Acceptable debt

peteuk

I apologise if this is in the wrong place (please move it if that's the case)

I posted on 22 Aug that I am nearly debt free....

I will be left with
3 X Credit Cards - payments up to date and balance less than £500
2 X Car loans - Payments up to date and one with less than 10 months to go.
2 X Loan (from original DMP)

With a PPI claim I am looking at paying off two of the credit cards, one of the car loan has 8 payments left (balance approx £800). I am also looking at clearing the smaller of the two loans. Which would leave me with

1 X Credit card - balance less than £500 and payments up to date
1 X Car loans
1 X Loan from original DMP (balance £4k no interest being applied) payments will be increased to reduce this quicker (I know I should probably reduce this with the PPI claim but by getting rid of the others it frees up £250 pm also interest being applied to them)

Although I would love to be debt free (hence why I have put this here) would having a credit card be classed as debt free?

Credit score has been shot to pieces through me own fault so to build it back up again should I keep a little manageable debt or be debt free for a period and then have a little manageable debt?

Thanks

andyfromotley

I suppose for all practical purposes having a balance on a credit card which you pay off each month doesn't count as debt in my book (although I'm sure technically it is of course debt!) But carrying any sort of balance on a CC is debt.

And the trouble with that as i am sure you know from experience is that they tend to stay on the card, incurring interest and then creep up over time and before you know it you can accumulate a debt of hundreds or indeed thousands which you can't easily pay off!

There are plenty of other ways to show a good credit history, utility and phone contacts. Bank account, electoral register, etc etc. It is not essential to have a credit card in order to show a good credit history.

peteuk

andyfromotley wrote: »

And the trouble with that as i am sure you know from experience is that they tend to stay on the card, incurring interest and then creep up over time and before you know it you can accumulate a debt of hundreds or indeed thousands which you can't easily pay off

Thanks Andy...paying off interest only never eats away at the balance, which is what I am doing currently to two of them and then overpaying the larger one to bring it down to £500.

andyfromotley wrote: »

There are plenty of other ways to show a good credit history, utility and phone contacts. Bank account, electoral register, etc etc. It is not essential to have a credit card in order to show a good credit history.

I suppose ive never counted utilities as increasing your credit score, only have a basic bank account so doesnt really add anything (i believe)

Thanks again for the advice!

Pete

owlet

If you can trust yourself then having a credit card, on which you spend a little each month and pay in full (between the day your statement is generated & pay by date) will certainly help your credit history. As andy has said mobile phone contracts & utilities will also do this, provided they report to the CRAs.

A credit card is also handy for a genuine emergency.

It boils down to whether you can trust yourself with a credit card!

peteuk

owlet wrote: »

It boils down to whether you can trust yourself with a credit card!

And given out track record.....well it speaks volumes. But I agree having one for emergencies is a bonus.

sourcrates

If you travel much, or go on annual holidays for example, a credit card is handy if say, you need to hire a car, or something of that nature.
It does no harm to keep one account to make life easier, as long as you are sensible with it, and don't run up a balance you cannot repay.

nearlyrich

I use a credit card for most of my spending but the DD is set up for take the balance so I know I can't spend more than I have available. I don't class this as debt as the balance in my savings or current accounts covers this. Acceptable debt such as taking the interest free option on big purchases is fine to me as long as you know you can pay it off without compromising your other commitments.

DD265

Once clear, you could drop the credit card limit right down to an amount - say £250 - that you can confidently say you could clear in one payment if you needed to.

The number of times I've added one transaction to a credit card - say flights, which I always would for the added protection - but then because there's a balance on there I'll just add a bit more and a bit more and before I know it, I have a large amount to pay off the next month.

peteuk

DD265 wrote: »

Once clear, you could drop the credit card limit right down to an amount - say £250 - that you can confidently say you could clear in one payment if you needed to..

Of the three CCs were will loose one automatically, which is the one with the highest limit.

The other two are at £500 and £300 limits already. I was looking at starting a fresh, with my new bank, but at the moment I doubt I will get one.

black_cat

I've taken out a credit card to improve my credit record - but I've also set up a direct debit to pay it off in full each month. A big change from previous credit cards is that I can see everything online and don't have to wait for statements in the post. I like paying it off before the statement's due!

If you can set up a DD or have self-discipline it seems like a good thing to do.

uncreative

Once the debt was paid off, I found a credit card is an absolute must have.

I have earned a significant amount of cashback; I get s75 protection on large purchases and I get the advantage of having the cash in my bank for up to 56 days before I pay it off so I get a sliht savings interest advantage too. Also, it demonstrates an ability to handle credit.