Loan overpayments? Are they my best option?

Olie1988

Hello,

I won't bore you with the details, but I've recently got my head out my !!!! and decided to start paying back the money I owe rather than just live at the bottom of my available credit, as I've done for the past year.

I'm currently in about £6,500/£7,000 of debt, (was 8 something a month or so ago), of which £4100 is what is left of a £4750 loan I took out a year ago.

Sorry if I'm not explaining myself very well here aha.

Basically, I have a:

£1300 overdraft @ 16% (£300 currently)
£600 credit card @ 22%
£2000 credit card @ 0%
£4100 left of this loan, 47 months @ £132, 25%


I keep reading that I should attack the debt with the largest interest first, which led me to think I should make a start on the £600 credit card (which I did, it was £750). But it's just dawned upon me that my loan is actually the highest, and the loan is where I am really hemorrhaging a lot of money.

I did try playing around with the 'over payment calculator', and I must admit, the results looked a little to good to be true. For example, if I make a one off payment of £500,l the calculator think I'll clear the loan a whole year sooner?

I was just hoping somebody could give me some advice going from the loose details I've provided. Should I be looking to overpay the loan by say, an extra £50 a month?

I'm also mindfully aware I need to be paying £150 a month off my £2000 card, so I can't get too carried away with loan over payments.

Anyway, sorry to go on, but I just thought I'd ask. Will be really grateful of any feedback or advice.


Oh another thing, my credit rating is shot to bits, is there any chance at all of me getting a better rate than 25%?

Again, thanks in advance for any advice.

Olie

nicp60

Hi there,

What you're talking about is called snowballing, and it's the most efficient way of becoming debt free.

Technically you should tackle the highest APR debt first, by making minimum payments on everything else and throwing any extra money at the most expensive debt. What a lot of people tend to do is to ebay stuff, use birthday money, overtime etc etc and just make payments throughout the month whenever they can. That way it really adds up and you'll be surprised at how much you can pay off.

In this case that would be your loan, however it's rather large, and the £600 card is also a high APR. If you think you'll be more motivated if you get rid of an entire debt sooner, then go for the card first.

Yes, the effects of snowballing are staggering - when you say overpayment calculator did you mean this: http://www.stoozing.com/calculator/snowball-calculator.php

Don't forget that as soon as the £600 card is gone, the old min payments from that will go straight towards the loan, lowering it further.

If I were you, I'd start on the Debt Free Wannabe board and post an SoA to examine your outgoings and see where you can cutback. You'll get amazing advice from the people on there.

Finally getting a better rate than 25% - probably not, especially if your credit rating is shot. Don't pay off debt with debt, just pay off debt!!

CLAPTON

yes makes sense to overpay the highest APR debt first

although do overpay a little on each credit card as paying only the min is recorded on your credit files

Thrugelmir

Do you pay any fees on your overdraft facility?

Olie1988

Hello, thanks for the advice.

I've been on the debt free boards, and done an SOA. The basic outcome was I've cut back a lot, but am still spending far too much on socialising/getting drunk/smoking etc.

I have tried to cut t back, but it seems a night out costs close to £100 no matter what I do. Sign onf the times, or maybe me and my friends are on the verge of a drinking problem haha.

I'm not entirely sure what the cost of my overdraft facility is.. If I live at the bottom of it, as Ido most months, it costs me £5 for the overdraft and usually around £10/15 in interest.

I currently have about a grand paid off the overdraft, thats before living expenses have gone out and I am saving £400 for insurance on my car, but I will look into paying a lump sum off the loan if it's going to be the most beneficial.

One calculator showed that if I pay a £500 lump sum, the loan will be paid off a year sooner, which is a saving of over £1000

gb12345

Olie1988 wrote: »

I have tried to cut t back, but it seems a night out costs close to £100 no matter what I do. Sign onf the times, or maybe me and my friends are on the verge of a drinking problem haha.

You've obviously not had your light bulb moment yet

jellie

Olie1988 wrote: »

The basic outcome was I've cut back a lot, but am still spending far too much on socialising/getting drunk/smoking etc.

I have tried to cut t back, but it seems a night out costs close to £100 no matter what I do. Sign onf the times, or maybe me and my friends are on the verge of a drinking problem haha.

I don't think you need any advice on areas where you can cut down on your expenditure. You just need to put into practice what you already know.

Olie1988

Well, for it's worth, to my surprise I have change from the £30 I took out with me last night.

I know I perhaps am not doing as much as I could, but at the same time for the last two years I've done nothing but live outside of my means and dig the hole deeper, so just to be living within my means and paying a couple of hundred a month off it is quite a nice feeling for me

I'll look into the loan overpayments, I think they could be hugely beneficial as I'd not really entertained the idea of paying any more than I already do on that.

Dare say I'll speak to you again soon haha, thanks for the hel.

Olie

Thrugelmir

Olie1988 wrote: »

Well, for it's worth, to my surprise I have change from the £30 I took out with me last night.

One of the easiest disciplines to adopt. Just go out with so much cash in your pocket every day. If you ain't got it , you cannot spend it.

nicp60

Ollie I'd suggest starting a Debt Free Diary, as this might help keep you motivated.

I've read your posts on the debt free board and I'm having visions of you slipping into your old ways and coming back in 6 months with another 5k on your debt!!

I know it's easy to think that your mates and those around you are having a better time and moving on with their lives, but believe me, they're either in a similar situation to you, or they've had their LBM already and are smugly debt free. You'd be stunned at how many people are in your situation and don't do anything until it's literally almost too late.

You can do this!!!

iancrt

Forget paying off the loan. You have 47 months left, even if you paid £2000 on it tomorrow you payments will still be £132 a month. the savings are better but they come at the end.
Pay off your credits cards first. Each month the minimum payment lowers, but try to pay the same amount above the minimum and your weekly cash flow improves. As you gain more disposable money you can still play - but you will also be able to see how good it will be with no debt. This will mean you will find it easier to allocate more money to the cards and pay them quicker.
Don't start too big, I always started with minimum payment plus that months interest charges.
The game to play is making sure a months interest charged is less that the 'next months estimated interest' shown on the previous statement. If it is - your winning!