Best way to pay off overdraft??

Cathyandtwins

Hi all,

I am really hoping that someone can advise me. We are nearly at our overdraft limit of £2500 - not helped by the fact that it is only mid July and that our car goes into the garage for its MOT and service on Monday!

Should we:
a) get a £3000 loan - the best option seems to be Sainsburys & we are Nectar card holders so the APR is slightly cheaper.
b) do some sort of clever switching between credit card??

My husband and I don't have any credit cards and I'm rather confused about whether we can do a balance transfer to a card for 0% if it is to be used to pay off an overdraft, not from one card to another.

My husbands works full-time and I do two part-time jobs to fit in around the school hours of our children, however we really want to sort out a budget to stop using the overdraft and having to pay unnecessary fees each month.

I would really appreciate any advice about this please, as it's all starting to feel rather scary and overwhelming.

Thanks LOADS, Cathy

CLAPTON

the way to pay off debt is mainly to reduce your spending so there is more money available to reduce the debt
sadly simply moving it from one debt to the other doesn't reduce it.

it does, of course, help to reduce the interest or fees charged on the debt

but you haven't told us anything about them

Tixy

What is the APR on the overdraft?

Do you usually get out of the OD at payday? and then drop back towards the limit through the month? And what is the limit?

What amount do you end up paying in overdraft interest/fees a month on average?

Before you consider a loan / card or any option - how much can you afford a month in total towards this 1 debt? If you don't know then you need to work this out doing a debtailed income & expenditure/statement of affairs.

[Deleted User]

get a cc with 0% apr on spending for max length of time(tesco offer 16 months)use this for shopping etc whilst leaving the money you would have spent in the current account to clear od,then transfer the cc bal in 16 months to a cc offering a decent interest free period for balance transfers,should save you a few bob in interest

Cathyandtwins

Hi all,

It says 19.3% EAR variable on the overdraft + £5 fee per month.

We spend about £30 per month in overdraft costs per month.

No, we don't pay it off each month. We've had the overdraft between £1,500 - £2,500 for a few years now (originally started as we went from 2 salaries to 1 when I became a full-time mum to our twins).

My big concern is that after going to the top of the limit in June (birthday presents for our twins + party, some household repair costs & 2 other car bills) we were hoping to be able to make savings and bring it slowly back down, but we've got the MOT, service & car tax all in one hit and no way of paying for it. We thought that by getting a loan it would give us enough money to pay the car bills, pay off the overdraft in full and then continue with the budget reducing plan without having the extra costs from the overdraft each month.

Any advice would be most welcome.

Thanks loads again, Cathy

Tixy

Being in your overdraft all month every month can make it quite a lot harder to get accepted for credit. If you have any other debts as well then a potential lender will also consider these when considering whether to offer you a loan.

APRs on small loans of that sort of amount tend to be higher than the headline rates.

Have you worked out you can definitely afford loan repayments (and afford to save up for things like presents/parties/car service etc each month - so that you don't need to use the overdraft again).

If you are going up to your limit each month and only paying £30 a month then it would seem that you might only be able to afford £30 towards a loan - so you need to work out how much budget reducing you can really do so that you could afford to repay a loan. An example loan of £3k at 12% APR over 2 years would have repayments of £141 a month.

If you could get a loan that works out cheaper than the overdraft, can afford repayments and can be disciplined enough to not go into overdraft again - then it could be a good idea.

Regarding your credit cards question - most 0% balance transfer cards won't let you pay off your overdraft. A small number do allow 'money transfer' to your bank account.
Or as suggested above there is a slow stooze option with a 0% purchases card- you have to be organised with your finances and disciplined with the card use and repayments for this option to work.

KingElvis

Your bank would've been you best bet but your contsant use of the overdraft will almost certainly have done you in there, they will run away screaming.

Your lack of any other credit and regular payments thereof will also probably lead to rejection from vanilla lenders like Sainsburys.

Good luck.

BugsyBrowne

Overdrafts are like religion once your in you can't ever get out.

CLAPTON

spending £30 per month service a £2,500 'loan' is equivalent to about about 12% APR
frankly you are unlikely to get a loan cheaper than that.

if you have lived in your OD for a number of years it's time to start some serious budgetting and to stop wasting 30 per month

sadly, MOT, car servicing, tax, children birthdays, christmas are all totally predictable events and need to be budgeted for.

start by looking at your spending in detail : a decent format try here
http://www.makesenseofcards.com/soacalc.html

then start a spending diary : both of you write down every penny you spend and see exactly where the money goes; I'm sure you will be able to find some significant savings.

it might be worth going over to the debt freewannabe board ; lots of help there about budgeting and money saving ideas

DCFC79

BugsyBrowne wrote: »

Overdrafts are like religion once your in you can't ever get out.

You taking after KingElvis and his funny replies :D

PollyOnAMission

I was in a smiliar position to you a few months ago: always in my overdraft, almost back to £0 on payday then back into my overdraft again for the following month.

I took out a credit card with 0% on purchases. For a few months I did all the spending I could on this card, repaying just above the minimum each month. I also (now this bit is very important!) started to keep a spending diary, began budgeting better and really cut down on unecessary spending. I also did the usual switching energy suppliers etc, to reduce my monthly bills as much as possible (these had to come out of the current account with overdraft, rather than go on the credit card).

After a few months of this my overdraft was cleared and I was back to £0 BEFORE payday rather than after! My credit card balance was lower than my overdraft had been, because I had really cut my spending.

My debt is now all at 0% and I have set up a direct debit to pay off a chunk each month, so it will be paid for by the time the 0% ends. I no longer use the card and I have maintained my budgeting and spending diary. I do all my day to day spending on a cashback credit card and pay this back in full every month; my budgeting means I can afford the amount from my pay cheque, as well as the payments to the 0% card.

Just before payday I transfer any left over money that month into an instant access ISA; I effectively live "pay cheque to pay cheque", but have started to build up a pot of savings that is getting a reasonable amount of interest.

Once the 0% balance is paid off, I will be transfering the extra money each month to an ISA rather than spending it. I figure that unless I stick to these new habits I will end up back where I started!