What to pay off first?

mike_efc

Hi everyone,

I'm wondering if you can all help me regarding my outstanding debt and in which order to pay it off.

I have the following:

Barclaycard = £2596 (Cash £940 @ 27.9%, purchase £1656 @ 14.9%) Credit minit = £3000

Halifax Card = £5500 (Cash £1440 @ 22.95%, purchase £4060 @ 15.9%) Credit limit = £5750 (This has an option to xfer a balance to it at a rate of 4.9% for balance lifetime)

Virgin Card = £7038 (Cash £876 @ 27.9%, purchase £6161 @ 0% until Sep 2010 - will then go to interest rate of 16.6%) - Credit limit = £7300

Sygma Mastercard = £479 (0% until August 2010 when it reverts to 16.9%) Credit limit = £1000

Littlewoods Catalogue = £706 (no interest but min payments of around 10%) Credit Limit = £1750

Capital one card (£1000 credit limit, £0 balance, balance xfer rate would be 14.9%)

Any help would be fantastic as I feel I'm getting snowballed by debt.

Thanks in advance

pixiechick_2

Hi mike and welcome!!

Hav you tried entereing your card balances into the make sense of money snowball caclulator http://www.makesenseofcards.com/snowcalc.html ?

This will help you to decide in which order to pay them.

mike_efc

Because of the cash interest rates which get paid off last, that calculator isnt really applicable for me.

Thanks alot for your suggestion anyway!

DVardysShadow

Now, if your cards are like mine, you pay off cash withdrawals last, so you have a lot of low APR debt to clear before you can clear off higher APR cash withdrawal debt. You have been nicely trapped by having cash debts on a higher rate hidden behind lower purchase rates, making this hard to sort out.

The first move you need to make is to change your behaviour so that you only take cash from your current account and NEVER from the cards. Or if you must take cash from cards, only use one card for cash and don't use it for anything else. Once you put cash withdrawals on to a card, you 'poison' it with high APR debt - and if there are purchases on there, you make it harder to get the poison high APR debt paid off. And you need to make sure you can pay for all your purchases from the current account - although you won't actually do this, see later.

As for the debts, you don't mention an overdraft, but if you do, get that sorted before thinking about paying cards off and only take cash from the current account - if you don't have cash there, then don't spend. This may not appear to help you dealing with the rest of your debt, but I think you will be floundering around uselessly until you get on top of your current account.

Once you are ready to tackle your cards, I think you need to take each card in turn and 'unpeel' it to expose the cash withdrawal debt and pay it off.

So I would start with the Barclaycard I]= £2596 (Cash £940 @ 27.9%, purchase £1656 @ 14.9%) Credit minit = £3000[/I. I chose this because it has the high APR debt least shielded by purchases, although it is not necessarily the optimum answer. Now, put all your surplus to paying this off. Transfer balance away, if you can get a better APR. And remember, when I said you need to be sure make all your purchases on the current account? Actually, you make these purchases on the lowest APR card you have available to you - apart from the Barclaycard, because this is the one you are trying to pay off. And the money in the current account which you would have used to make the purchase, you actually put to paying off the Barclaycard. And don't be a mug and buy stuff you don't need or which you could not afford from the current account. The idea is to pay off as much debt as you can and to move debt, so you can pay off cash withdrawal debt or at least swap it for purchase debt.

Once you have paid off the Barclaycard, it becomes clean of cash withdrawal debt - and you can start to load it with purchase debt while you unpeel another card to expose the cash withdrawal debt and pay that off.

Of course, this is rather complicated, but you have used your credit in a way which has given you some complicated debt.

Finally, do post a Statement of Affairs, so you have some idea of the surplus you have each month and so other people can suggest how you can save and get more money to throw at the debt.

mike_efc

As I work for a bank they have an option where I can get staff loan at a rate of 8.9%. I've already been rejected for this as my current account wasn't managed properly (I spent what went in) but they said I can re-apply in 6 months. Shall I try and manage my account better by just paying the min payments on my credit cards and leaving the excess in my current account (therefore portraying a better managed account) I was thinking about getting a loan of £10000, paying off the Barclaycard, Halifax Card and £2000 off the Virgin credit card, then transferring the remaining Virgin balance onto the Halifax card which has a 4.9% lifetime balance xfer option.

Little_Miss_Uni-Debt

Hi,

The snowball calc is useful to you even though you have cash at a higher rate. it can still be worked out but is just a bit more difficult.

I'm having a look at the figures now.

How much per month can you afford to throw at them all?

mike_efc

Around £300 per month.

DVardysShadow

mike_efc wrote: »

As I work for a bank they have an option where I can get staff loan at a rate of 8.9%. I've already been rejected for this as my current account wasn't managed properly (I spent what went in) but they said I can re-apply in 6 months. Shall I try and manage my account better by just paying the min payments on my credit cards and leaving the excess in my current account (therefore portraying a better managed account) I was thinking about getting a loan of £10000, paying off the Barclaycard, Halifax Card and £2000 off the Virgin credit card, then transferring the remaining Virgin balance onto the Halifax card which has a 4.9% lifetime balance xfer option.

I would suggest, as my first post, that you get the current account in order - ie ALWAYS in credit. Just pay your minimums until the account stays in credit throughout the month. If it is in credit even by £1 that is going to look a whole lot better than being OD. But probably a minimum of £250 to look healthy. After that, if you start accumulating too much surplus in the current account while you have other debts, it begins to look again as if you have no idea how to manage your money.

Little_Miss_Uni-Debt

Hi again,

Well I've crunched the numbers and the 'locked' cash debt is what is making it harder for you.


It works out (paying around £300 to your debts) that it will take around 7years (84 payments) and will cost you around £6466 in added interest to pay off.


So in this instance any loan that costs less than £6466 over the lifetime of the loan would make you a saving!!!

However with cards you can go back to paying minimums if you have a hard month. With a loan you are stuck to paying the full amount.

Little_Miss_Uni-Debt

Anything equal to or less/better than a £20k loan @ 8% APR will save you money compared to paying off the normal route.


How much do you think you could borrow and what kind of % rate do you think you could possibly get?

I don't know what kind of unsecured loans are out there at the minute though!

mike_efc

I could get a staff loan from my work (one of the big banks) but I need to make sure I'm managing my Current account better. At the moment I have a £500 overdraft but I never ever go over this but come the day before payday, its rare that I have anymore than £50 in the account.

As said, with the loan being at a rate of 8.9%, I would clear the Halifax, Barclaycard and £2000 off the Virgin card then xfer the remaining balance on Virgin to my Halifax 4.9% lifetime balance therefore eliminating all the 'bad cash debt which is locked in behind purchase debt'

So I'd have £10000 on a 8.9% loan, £5000 on a 4.9% and will hopefully clear the Sygma card and Catalogue in due course being the smallest debts.

Whats your opinion on this idea?