Debt Consolidation (I think)

Baileyborough

Hi guys,


I'm going to admit I'm relatively clueless with money stuff, but I had a quick question about sorting out some debts.


At the moment, I have an OD of about 1000 (give or take), and about 3000 of a CC bill (which I try to chip away at each month by paying the interest +100 or so).


I'm waiting to hear back about a new job next week, and if that comes through, the bump in income should really help me take chunks out of my current debts. Lots of ifs in that sentence though.


So, assuming that won't happen, I wanted to know from people who would know this kind of thing - if I was to get a loan out (or something) that covered my OD and CC outstanding (and then I reduce my OD to 100 or whatever, and ditch my CC etc), would it work out better to pay that loan back over time, or is that a more foolish option and should I just focus on getting rid of one debt, then on the other?


Thanks in advance,


C

Tixy

Hi

First thing before you make a decision is to find out the interest rates on the current debts. If the overdraft is daily charge based not interest then work out what that is costing you a month.

Then work out how much you can put towards the debts each month.

Once you know that you can work out how long it would take to repay the debts if you leave them as is, and how much you will pay in interest over that time.

Then you can compare that cost to alternatives (such as a loan or maybe a 0% balance transfer credit card)

andyfromotley

Both of the debts you have at the moment are likely to be high cost.

Your credit card cost is represented by the APR. an average APR on a credit card is around 17%. What is yours?

The cost of your overdraft is made up of charges and interest, look at your bank statements to see how much this is costing you?

As above the cheapest way to get rid of this debt is to try and shift it to a credit card which allows you to BT (balance transfer) other debt onto it, they usually charge 0% interest for a promotional period which can be up to 3 years. They will charge you a one off fee of around 3% to do this. Most of them will let you transfer CC debt and overdrafts. If you qualify for one of these this is the cheapest way to do it by far. Check if you are likely to get one by using the eligibility checker on the main site. It will give you a good idea if you are likely to get one.

Dependant on what you are being charged currently a consolidation loan may work out cheaper. But here is the problem with consolidation loans. Most people got into debt by failing to live within their means. They consolidate the debts and continue not to live within their means and accumulate new debt on the very cards they have just paid off, and in no time at all have doubled their debt.

It is imperative that whatever you do that you CLOSE DOWN the existing limes of credit. not pop the card away or cut it up, or keep the OD just in case. Close the lines of credit.

Hope this explanation helps.

Baileyborough

Thank you both for that.
Tixy, really helpful thanks, but Andy's makes a little more sense to me.


(It's borderline embarrassing - I'm not a stupid person, but so much of this financial stuff soars over my head).
I'll wait and see what Monday brings, and then I'll update this with what my current rates etc. are.
Thanks again.


C

Tixy

Just on this

andyfromotley wrote: »

Most of them will let you transfer CC debt and overdrafts.

only a few credit cards allow money transfers, that is where you can balance transfer to your current account to pay off an overdraft.
One lender that does is MBNA, and a couple of others (such as barclaycard) will have occasionally money transfer offers for existing customers.