Loans vs Overdraft

andrea_howey

Hello everyone

I hope you can help, i'm just looking for a bit of independent advice. I don't want to go to this with my bank because they'll only use it as an excuse to sell me something!!

Are you ready for this? It gets complicated.

I'm going travelling in October for 8 months. As well as saving for this trip of a lifetime I'm also trying very hard to pay off a £1600 student overdraft. The interest is very low at the moment but in August it increases to an EAR(Variable) of 19.30% (This is equivalent to 1.48% p/m = £23.68 p/m)
This will eat £260.48 into my travelling money (£23.68 x 11 months..from August to June.. June is when I get back)

However i should have managed to pay off £900 of this overdraft by October leaving me with £700 still to pay. 1.48% of £700 is £13.32. £13.32 x 11 months means even after paying off £900, I will still lose £146.52 of my travelling fund.

So the question I'm left with, is whether I should get a loan to pay off my O/D. I guess a loan will have less than a 19.30% EAR. (although they quote loans in APR.. I don't know what either of these two things mean!) and this might eat less into my travelling money. I could leave enough in my bank account so that it is paid off by the time I'm home (when I may be unemployed... it depends on whether my work give me a sabbatical or not)

Anyone have any advice for me? Thanks in advance for all of your help.

Andrea

CLAPTON

stating the obvious
-seems most unwise to go travelling when in debt
-banks don't like maintaining an OD whilst no income is being paid in and sometimes will close the a/c in these circumstances.
-if you take a loan and if you can't get a sabbatical how will you pay the debt off upon your return?

what about the bank of mum and dad?

andrea_howey

Thanks for your input Claption. In response:

- My travelling is not unwise, I have saved an awful lot of money to fund this trip of a lifetime. I could pay my overdraft off altogether but I'd prefer to manage it and/or reduce it.

- I hadn't considered that my bank may close my current account while I'm away. I will check with them, this was very helpful.

- If I don't get a sabbatical I will get a job on my return (even if it's pulling pints, I will find something.)

- I think when I wrote 'student' you may have read 'naive 18 year old' I'm an adult and a professional, my parents bank account is irrelevant.

Thrugelmir

andrea_howey wrote: »

- My travelling is not unwise, I have saved an awful lot of money to fund this trip of a lifetime. I could pay my overdraft off altogether but I'd prefer to manage it and/or reduce it.

Obviously not as you are in debt. So thats something you need to consider carefully. Why not shorten the trip to 6 months thereby saving money?

andrea_howey

Please could somebody provide some constructive advise re my original post?

CLAPTON

basically you want a loan for 700?

not many leaders would be interested as the admin costs are high relative to the interest they will charge you.
you will of course still have to make payments whilst away unless you borrow more to make the payment from.
try your bank as they know you.

you could simply use a CC for all your spending now and build up a big debt on the CC but reducing your OD; however you would still have to make monthly payments unless again you over borrow.
in any event if you are confident that jobs are easy where you are could you not get a parttime job now to pay off the overdraft

AER and APR are effectively the same thing.

hur575

andrea_howey wrote: »

Please could somebody provide some constructive advise re my original post?

I think clapton gave a constructive advice, just not what you want to hear!

Person_one

I think you should use some of your savings to pay off the overdraft. It migt not feel like it but you'd be better off. Essentially you're currently paying interest on 1600 of your savings instead of earning it!

Pay off the overdraft in full now,as in tomorrow now, right away, asap, then carry on your saving and put all the money you would have paid into the overdraft into your travelling fund, you won't be any worse off.

I'd hate to go off and have that once in a lifetime experience with debt hanging over my head, I'd want to feel free before I set off. After all, you never know what can happen in 8 months in strange countries, you might end up incurring other debts or needing access to emergency money such as that overdraft facility.

Apples2

andrea_howey wrote: »

- My travelling is not unwise, I have saved an awful lot of money to fund this trip of a lifetime.

But you have an overdraft of (at least) £700 by the time this trip starts.

How is it you think you have an awful lot of savings when you are in debt??

Where is this trip to?? Cloud cuckooland??