Getting out of debt - advice on 'Plan' & 0% balance transfers

[Deleted User]

Olive_8 wrote: »

Okay, so I've just found out (to my surprise & horror!) that my overdraft interest is higher than my credit card!

My CC is 19.69% (1.51 pm) APR

My O/D is 19.94% (1.53 pm) AER

Then you should clear the OD first, for two reasons.

Firstly, it's a higher interest rate.

Secondly, the bank could call in the OD at any time, leaving you suddenly penniless.

BTW. I'm not at all surprised your OD has a higher interest rate than your CC. ODs are a very expensive form of borrowing

Olive_8 wrote: »

I just checked, it's 3 months at 0% on purchases, not sure I even understand what this means !?... What's your thought??.....

My thought was, have a very frugal month or two, while putting all purchases on the card, leaving your whole salary/salaries in the account, to clear the OD.

Unfortunately, with the purchases only being 0% for 3 months, you would be back to paying interest on the OD (now converted to the CC), first thing next year.

[Deleted User]

Olive_8 wrote: »

Finances in general, well errrm i'm in £8,500 debt across the O/D & CC so not great ! ;o/

What I actually meant was, are you living hand to mouth, or thereabouts?

From what you've posted in reply, I think the answer is "pretty much".

That's where you are going to struggle getting more finance.

There aren't many companies, that will be willing to loan you the cash, to virtually double your current debt.

Olive_8

Bedsit_Bob wrote: »

Then you should clear the OD first, for two reasons.

Firstly, it's a higher interest rate.

Secondly, the bank could call in the OD at any time, leaving you suddenly penniless.

BTW. I'm not at all surprised your OD has a higher interest rate than your CC. ODs are a very expensive form of borrowing


My thought was, have a very frugal month or two, while putting all purchases on the card, leaving your whole salary/salaries in the account, to clear the OD.

Unfortunately, with the purchases only being 0% for 3 months, you would be back to paying interest on the OD (now converted to the CC), first thing next year.

Aha, good thinking, however unfortunately my salary is less than my O/D So I am never out of my O/D !! And given I am currently paying £80 interest on my CC each month and only £40 on my O/D does it not make sense to reduce the CC a bit first with that Virgin Money transfer of £2050 ??? Also, if I am about to apply for another 0% card would it look better than my current CC balance £2000 less?...

Thanks !

[Deleted User]

Olive_8 wrote: »

however unfortunately my salary is less than my O/D So I am never out of my O/D !!

That's why I said "have a very frugal month or two".

And given I am currently paying £80 interest on my CC each month and only £40 on my O/D does it not make sense to reduce the CC a bit first with that Virgin Money transfer of £2050???

No, because, once the OD is gone, you would be able to put that extra £40 pm to the Credit Card.

At your current CC balance, the tipping point (ie. the difference between the balance increasing or decreasing each month), is a payment of £135.40 pm.

If you paid £2050 to the CC, the tipping point would be a payment of £102 pm.

The extra £40 pm you could pay to the CC, after the OD is gone, is an extra £33-40 pm toward the CC, compared to paying £2050 off the CC, and still paying for the OD.

MallyGirl

also there are more (and usually better/longer/cheaper) BT offers out there than there are MT offers and they cannot be used against an OD. Use the MT offer you have for the OD and then maybe in the future you will be able to get a BT offer too.

Sanctioned_Parts_List

Olive_8 wrote: »

HOWEVER! I already called VM, i called twice and both times I spoke to kids who really didn't seem to know what on earth they were talking about! ;o/ I was told in the end that I wouldn't be able to apply for a review until after 6 months of using the card, or I could write a letter of appeal, but only a letter, which doesn't fill me with confidence...

Hmm, I guess it was lucky I was moving to Halifax, not VM, then.

If you wanted to persist with VM, try to get referred to the helpdesk operator's manager, or their manager's manager, who even if he refuses will at least be able to explain in terms other than "compu'er says no."

I'd be tempted to pack up my toys and leave, though - cancel the card, wait 3 months (use those 3 months to fix my spending) and try again with a different lot.

But otherwise, following Bedsit Bob's line of thinking - you say your finances aren't in the greatest shape. With that in mind:

- You should put together a Statement of Affairs (link in one of the stickies) based on one year's real average spending, being as accurate as possible. You don't have to post it up for public consumption, but there may be room for savings hiding in plain sight. You need this because it puts a figure to the amount of wiggle-room you really have. If you're going to fix this, you need to know what you have now and where you can make savings...

- I'd agree with Bedsit Bob that your overdraft should be #1 priority, not least because it's the most insecure of borrowing mechanisms.

- I would recommend you open two basic bank accounts, with different institutions - one for your normal life and the other for your business. Keep the two completely separate, never dip into the business account, write yourself payslips and remittance invoices for expenses. I'm sure you already know this, but HMRC is getting ever more aggressive with sole traders, so a few pennies in paper and ink could save you a lot of grief.

- UNDER NO CIRCUMSTANCES run your business from the TSB account - as Bob says, the bank could call in your overdraft at any time. It would be more than embarrassing if they did so right before you needed to pay tax and NI.

Once you have moved all your normal income and expenses to one basic bank account, and your business operations to a separate account, then you can effectively treat TSB as an expensive credit card and pay them off with a monthly standing order.

Olive_8

Sanctioned_Parts_List wrote: »

Hmm, I guess it was lucky I was moving to Halifax, not VM, then.

If you wanted to persist with VM, try to get referred to the helpdesk operator's manager, or their manager's manager, who even if he refuses will at least be able to explain in terms other than "compu'er says no."

I'd be tempted to pack up my toys and leave, though - cancel the card, wait 3 months (use those 3 months to fix my spending) and try again with a different lot.

But otherwise, following Bedsit Bob's line of thinking - you say your finances aren't in the greatest shape. With that in mind:

- You should put together a Statement of Affairs (link in one of the stickies) based on one year's real average spending, being as accurate as possible. You don't have to post it up for public consumption, but there may be room for savings hiding in plain sight. You need this because it puts a figure to the amount of wiggle-room you really have. If you're going to fix this, you need to know what you have now and where you can make savings...

- I'd agree with Bedsit Bob that your overdraft should be #1 priority, not least because it's the most insecure of borrowing mechanisms.

- I would recommend you open two basic bank accounts, with different institutions - one for your normal life and the other for your business. Keep the two completely separate, never dip into the business account, write yourself payslips and remittance invoices for expenses. I'm sure you already know this, but HMRC is getting ever more aggressive with sole traders, so a few pennies in paper and ink could save you a lot of grief.

- UNDER NO CIRCUMSTANCES run your business from the TSB account - as Bob says, the bank could call in your overdraft at any time. It would be more than embarrassing if they did so right before you needed to pay tax and NI.

Once you have moved all your normal income and expenses to one basic bank account, and your business operations to a separate account, then you can effectively treat TSB as an expensive credit card and pay them off with a monthly standing order.

Reply:
"I would recommend you open two basic bank accounts, with different institutions - one for your normal life and the other for your business. Keep the two completely separate, never dip into the business account, write yourself payslips and remittance invoices for expenses. I'm sure you already know this, but HMRC is getting ever more aggressive with sole traders, so a few pennies in paper and ink could save you a lot of grief.

UNDER NO CIRCUMSTANCES run your business from the TSB account - as Bob says, the bank could call in your overdraft at any time. It would be more than embarrassing if they did so right before you needed to pay tax and NI.

Once you have moved all your normal income and expenses to one basic bank account, and your business operations to a separate account, then you can effectively treat TSB as an expensive credit card and pay them off with a monthly standing order.'

Thank you again Sanctioned for your super clear & helpful advice - far more helpful than the accountant I was about to take on and who advised me to use the TSB a/c as my business account, which everyone on here has advised against!

Okay, so re the above, I hope you don't mind my asking a couple more questions... You suggest opening two basic a/c's - why basic? For the main reason of avoiding having an O/D ???

At the risk of sounding completely clueless - what are payslips and remittance invoices for expenses !??... ;o//

So, if I currently have my invoices coming into my TSB a/c (as is my only account), by the sounds of it I need to amend this pronto!?

& lastly, to clarify; sp my next moves are to aim to shift all (or as much as possible) of the O/D & CC debt from TSB onto 0% balance transfer cards (I will prob end up with 4 or 5 cards) and then open two separate basic accounts (why basic? I have a decent credit rating believe it or not...), use one for my earnings & 'business expenses' (business being me as a sole-trader) etc, and the other for my personal accounts - i would pay myself a wage from my business a/c into my personal a/c and finally live within a budget (created with YNAB.com, which i am excited about!) rather than in my O/D - does this all make sense?? And I just leave the TSB empty or close to empty ???...

Why don't they teach this stuff in school !?!?....

Thank you a million.

Sanctioned_Parts_List

Thank you again Sanctioned for your super clear & helpful advice - far more helpful than the accountant I was about to take on and who advised me to use the TSB a/c as my business account, which everyone on here has advised against!

Your accountant is not wrong in that you can use your TSB account to run your business. Certainly contrary advice from a stranger on the internet isn't a good reason not to take on your accountant

The reason why I've suggested you shouldn't run your business through the old TSB account is purely due to the insecurity of the lending facility - i.e. the bank can withdraw it at any time for any reason. If they do so at the wrong moment, they can instantly sink your business. However "can" is not the same as saying "will" - they might let the facility run forever, or might pull the plug tomorrow.

For that reason alone, I'd suggest keeping all your business away from TSB - at least until you're permanently back in the black. There's also the psychological bonus that, without the constant churn of income and expense, you'll be able to see that overdraft shrink month on month.

However, I'm not an accountant and you should do your own reading to make sure that your plans work for you.

Okay, so re the above, I hope you don't mind my asking a couple more questions... You suggest opening two basic a/c's - why basic? For the main reason of avoiding having an O/D ???

Not having access to an overdraft is a healthy bonus. No, the main logic was because you can open them at any time without impacting your credit rating.

As your plan is to open multiple new credit cards over the next few months to try to make your debt interest-free, opening new current accounts with lending facilities will harm that plan. Banks may convert from basic to full-fat accounts later if you ask them, though I'm not sure of the current rules.

At the risk of sounding completely clueless - what are payslips and remittance invoices for expenses !??... ;o//

That might be me being a bit over-the-top as I've only ever traded as a limited company before, but it's basically keeping a paper record of what you've paid yourself, and if you've used your "personal" account to buy stock etc. for your business, to document that your business has paid you back. This is normal for limited companies but might be excessive for sole traders - however, it does make life a lot simpler come tax return time.

So, if I currently have my invoices coming into my TSB a/c (as is my only account), by the sounds of it I need to amend this pronto!?

I don't see there's any great hurry - you still need to do your SOA and make a plan to pay off your debts, and maybe another meeting with your accountant to bullet-proof the plan and sort out your tax arrangements would help.