Pay off the overdraft or the credit card first?

Drbob08

Hi there,

I have got myself into quite a rut and the biggest debts I have is a £300 overdraft which I always max out on and a credit card with a £400 limit which is currently down to £370 with a huge amount of interest of about £5 a month!

The issue I have is the bank account I have is £12.50 a month (I have this to save me from £1 per day overdraft fees!) and I always end up spending all of my overdraft anyway...

On the one hand I could work at paying off the over draft, by cutting it down by as much as I could afford each month until I can get rid of it - then having £12.50 a month extra to pay to the credit card, or I could work at getting the credit card paid off...

Does it seem more sensible to pay off the overdraft first in this scenario?

KPR11

Welcome to DFW DrBob,

Well done on trying to take control whilst your debts are still small and manageable.

The snowball calculator (http://www.whatsthecost.co.uk/snowball.aspx) should help you figure out which debt is costing you more.

However, I would strongly recommend you to ascertain what is causing you to be maxing out your OD and using you CC on a monthly basis. It is either your income isn't high enough or your expenses are too high. You can find out by filling out a statement of affairs (SOA) - http://www.makesenseofcards.com/soacalc.html and posting it here. I have found the suggestion made by the people on here very helpful and should help you cut down on non-essentials or help you boost your income.

Good luck

Drbob08

Hi there, thanks for your post, I think it's a mix of my earnings not being enough and my expenditure being too much. I'll do an SOA and post back

Drbob08

Statement of Affairs and Personal Balance Sheet
Household Information
Number of adults in household........... 2
Number of children in household.........
Number of cars owned....................
Monthly Income Details
Monthly income after tax................ 500
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 500
Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 200
Management charge (leasehold property).. 0
Council tax............................. 0
Electricity............................. 0
Gas..................................... 0
Oil..................................... 0
Water rates............................. 0
Telephone (land line)................... 0
Mobile phone............................ 20
TV Licence.............................. 0
Satellite/Cable TV...................... 0
Internet Services....................... 0
Groceries etc. ......................... 0
Clothing................................ 0
Petrol/diesel........................... 0
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 48
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0
Haircuts................................ 0
Entertainment........................... 0
Holiday................................. 0
Emergency fund.......................... 0
Bank Account Fee ....................... 12.5
Total monthly expenses.................. 280.5

Assets
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0
Total Assets............................ 0

No Secured nor Hire Purchase Debts
Unsecured Debts
Description....................Debt......Monthly...APR
Capital One....................370.......8.........34.9
Next...........................91........8.........29.9
Littlewoods....................60........16.4......0
OverdDraft.....................300.......0.........0
Store Card.....................30........2.........29.9
Loan 2.........................48........48........0
Loan 1.........................54........15........0
Total unsecured debts..........953.......97.4......-

Monthly Budget Summary
Total monthly income.................... 500
Expenses (including HP & secured debts). 280.5
Available for debt repayments........... 219.5
Monthly UNsecured debt repayments....... 97.4
Amount left after debt repayments....... 122.1
Personal Balance Sheet Summary
Total assets (things you own)........... 0
Total HP & Secured debt................. -0
Total Unsecured debt.................... -953
Net Assets.............................. -953
Created using the SOA calculator at www.makesenseofcards.com.
Reproduced on Moneysavingexpert with permission, using IE browser.

I live with my mum so the £200 'rent' is digs and my hours at work change from week to week, I generally expect to receive c£500 though.

KPR11

Drbob08 wrote: »

Statement of Affairs and Personal Balance Sheet
Household Information
Number of adults in household........... 2
Number of children in household.........
Number of cars owned....................
Monthly Income Details
Monthly income after tax................ 500
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 500
Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 200
Management charge (leasehold property).. 0
Council tax............................. 0
Electricity............................. 0
Gas..................................... 0
Oil..................................... 0
Water rates............................. 0
Telephone (land line)................... 0
Mobile phone............................ 20
TV Licence.............................. 0
Satellite/Cable TV...................... 0
Internet Services....................... 0
Groceries etc. ......................... 0
Clothing................................ 0 (you are clearly spending something here - next store card has a balance)
Petrol/diesel........................... 0
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 48
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0 (shouldn't there be something here?)
Haircuts................................ 0 (shouldn't there be something here?)
Entertainment........................... 0 (shouldn't there be something here? or do you not go out at all?)
Holiday................................. 0
Emergency fund.......................... 0
Bank Account Fee ....................... 12.5
Total monthly expenses.................. 280.5

Assets
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0
Total Assets............................ 0

No Secured nor Hire Purchase Debts
Unsecured Debts
Description....................Debt......Monthly...APR
Capital One....................370.......8.........34.9
Next...........................91........8.........29.9
Littlewoods....................60........16.4......0 (is it actually 0%?)
OverdDraft.....................300.......0.........0
Store Card.....................30........2.........29.9
Loan 2.........................48........48........0 (does this mean you have an extra £48 from this month?)
Loan 1.........................54........15........0
Total unsecured debts..........953.......97.4......-

Monthly Budget Summary
Total monthly income.................... 500
Expenses (including HP & secured debts). 280.5
Available for debt repayments........... 219.5
Monthly UNsecured debt repayments....... 97.4
Amount left after debt repayments....... 122.1
Personal Balance Sheet Summary
Total assets (things you own)........... 0
Total HP & Secured debt................. -0
Total Unsecured debt.................... -953
Net Assets.............................. -953
Created using the SOA calculator at www.makesenseofcards.com.
Reproduced on Moneysavingexpert with permission, using IE browser.

I live with my mum so the £200 'rent' is digs and my hours at work change from week to week, I generally expect to receive c£500 though.

Have you checked to see if you are entitled to any benefits? (www.entitledto.org)

Based on your SOA you seem to have a surplus so it's a good things. Question is, do you actually have a surplus every month? I would strongly suggest you keep a spending diary, I personally tend to use (http://www.spendingdiary.com/) and have found it very useful.

I know a lot of people would say that you should get rid of the highest APRs first. You could pay off your next card as a feel good factor. Be sure to cut your cards so that you don't go out spending on them. The interest on them is crazy!

Hope it helps.

katsu

Can you increase your income so you can clear the debts faster?

Also, is this true "Amount left after debt repayments....... 122.1". If not you need to start a spending diary to work out what really needs to be in your SOA.

Drbob08

KPR11 wrote: »

Have you checked to see if you are entitled to any benefits? (www.entitledto.org)

Based on your SOA you seem to have a surplus so it's a good things. Question is, do you actually have a surplus every month? I would strongly suggest you keep a spending diary, I personally tend to use (http://www.spendingdiary.com/) and have found it very useful.

I know a lot of people would say that you should get rid of the highest APRs first. You could pay off your next card as a feel good factor. Be sure to cut your cards so that you don't go out spending on them. The interest on them is crazy!

Hope it helps.

I don't have a surplus the rest goes on lunches and some 'entertainment' but what I spend on that is a mystery (I know, that's bad!) I will try a spending diary... That should clear up where my money is going first of all...

Drbob08

katsu wrote: »

Can you increase your income so you can clear the debts faster?

Also, is this true "Amount left after debt repayments....... 122.1". If not you need to start a spending diary to work out what really needs to be in your SOA.

I can't increase my income at the moment or at least in the situation I am in at the moment - I have 2 jobs and I get varying hours per week from one and 4 hours per week from the other.

And no I never have a surplus, right now I have nothing and I've got 3 weeks to go...

As for the debt of £48 that is a loan that I have mised payments on therefore it's in arrears of the full amount - I consider this a high priority to be paid when I get my next wage.

LexieLou

Hi there,

Welcome to the boards. Congratulations on taking the brave decision to tackle your debts.

You have stated that you have 2 jobs already, but have you looked at other ways of earning extra money? You could ebay, do surveys, register with a recruitment company to do some temp work, ask at a local bar / restaurant about getting some shifts. I used to work in a bar a few nights a week and it's great craic and you're getting paid to socialise.

Can you offfer to do dog walking etc? I know these all seem like silly things to consider, but getting just one stint at something can add up.

Defo start your spending diary, allocate yourself a budget every day and try and stick to it. But I would consider ebay, you will be amazed what people want to buy.

Keep up with your diary, it keeps you motivated.

I'll pop back soon and say hi.

LL xx

Drbob08

Hi Lexie thanks for your reply, I don't really have anything I can sell on eBay - I don't think anyway, I have a bunch of books but the cost of postage seems to outweigh the benefits of buying them cheap from eBay.

Bar work could be fun, I've actually thought about that, it might be worth while if it could bring in some extra money, I really just want to get rid of this debt, can't believe I let myself rack up so much, especially the credit card, £10 here and £20 there soon mounts up!