Strategy for clearing debt to find lower rate cards and loans.

fat-pudding

Hi all,

I'm clearing my debts with no issues at all (well, apart from not having enough money to pay them all off today!) but being realistic there will be months where outgoings will be more than income if a household appliance breaks, the car needs a repair etc. etc.

I'm currently trying to clear debt (and have had no problems with repayments in the past, no CCJ's, no missed payments, I've always met minimum payment but sometimes that's all I could do for a few months at a time) but after applications for credit last year it seemed I would only be offered sub-prime interest rates of 30%+ which wasn't really useful for me. I currently owe about £5k (down from £10k at the beginning of the year due to a big bonus from work and using all of my contingency funds to clear 3 cards and a loan) with a salary (which has recently increased) of over £40k.

What I'm doing at the moment is paying back approx £800-£1000 onto the card with the highest interest rate which is 13.95% and at the same time I'm doing all my spending on that card too which is around £500-£700 a month and I'm covering the minimum payment+10% on the other card (about £60 a month) which has an interest rate of 14.9% but as that account is closed after a rate jacking attempt by the bank (they wanted to up it to 29.9%!) so I can't use it for purchases.

Is doing all my spending on the card and then clearing as much balance as possible every month at statement time the best way to clear debts from the point of view of a lender? As if I could find cheaper credit to balance transfer to it might save me more interest payments or would it be better from the point of view of lenders to just pay for monthly expenses with the debit card and use any surplus to pay off the card?

I just feel that at some point I might be better off applying for a loan on a lower interest rate but as I currently have 2 unused cards which have a total available credit of £3100 but the interest rates on those are both around 20% so I really don't want to use them except in real emergencies (i.e. car repairs or new appliances) but on the other hand I don't want to hand them back right now as I only have about £1k of available credit on the one card I'm using. If I hand those cards back and needed credit I wouldn't be surprised if I was only offered rates of 30%+ so you can see the dilemma is trying to improve credit in eyes of the banks might mean I end up in a worse situation if I need to borrow in the future.

Any advice on this would be hugely appreciated as I know I should be debt free in under 2 years but if I can save some interest it would be even sooner!

The_Boss

What about applying for a 0% balance transfer card and transferring to that?

By the way, just want to say a big 'good on you' for clearing so much debt recently, especially using your bonus when it would have been tempting to spend it.

fat-pudding

I don't want to apply for any cards right now as none of the good work will be on my credit report yet and also I've not been added to the electoral register at the new place yet. I don't want to apply now as it will look like I'm struggling and trying for more credit so I'm trying to get myself into the best position possible to get a 0% card in a few months time. That's the real crux for this question, is it best to use the card while paying it off (and paying off more than I spend hopefully every month but I can't predict the future!) or should I stop using all credit entirely and just pay off what I can with the leftovers?

The_Boss

fat-pudding wrote: »

I don't want to apply for any cards right now as none of the good work will be on my credit report yet and also I've not been added to the electoral register at the new place yet. I don't want to apply now as it will look like I'm struggling and trying for more credit so I'm trying to get myself into the best position possible to get a 0% card in a few months time. That's the real crux for this question, is it best to use the card while paying it off (and paying off more than I spend hopefully every month but I can't predict the future!) or should I stop using all credit entirely and just pay off what I can with the leftovers?

From a lenders point of view they want to see you maintaining your account properly. As long as you stay within limits, make payments on time and are not using more than 50% of the credit limit on your cards you will look fine from the data that is reported.

How many credit cards do you have? I assume 2. If you clear the balance on one then you may be able to trigger a balance transfer offer either automatically or by calling them. That gets around the issue of not applying for new cards. If it is a 0% with small fee then that is better than a loan.

fat-pudding

I've currently got 4 card accounts, 1 (Barclaycard Platinum) has a balance of £3.5k with a limit of £4.5k and the interest is 14.9% but the account is closed so I'm just paying it off with a fixed payment of £60 a month which is roughly 10% more than the minimum payment. I then have a card with Cahoot that has a £2.5k limit and £1.5k of balance on it and an interest rate of 13.95% this is the card I'm using and paying off as much as possible each month. Obviously if I have an expensive month then I might put more onto it than I pay off but I really don't want to have any more of them ever again.

I then also have 2 other cards, 1 with a limit of £1.1k (Amex with 19.9% APR) and another with Creation which has a limit of £2.2k but an interest rate of over 20% (I think they may have just upped it to nearly 30%!). The Amex is useful for work expenses when travelling as it's accepted without problem, the Creation card is the one I'd get rid of but I want to make sure I've got extra credit available, I plan to close the account of the Creation card when the Cahoot is cleared as I'd then have £3.6k of available credit across Cahoot and Amex.

I'm now thinking that when I've paid off the Cahoot card and got rid of the Creation card, I should wait a month or two for this to be reflected on my credit report and then try for a 0% balance transfer card so I can get rid of the old Barclaycard account. This would then give me 3 cards, 2 which will get used (and cleared in full every month from now on except in real emergencies!) and the third will just languish with the minimum payment while I save the money to pay it off in full when the interest free period ends (assuming I can't balance transfer again, depends on what the cheapest/best option is at that point!).

It wasn't hard to use the bonus to pay off the cards, the feeling I've had from reducing the number of accounts with an outstanding balance from 7 a year ago to just 2 today is immense and 4 of those have been cleared since January! I did spend some of the bonus this year on a treat for me as I purchased a bottle of expensive rum! but I couldn't think of anything else I actually wanted right now (or needed!) so I would rather just pay off the cards as at least the credit is still there if I actually need it in the future even if it gets spent on a consumer item like a phone or a laptop, but this time around I'd only do that if my phone or laptop was broken or hopelessly obsolete and not by having to get the latest thing every year which is how I got myself into debt in the first place!

The_Boss

Your plan seems sensible to me given the constraints of not opening a new account. Hope you are enjoying the rum - I do enjoy an El Dorado 15 or Diplomatico Riserva myself!