Which is the better option?

moneypuddle

Hi guys

I have a query

My other half and I are in a bit of a situation at the minute money wise. We can’t seem to get out of our overdrafts. If we were given £1500 we would be fine and sorted! Our wages are enough to live on reasonably comfortably but its just getting back to zero to start that comfy life which is proving difficult.

Right now we are living in our overdrafts and paying £60 a month in overdraft fees (£30/month on two separate accounts). I am wondering if it would be more economical for us to get a loan of say £1,500, which we could pay back monthly. Or would it be better to take the money from my credit card to top up my bank accounts, then switch to a new credit card and balance transfer at 0% over maybe 3 years,allowing us to pay it off without it costing us in interest.

Our mortgage is up for renewal in May 2015 and ideally we’d like to look around to get a better deal, so I’m trying to work out what will look worse to a mortgage company:
a) living in overdrafts with v little debt or
b) having higher debts but a more healthy looking bank account month to month

Any advice would be very much appreciated

Thank you

moneypuddle

Also one other question, if I have a credit card in my name and my boyfriend gets a credit card, can he balance transfer the amount from MY card to his, or is that a no-go area with it being different names?

longtermplanner

If your wages are enough to live reasonably comfortably on, I suggest an uncomfortable few months, spending absolutley as little as possible. No eating out, take sandwiches to work etc etc Perhaps look for a second job?

Your suggestions of borrowing and shuffling debts etc are unlikely to work if money is as tight as you say.

Tixy

At the moment are you going up to the same overdraft position each month (the maximum balance before payday)? If so and if the overdraft cost is only £30 a month then that sounds like you can only afford to put £60 a month towards the debt. Is the right?

I would suggest you really need to have a look for ways you can put more towards the debt monthly by changing your income/outgoing before you think about trying to refinance the debt anywhere else (e.g. your idea of a loan may well have repayments of over £60 a month which then you may well not be able to afford).

Unless you had a credit card that allows money transfers it will be expensive to draw cash out on your credit card.

Mortgage lenders are not generally keen on people living within their overdrafts or having long term debts on credit cards. I would set yourself the aim of trying having the whole amount repaid before May. If you feel you cannot make any further savings/cutbacks to your monthly spending perhaps look at the ideas from the make £10 a day threads or similar.

hohum

I've had an overdraft for 10 years, which recently started costing me a lot more. It is beyond annoying to be paying so much and to think of what I have paid in the past! So I decided enough was enough. Additional credit wasn't an option for us so we had to do the managing of expenditure.

We've been budgeting properly and tracking spending properly for three months. In that time I have reduced the balance of my overdraft from £1930 to £1504 (this is in part thanks to a £200 tax refund). We halved the charges and interest we were paying (from £89 in first month to £45 last month) due to managing money better and not using my boyfriend's hella pricy overdraft.

Things are tight but last month was almost easy. I used YNAB, a paid for budgeting tool, which I rate very highly. however you could also do this by using a spending tracker, envelopes and excel! Using this method I will clear my OD by this time next year.

I don't have access to credit cards, but I was always really nervous of using them due to my proven inability to shift the OD (I had a card once, spent £500, cleared it, closed it!).. I also think without having got a real hold on household spending, I might have been able to transfer the balance but not reduce it. If you're more confident of being able to do the money shift, I would say cost up the fees you will pay vs interest and charges. Do a debt snowball calculator on the options

The other thing that helped me was to start tracking my overdraft as I would a loan or dent, and budget separately for a) debt interest & charges then b) amount set aside to reduce the debt capital. My actual account balance right now is £880 in overdraft, so actually a lot less than my figures for how much I owe. however the money in the account is allocated to other areas, so I am happy for it to sit there and reduce the interest I pay!

[Deleted User]

moneypuddle wrote: »

a) living in overdrafts with v little debt

Living in your overdraft isn't very little debt.

An overdraft IS debt.

-taff

If your wages are enough to comfortably live on, pull in your belts for a few months until you're out of the overdraft.
Set up another account, work out how much your expenditure minus bills is, transfer that to the second account after your pay goes in, do not touch the overdraft one.
It will come off eventually.

moneypuddle

Thanks for the advice. I appreciate it

Perhaps I have worded things badly. I am aware an overdraft is debt. I meant OTHER debt.

We have been trying to sort this for a little while now. My thought was that at the minute we are paying £60 a month in overdraft fees. I looked up the following loan

Hitachi Personal Finance - borrow £1500 over 24 months. Monthly payments £70. Total amount payable £1677.

If we went with that loan, over the entire 24 months, we would pay only £177 in interest, whereas if we continue in the overdraft situation we are in now, which I can't see us getting out of within at least the next 12 months, we would be paying at least £720 in interest (12 months @ £60)

I just can't see why we wouldn't go with this option?

Tixy

I just can't see why we wouldn't go with this option?

Have you been offered that loan (at that APR)? or is it a representative loan/rate subject to acceptance?

Can you afford £70 a month towards the debt without reusing your overdraft facilities?

Will you both be disciplined enough to not use the overdrafts at all/cancel the facilities altogether?

The other thing to consider (which you won't likely be able to answer but should think about) is what impact will those £70 commitments have on your ability to remortgage next year. E.g. will it impact on what rate you may be able to remortgage at.

hohum

moneypuddle wrote: »

Thanks for the advice. I appreciate it

Perhaps I have worded things badly. I am aware an overdraft is debt. I meant OTHER debt.

We have been trying to sort this for a little while now. My thought was that at the minute we are paying £60 a month in overdraft fees. I looked up the following loan

Hitachi Personal Finance - borrow £1500 over 24 months. Monthly payments £70. Total amount payable £1677.

If we went with that loan, over the entire 24 months, we would pay only £177 in interest, whereas if we continue in the overdraft situation we are in now, which I can't see us getting out of within at least the next 12 months, we would be paying at least £720 in interest (12 months @ £60)

I just can't see why we wouldn't go with this option?

If you haven't fixed the income/expenditure issues, then you could end up with debt plus an overdraft!

That would be my only reason. If you've been offered the loan, done a proper SOA style budget and are confident you can afford monthly repayments without incurring a monthly overspend, then I'd probably go for it.

I have refused loans from bank repeatedly (not actually offered, just trying to sell me stuff) because it's important to me with a variable income to have as little fixed outgoings as possible.

If you do go for the loan, you will cancel your overdraft won't you?

Personally I'd try a few months 'paying back' £70 to the overdraft each month yourselves and check it's all affordable. But then I am, as you might gather, risk averse in a number of areas!