Getting out of debt

moonbeam51

Hi,

I've recently come in to some money (£25k) and would like to put this towards clearing some of our debt.

I currently have numerous credit cards, one loan and a mortgage.

Nationwide £13k @
AMEX £6k @ 14.4%
AMEX Red £1k @ 12.24%
Debenhams £4k @ 29.9%

My husband has
John Lewis 10k @ 14.53
Capital One £5k

We also pay £340 a month on a £13k loan and £1600 a month on our mortgage. We can easily afford to pay £500 on credit card repayments and if we made some cuts we could increase this to £800-1000.

Does anyone have any ideas how we should go about paying off the cards? Is it worth applying for a new card? I don't want to get rejected and get a bad credit rating. We don't want to apply for any more loans but we're determined not to run the credit cards up again once they are cleared.

Thanks in advance for your help

moonbeam51

lynzpower

hi there moonbeam

Could you post up an SOA ( read southern scousers sticky on what one is and how to do one)

Can you clear your loan without penalties? Whats the APr is it secured on the mortgage or not?

If you let us know this we can advise

bargainbetty

Hi Moonbeam,

Lynz has it right, put up a SOA with the debt amounts, repayment periods, monthly costs, APRs and details of any early repayment penalties.

To start with the basics, I would contact all the card holders and ask about reducing APRs, then use the money to pay off the highest remaining APRs.

Close the accounts when cleared, and wait a month or two to use your improved credit rating to switch the rest onto 0% cards if you can. You are more likely to be rejected if you already have lots of available credit, so closing the empty ones is crucial.

Then, cut up the new cards and carry on throwing every penny at the debts - you'll be amazed how quickly it all comes down!!

Good luck x

frugglewump

As lynzpower says you need to find out if there is a penalty for repaying your loan early & how much.

If you can get all the apr's than I would go to the snowballing site
https://www.whatsthecost.com/snowball.aspx

fill it in with your normal repayment amounts and see how long it will taake you to pay the lot off. Then, starting with highest apr, see how to divide up the 25k amongst the cards.

The other thing to consider is how these debts were run up in the first place. That is where posting your statement of affairs will help as people can point out where you aren't budgetting for things & places your budget can be tweaked to fix this & pay off debts faster.

dudleyboy

hi there and welcome. You haven't stated your Nationwide interest but on the above figures I'd do this:

1. Debenhams £4k @ 29.9% - i'd pay this off right away! 29.9% is an appalling rate of interest.

2. John Lewis 10k @ 14.53 - if you're happy to use teh money to pay off your husband's debt i'd do this next.

3. AMEX £6k @ 14.4%

This would leave you £5k to throw at the rest.

As Lynz says, your SOA would help see where other savings can be made.

moonbeam51

Hi again,

Thanks for responding so quickly. I feel quite embarassed about posting our incomes as I feel we should not be in this situation:

Monthly Income:
Salary Mine - £1100
Salary Husband - £3300
Daughter's Rent - £250 (she has not started to pay yet but has agreed to help out with financial situation although I am not keen)
Child Benefit - £68

Total £4708

Monthly Outgoings:
Mortgage + Protection - £1600
Endowment - £50
Council Tax - £186
Water - £72
Gas - £40
Electric - £35
Phone + Internet - £61
Mobile - £65
Sky/TV Licence - £55

Loan - £340 (5.5% APR - 2 months interest is penalty)
Credit Cards - £1100 (mainly min payments)

HSA - £30
Denplan - £30
Life Insurance - £66
Car Insurace - £20
Household Cover/Protection - £35

Food - £600
Travel (Season Ticket/Parking) £200
Car Tax/Petrol - £120
Clothes - £100
Haircuts - £100
Glasses - £35
Leisure/Eating Out - £100
Savings - £100

Total - £5000

I know there are things we could cut down on (food, clothes etc, leisure etc but I included MAX amounts for these). I don't really need advice on how to save money just the best way to deal with the credit cards.

Thanks again

moonbeam51

moozie_2

Hello, welcome and well done for posting :T

There is nothing to be embarrassed about. You spend more than what you have coming in and you got yourself in debt. That's how many of us got there, despite how much we earn

Let's have a look then....

moonbeam51 wrote:

Hi again,

Thanks for responding so quickly. I feel quite embarassed about posting our incomes as I feel we should not be in this situation:

Monthly Income:
Salary Mine - £1100
Salary Husband - £3300
Daughter's Rent - £250 (she has not started to pay yet but has agreed to help out with financial situation although I am not keen)
Child Benefit - £68

Total £4708

Monthly Outgoings:
Mortgage + Protection - £1600
Endowment - £50
Council Tax - £186
Water - £72 These three are quite high, have you shopped around recently? You could look at switching and getting rewards for that too from sites such as uswitch and quidco.
Gas - £40
Electric - £35
Phone + Internet - £61 Again this is high. Many deals for much lower, including talktalk by BT and broadband from another provider. Do shop around.
Mobile - £65 Is this one mobile? It's very high.
Sky/TV Licence - £55 Have you considered lowering your Sky subscription or cancelling all together and going with Freeview?

Loan - £340 (5.5% APR - 2 months interest is penalty)
Credit Cards - £1100 (mainly min payments)

HSA - £30
Denplan - £30
Life Insurance - £66
Car Insurace - £20
Household Cover/Protection - £35

Food - £600 How many is this for? It's astronomical! Have a look on the Old Style Board for ideas on how to bring it down.
Travel (Season Ticket/Parking) £200
Car Tax/Petrol - £120 For how many cars? Can this be reduced/eliminated as I see you use the train for work presumably?
Clothes - £100 Perhaps you can cut down on this until you are more straight with everything else.
Haircuts - £100 For how many? Seems high.
Glasses - £35
Leisure/Eating Out - £100
Savings - £100

Total - £5000

I know there are things we could cut down on (food, clothes etc, leisure etc but I included MAX amounts for these). I don't really need advice on how to save money just the best way to deal with the credit cards.

Thanks again

moonbeam51

I appreciate that you don't need advice for cutting down but, unless you look at the reasons for building up the debts and your pattern of spending, you will possibly find yourself in this situation again very soon.

This website http://www.whatsthecost.com/snowball.aspxwill give you a good idea on which order to pay off your debts with the amount of money you have coming in.

Best of luck.

lynzpower

I also notice that you are saving 100pcm what is this for? How much is in this account? Only theres often little point in having savings if the APR you are getting on them is lower than what you are paying out of your debt?

dudleyboy

Hi again.

moonbeam51 wrote:

I don't really need advice on how to save money just the best way to deal with the credit cards.

I beg to differ. If you knew how to save you would have used your savings to make these purchases rather than running up the debts on loans and credit cards.

moozie wrote:

unless you look at the reasons for building up the debts and your pattern of spending, you will possibly find yourself in this situation again very soon.

Absolutely. I think Moozie's done very well at highlighting where the savings could be made. Best of luck.

CLAPTON

as your income at 4,708 or maybe only 4,458 if daughter isn't actually paying you 250 and your outgoings are 5,000 then your top priority is not dealing with the debts as such but dealing with your spending, so you can prevent your debts growing ever bigger.

although well done on posting the current budget you need really to review this to see how complete it is. e.g. although you have a car you seems to have nothing for servicing or RAC/AA , you seem to have nothing for holidays presents, xmas expenses etc.

realistically you need to consider cutting about 1,000 off your spending to really tackle the debts
your CC debts is about 49,000 (do you have any overdrafts..people often forget about these ) ..if you use your 25k to settle the highest APR debts that will reduce your outgoing by about 500 per month, which still leaves at least a 500 reduction per month off your spending. remember that if you only pay the minimum off a CC debt it will (depending upon the APR of course) take over 10 years to pay the debt off.

fortunately there is plenty of scope for reducing your spending if you wish to do so
gas & elect seem a little low for what i would assume is your livestyle ..are these right?
what is the endowment for ...does it have a cash in value and also it would save 50 per month
phone /internet ... use BT at 11, internet 15, and something like https://www.call1899.com for calls ..much cheaper than BT save say 30 per month
mobile ...well can obviously be reduced.
sky is an expensive luxury ..you're paying 29% to borrow money for that.
what is household cover giving you at 35 per month that's over 400 a year..are you getting value for money?
food at 600 is enormous , easily do 400 and maybe less
clothes at 100...you must have quite alot already, just spend on essential replacements for a year or so say about 30 a month.
haircuts maybe reduce by 50
saving of 100...your borrowing at 29% to save at what 5%.


debts

if your credit rating is OK try to get a low life of balance card and balance transfer your highest APR debts across... assuming your haven't make any credit application recently it wont hurt your credit rating...once you get it phone up some /all of your CC and say you are going to BT to another card unless they will give you a better rate.

once you've looked at reducing the APRs as best you can, use your 25k to pay off the highest APR remaining.

remember that although reducing your CC APR reduces your interest charges and so pays your debt of more quickly, it will not necesssarily reduce your monthly payments.

moonbeam51

Thanks again everyone for your advice. We've already started shopping around for better phone, internet, insurance deals etc. and we have agreed as a family that we're really going to make an effort to cut down spending on food/clothing/leisure.

The savings account is a regular saver (12% with alliance and leicester). I have taken into account what you have said and my daughter is going to pay in £100 from her wages whilst giving me less rent. That way we still manage to get the interest but I'm not wasting money I should be using to clear the debts.

Applying for a life of the balance card is an excellent idea. I've done some research but I'm unsure whether to go for Morgan Stanley or M&S - does anyone have any advice? We previously had an M&S card but cleared it because of high APR - would we still qualify for the offer? Which card is likely to give the highest limit?

Thanks again,

moonbeam51