How best to become debt free?

Monchan

Hi.

I took out a personal loan last year with my bank and have another 12 months to complete pay off. Currently paying c£300 per month.This is well manageable but have also (due to errant spending) also run up c£6000 on two credit cards. My question is, should I refinance the current loan to pay off the credit debt asap or wait another 12 months of minimal card payments until loan is paid off and then start on the cards, each step at a time????
I earn a relatively good salary so monthly payments of up to £400-£500 are ok should I need to combine things.........

Advice appreciated.

HairyHandofDartmoor

What is the interest and time left on the loan? and what is the interest rate on the credit cards?

If you can get one it would be better to try and get a new card (a low interest for the life of the balance, I would recommend) and shift as much of the credit card debt as you can onto the low interest card. Loans are very inflexible and although the interest on the loan may be lower than your current credit cards, if you can do a balance transfer then you may be able to get the interest lower than on the loan.

Putting up a statement of affairs would also be useful so we can help you to save money to throw at your debts.

Monchan

Hi.

Loan is 7.7% and will have finished payments September 2008.
Credit card (1) is 16.9% and Credit Card (2) is 13.9%. Have roughly £3000 on each card.

I'll work on a statement

Monthly income:

my salary : £2200
benefits :£100

Total: £2300

Outgoings:

Rent/Mortgage £725
C Tax: £109
Gas: £25
Electricity: £30
TV License :£11.29
Phone: £31
Food : £500
Petrol: £80

Total:£1511

Currently pay £308 per month on loan and minimum payments for both cards are £73.

dancingfairy

Arggggh refinancing on a loan. What's to say you're not going to run up more credit card bills. Lots of people on here have said consolidating their debt was the worse thing they have ever done and they have ended up in more of a mess than before, despite their very best intentions.
It all really depends on how much the APR's are and the balances really.
Also if you pop up your SOA we'll see if we can free up some more money in your budget to chuck at the debt and make it come down quicker.
Also if the APR on your loan is higher than that on your credit cards the debt becomes bigger and will take longer to pay off as you will be paying more interest.
Good Luck

juliapenguin

Hi

How many people are you feeding for £500 per month? I can feed the family for £50 per adult per month, although I have time at the moment to shop around and do home cooking. You're obviously out at work all day, but I think £100 per person per month should be easily do-able, if you look at the Old Style board for ideas.

Good luck!

Julia

Monchan

Yes. The idea of refinancing is not one I'm happy with. My budget just about covers things as we stand, although it doesn't leave much breathing space. I just want to get things better organised and a clear handle on how to get rid of it all. My idea was to consolidate everything under one roof with a longer repayment period. One of the cards would be binned, the other kept in a locked drawer...but again , you've probably heard that 1001 times!!!

dancingfairy

no water rates/ no mot costs/ no presents for birthdays/clothes etc.
Also after you have paid your bill each month you should be left with about £350 pounds each month (income - min outgoings and loan payment). Where is this money going? You need to keep a spending diary to find out is the 'odd' magazine/lunch at work/choc bar/pint after work/cigarettes/cd/coke etc. This can really add up without you reaising it.
Also that food bill is rather high - how many people are you feeding for that? you can easily cut that down- I'm guessing you eat out a lot or buy loads of ready meals? Try cooking meals from scratch - you should be able to save loads to chuck at the debt.
All the best
df

Monchan

Hi again. The £500 was food plus sundry items( bottled water, snacks,newspapers, magazines). I'm guessing the sundry items account for quite a bit of that as we cook from scratch a lot!

Some other items missed off:

Water:£20
Car Tax: £12
Car Insurance:£58

chevalier

Fill up your water bottle from the tap, will save you a bit! Plus the spending diary will sort out the misc spending. Then you can cut that down too. Papers and magazines can be read for free online. For example I read marie claire online!

Car insurance is very high, are you young or have points? If not then have a look at www.quidco.com and see if an insurer will give you cash back AND cheaper insurance (use the compare services on the web to see what is the cheapest deal first).

Do you have any bank charges to claim back?
chev

Monchan

Hi. Yes, really have to look closely on how I'm spending my money and how I can make some changes.
Car insurance is high yes. I'm not that young and don't have points but have only recently started driving. It's renewal time soon so will shop around for a better deal but I'm not optimistic it'll come down that much.......
I think my best bet is to take the advice and examine how I'm spending my money and look to make savings that way to put towards repayments.

rayday2

You probably won't want to take advice from me - you seem much better in check than I am lol!

Anyway from my limited knowledge credit cards when paying min balances are when off 0% deals etc the most expensive way of borrowing. Why not stick your details in a snowball calculator and decide from there where you want to go.