Help getting rid of "manageable" debt

gareth12345_2

Hi All!

Thanks in advance to anyone who take the time to read/reply. I'm very grateful.

I'm currently in about £21k of debt (mix of £2500 O/D, £2k on student loan, £4k on a loan I used to buy a car, and the rest is CC debt). My debt hasn't been getting any worse over the last few years. I haven't used a credit card for as long as I can remember and my student loan was more like £10k at one point I think. I dread to think of what my debt was at the peak.

I left school with practically no qualifications and bounced from one terrible job to another while attempting to set up a business in my spare time (hence the build up of debt - although I definitely could have spent less!).

I currently run a successful business with another person (started about 4 years ago when I was 21). Thankfully, I am able to service all of my debt each month (at a cost of around £450/£500) but I'm paying a huge amount in interest and the debt is going down very slowly. I'm keen to get rid of the debt as quickly as possible, in the most cost affective way. Unfortunately I'm not in a position to be able to pay it off in any large chunks.

I believe that my credit rating is good and I keep getting letters to say my credit card limits have been automatically increased (which makes no difference to me as I cut the cards up many years ago and do the same for any new cards sent through). Should I look to get a loan to refinance the debt or at least some of the highest interest debt? Or should I look to pay the cards off first (one by one, or a little bit to each one)?

I also have a flat on a personal/first time buyer mortgage which I let out (I know this isn't strictly allowed). The rent is more than the mortgage and the whole thing pretty much breaks even, which leaves me in a better position than if I lived there. I'm currently living at home with my parents as I moved away for a year with work and have only recently got back.

I'm reading through a bunch of the advice here and it's really great. Would be really good to hear anyone's thoughts/input on this.

Thank you - Gareth

Tixy

Hi and welcome

Can you list your debts, balances, APRs, limits (for the cards) and monthly payment/monthly minimum.

ghostmadlittlemiss

Tixy wrote: »

Hi and welcome

Can you list your debts, balances, APRs, limits (for the cards) and monthly payment/monthly minimum.

And to save time later, could you use this calculator please? It's the standard one we use on this site and it'll make the figures easier to read.
Kayleigh

gareth12345_2

Thanks Tixy, absolutely. Here's the info:

The amounts are current outstanding debt, annual interest rate (could only get monthly for the MBNA card), and the current monthly payment to each (which is the minimum for all payments).

Credit Cards
Lloyds TSB | £1,613.55 | 20.90% | £34.39
Lloyds TSB | £2,453.02 | 21.90% | £53.48
Lloyds TSB | £2,947.36 | 30.00% | £80.49
MBNA | £3,351.98 | 2.00% | £97.82
Egg | £1,735.22 | 29.90% | £57.90

Loans
Egg loan | £4,112.46 | 9.51% | £114.46
Student loan | £2,104.07 | 1.50%

Overdraft | £2,500.00 | 19.30% | £19.90
(Monthly payment made up of £14.90 interest and £5 usage fee)

I did this yesterday and after putting it off for so long it feels like a massive load was lifted. Just being able to know what's what.

ElmerFudd

Hi Gareth. Do you have more money to throw toward the cards each month?
If so you should attack the one with the highest APR first (one of the Lloyds ones with 30%) then focus on the lower ones, with the highest first.

Can you make overpayments on your loans or are they fixed?
Have you had any offers lately on any of the cards for 0% for x amount of months?

If I were you I would try to overpay as follows:

Credit Cards
Lloyds TSB | £2,947.36 | 30.00% | £80.49 **overpay on this one each month while meeting your minimum payments on your other cards
Egg | £1,735.22 | 29.90% | £57.90
Lloyds TSB | £2,453.02 | 21.90% | £53.48
Lloyds TSB | £1,613.55 | 20.90% | £34.39

Overdraft | £2,500.00 | 19.30% | £19.90

MBNA credit card| £3,351.98 | 2.00% | £97.82

Loans
Egg loan | £4,112.46 | 9.51% | £114.46
Student loan | £2,104.07 | 1.50%

gareth12345_2

Thanks Elmer. That's what I was thinking - would be great to get rid of that 30% nightmare! I'm not sure about the egg loan but I think I can pay off the student loan whenever. This should be gone soon though as I paid off about £2k in the last financial year through my salary (and it's a very low interest rate).

The one I'm not sure about when to pay off is the MBNA card. It's the largest single amount on a card and the highest monthly payment. But I only know the monthly interest rate. Any ideas how I could work out the annual rate or should I just call them?

I need to take a look at my outgoings each month. I'm staying with parents to save on outgoings, but need to be strict and make sure the savings are paying off debt. Frustrating as after so much hard work with the business (and everything before it) it feels like now should be reward time, and instead it's get rid of debt time!

Still, I'm counting myself lucky to be in a position to pay things off. Hopefully I can become debt free with a good credit rating at the end of it all!

dancingfairy

As your credit rating appears to be good I would consider perhaps applying for a cheapish credit card and transfer some of your higher rate debts onto it. If your first one or 2 application fail I would stop, take a step back, and look at getting your available credit reduced down with your current creditors as apparently too much available credit (even if not being used) can negatively impact your credit score and then try again in maybe 6 months or so whilst repaying as much as you can.
You could also try the Payment a Day challenge as that seems to be quite sucessful - basically you make a payment of whatever you can afford - or each day put any loose change in a pot and at the end of the month use it to pay a chunk off your cards (on top of any minimum payments).
Best of Luck
df

Pamela2612

Hi Gareth,
I sympathise with your situation. I was at £22,000 three years ago and now am hoping to finish paying by September 2011.

Have you tried contacting the banks that you hold your credit cards and loans with and discussing with them your problems with repayment of the full loan and interest then they may reduce the interest rate or remove it all together if you agree to make a certain payment each month. The worst they can say is no but then at least you've tried.

I ended up with a debt management company, who were free and fantastic, and although it affected my credit at the time as I had defaults, after paying regular payments each month, I have built my credit back up. On most of my credit cards they freezed the balance and added no interest at all. It might be worth a look at one (make sure its a free one), but do it before you miss any payments!

Hope this helps.

Pamela

tigermoon

Hi Gareth,

You and I sound like we are in a very similar situation. I found myself 4 years out of uni with £18600-ish on credit plus the student loan and a 100% first time buyer mortgage all of which I was comfortably making the minimum payments on but not reducing the balances at all. First thing I would suggest is forget about the student loan, with that low a balance and interest rate it will take care of itself.

Next, get yourself on the snowball calculator (see link at top of forum) and put in the debts you have listed above, interest and how much you can afford to repay each month. It will give you the best idea of which card/loan to throw your money at first in order to pay less interest. At the same time, fill in an SOA and be as accurate as possible, you should get an idea about how much you have left over each month.

Thirdly, keep reading these forums, the wealth and knowledge of experience on the people on here is invaluable (and free!). In the last 2 years I've paid off just short of £10K of the above £18600 and when I get paid this Friday I'll be plastic-debt free for the first time in 10 years...thanks in no small part to this site.

Hope some of that helps xx

gareth12345_2

Thanks everyone for your really helpful advice and support!

I'm a little worried about speaking to my bank. The debt I have is large and the interest I'm paying is really annoying, but I would be lying if I said I couldn't service the payments ongoing. Whatever I do I don't want to damage my credit rating. As a company director and someone working in property, my credit rating is really important to me.

I'm going to use the calculator as suggested. Then I'm wondering if I should call my main bank (where I have my current account and three of the credit cards) and make sure the card limits are as low as possible, than possibly check what my chances of getting a loan are? What do you think?

If that is declined I might try a 0% balance transfer card (do these still exist?) or at least a lower interest rate to move across some of my card debt. Then start paying off the cards with the highest rates.

Thanks again everyone! Really appreciate your help!

RAS

Hi
Gareth

DO NOT ASK FOR A LOAN - almost always a disaster - 85% or people wrack up more debt when they consolidate. And you will be stung by the bank.

What matters is not the size of the monthly payment but the APR - you need to pay off the debt with the highest APR first.

You may actually be able to reduce your APR by doing a balance transfer - there will be article on the main site identifying the best deals available.

Beyond that even if you only have a little spare capacity on the cheaper cards it is worth "transferring" some debt to them

Example

Card 1 - £3000 at 29.9% limit £5000
Card 2 - £2000 at 20.9% limit £5000

If you keep buying things on card 2 and paying the exact same amount onto card 1 you can soon have

Card 1 - £2000 at 29.9% limit £5000
Card 2 - £3000 at 20.9% limit £5000

At that point your monthly payments start to reduce and by the time you get all £5000 over to the cheaper card it is really noticeable.

Then balance transfer some of that onto a 8% LOB card andf you are motoring.