reduce your overdraft by £200, or will you say to yourself (like I do) that you need this or that and will start next month instead. Secondly, will the interest on the loan be less than your overdraft interest, if so, then I'd take the loan option, but make sure you cancel your overdraft straight away to avoid building it up again (like I did).

Also, I'd think about why you have such a big overdraft in the 1st place. You must have been overspending to build it up to 5k. Hopefully you can address this with the 2nd job, but its worth doing yourself a comprehensive budget (budgetbrain.com) to make sure you don't get into this predicament again.

Good luck

eskkar

Hi Princessleah_
Ooo. Hadn't actually considered this - so set up a new account and only transfer enough money into that one to pay regular bills and slowly wean off the overdraft?

eskkar

hey daviesalie
Sorry, I should clarify - I meant I'd just be further out of my overdraft, as in go from -5k to -4800 the next month. I wouldn't actually be getting the bank to alter the -5k limit. But yes, I'm concerned that my self discipline is an issue. That's pretty much how I got into this issue - death by 1,000 cuts of pizza, games and DVDs - but I am hoping this is the shock I need to get back to reality.

daviesalie_2

back again...had a quick look at 5k loans on moneysupermarket and they're roughly £160 a month for 2 years, or £230 over 3 years.

Edit: sorry wrong way around £230 over 2 yrs and £160 over 3 years. told you my brain was fried

daviesalie_2

eskkar wrote: »

hey daviesalie
I wouldn't actually be getting the bank to alter the -5k limit. .

But isn't the purpose of this to stop using your overdraft. Why do you still need the 5k limit on your account? Or am I getting the wrong end of the stick?

I think the £200 a month sitting in the account, ready to use, would be too much of a temptation. It was for me. If you like the security of having the 5k limit why not reduce it by 150 a month and put 50 in a savings account so you've got some back up cash if you ever need it.

Let me know if I'm not with you, read so many threads today my brain's a bit fried

Apricot

Well that's what I've done. A&L gave me £100 for changing all my DD's and everything to them so I know get my wages paid into there and have a standing order to my OD every month which is slowly chipping away at it.
I've actually cut up my old debit card as it will be too much of a temptation to use it when im skint but I can check my account online to see how it's going down. My OD is interest free though, how much interest are you paying on yours?

onehitwonder

I am definitely no expert but...

What interest rate are you paying for the O\D?
If you can get a loan that charges less interest then go for that - but make sure you cancel the overdraft.

eskkar

Hey Davie
I'd like to be out of the overdraft but I'd still like to have it there for emergencies. Imagine you're a trapeze artist and the overdraft is your safety net. You don't want to fall but if you do it's better to have a net there than nothing at all

onehitwonder

But if you are like me you will end up getting the loan and then building the O\D back up. Getting rid of it removes the temptation.