Taking payment holiday to clear smaller debts?

maybells

Anyone else taking a loan payment holiday to clear smaller debts?

I have overdrafts in four different accounts. We all know they will start charging awful rates in several months. So I figured it I could take a payment holiday for two of my loans, I can clear these smaller debts.

£1000 - HSBC O/D

£750 - Starling O/D

£500 - Santander O/D

£500 - Monzo O/D

Once these are paid off, I am reducing the overdraft limit to zero!

The combined loan payment for my two loans are: £500.15.

Also, after my bills and other essentials, I have £610 available to throw at debt. If I choose to have a payment holiday for both my loans, I can clear all my overdrafts using the £1110 in a three month period. I can even throw the excess money that I have left over at a Barclaycard. I have a balance of £1024.67. It’s currently at 0% but that runs out in August.

Once all these smaller debts are gone, I can start making larger payments on the loans and get them cleared quickly. They’re both at 3.3% so the overdraft and credit card will cost me more when the time runs out!

Is there anything I’m overlooking? I feel bad for taking advantage of the payment holiday. Isn’t it supposed to be there for people who are genuinely struggling? But at the same time, I feel like I’ll be struggling once the interest kicks in! Any advice would be appreciated.

maybells

Argh, I can’t see to edit my post! What I wanted to add was: both banks that I have loans with have confirmed taking a payment holiday will NOT affect my credit rating.

BabyStepper

Hi there

With the extra cash you have every month anyway, £610, you could have those small debts paid off in 5 months without extending the terms of your 2 loans. Your only looking at 2 months faster to clear the overdrafts, with 3 months added on to your loans. 

Either way, it doesn't make a big difference to anything unless your overdrafts start charging extorionate fees in the next 5 months. We all get impatient with this process, maybe try settling in for the long haul, and if it was me it would not be worth the hassle with the loans. 

Good luck whatever you decide.  

Naomim

I have done this. Taken a 3 month payment holiday on our mortgage.  My bank overdraft is at £2.5k so with overdraft interest currently at 19.9%  & going to increase to 40% it seemed a no brainer. 

I'm currently charged about £40 fees & interest so this will snowball onto my credit card payments and once they are cleared we'll concentrate on overpaying the mortgage.  

Naomim 

Mr87

I would say it doesn't look like there's a downside as long as you genuinely use the extra to pay off those loans sooner. 

lopsyfa

BabyStepper said:

Hi there

With the extra cash you have every month anyway, £610, you could have those small debts paid off in 5 months without extending the terms of your 2 loans. Your only looking at 2 months faster to clear the overdrafts, with 3 months added on to your loans. 

Either way, it doesn't make a big difference to anything unless your overdrafts start charging extorionate fees in the next 5 months. We all get impatient with this process, maybe try settling in for the long haul, and if it was me it would not be worth the hassle with the loans. 

Good luck whatever you decide.  

Good point but if the OP now throws the normal overdraft payments at the loans, it should more than reduce the length of the two loans by more than the three months holiday they are taking. This needs a bit of discipline though but with the crazy overdraft rates the banks are charging, taking payment holiday should be better interest wise.

The OP can also take advantage of the £500 interest free overdraft just announced. As soon as possible, pay at least £500 off the HSBC O/D and at least £250 into Starling O/D to reduce both to less than £500. This will make all the overdrafts stop charging interest and you can then pay them in any order.

maybells

BabyStepper said:

Hi there

With the extra cash you have every month anyway, £610, you could have those small debts paid off in 5 months without extending the terms of your 2 loans. Your only looking at 2 months faster to clear the overdrafts, with 3 months added on to your loans. 

Either way, it doesn't make a big difference to anything unless your overdrafts start charging extorionate fees in the next 5 months. We all get impatient with this process, maybe try settling in for the long haul, and if it was me it would not be worth the hassle with the loans. 

Good luck whatever you decide.  

Thanks for your reply!

I agree. In terms of how quick I can pay it off without help from the loan holidays, doesn’t make much difference! However, what will make a difference is the overdraft charges once the £500 interest free period expires. I also think, it terms of psychologically feeling like you are repaying you’re debt, wiping out smaller debts easily will give me a boost and get me off to a good start. 

I have four overdrafts, one credit card and two loans. If I can get rid of all the overdrafts and the credit card, I can shove every spare penny I have towards the loans. So after thinking more about it and seeing the responses here, I will go for the holiday option. Thanks again.

maybells

Naomim said:

I have done this. Taken a 3 month payment holiday on our mortgage.  My bank overdraft is at £2.5k so with overdraft interest currently at 19.9%  & going to increase to 40% it seemed a no brainer. 

I'm currently charged about £40 fees & interest so this will snowball onto my credit card payments and once they are cleared we'll concentrate on overpaying the mortgage.  

Naomim 

I agree! I was really worried about the huge interest hike! Monzo was actually sitting at a grand just a few weeks ago so I had £3250 worth of overdraft across various accounts. Even my credit card charges less than 40%! And my loans are only 3.3% each. So I’ve gone ahead and applied for loan holidays for both. One of them have already got back to me with approval, just waiting for the other one now.

Best of luck to you! I think this repayment holiday will give those using it to repay debt a much needed boost!

maybells

Mr87 said:

I would say it doesn't look like there's a downside as long as you genuinely use the extra to pay off those loans sooner. 

Thanks for your reply!

Yes! I am determined to get the overdrafts paid off and cancelled. My next focus will be the credit card, followed my the loans. I really want to simplify my finances and begin to build up some savings. 

I hate the way things are right now what with the virus, lockdown, people out of jobs, etc. but I’m grateful I can use the opportunity the banks have presented to people who are struggling to sort myself out financially.

maybells

lopsyfa said:

BabyStepper said:

Hi there

With the extra cash you have every month anyway, £610, you could have those small debts paid off in 5 months without extending the terms of your 2 loans. Your only looking at 2 months faster to clear the overdrafts, with 3 months added on to your loans. 

Either way, it doesn't make a big difference to anything unless your overdrafts start charging extorionate fees in the next 5 months. We all get impatient with this process, maybe try settling in for the long haul, and if it was me it would not be worth the hassle with the loans. 

Good luck whatever you decide.  

Good point but if the OP now throws the normal overdraft payments at the loans, it should more than reduce the length of the two loans by more than the three months holiday they are taking. This needs a bit of discipline though but with the crazy overdraft rates the banks are charging, taking payment holiday should be better interest wise.

The OP can also take advantage of the £500 interest free overdraft just announced. As soon as possible, pay at least £500 off the HSBC O/D and at least £250 into Starling O/D to reduce both to less than £500. This will make all the overdrafts stop charging interest and you can then pay them in any order.

Thanks for your reply!

I intend to get the overdrafts paid off and cancelled within the three months, before paying off the credit card. It will be nice to go from 7 debts to just 2. I’m determined to get everything paid off, simplify my finances and build up some savings.

And thanks for the tip! I was planning on paying off the Santander and Monzo in April. Then HSBC in May. Then Starling plus some of the balance on my credit card in June. But what you’re saying makes more sense to avoid the interest! So I’ll start with HSBC and Starling and get them down to £500 first. Cheers!

BabyStepper

How much are you paying in overdraft fees at the moment? Excellent idea to make use of the £500 interest free overdraft option at the moment. I wouldn't feel bad at all about using that or the loan holidays, that's what they're there for. 

If, like me, you enjoy fiddling with pennies, then you could work out how much you would be saving by taking the loan holidays. Do they keep charging interest during the holiday period? Hopefully not but maybe worth finding out. 

Good luck!