Advice appreciated on the best approach for managing my credit card and overdraft debt

notation

Hi

I’m looking for advice on my best course of action for managing debts – some of which arose out of the pandemic.

My debts are:

1) £5,500 on Sainsburys Bank credit card – promotional 0% interest applies until November ‘24

2) £2,200 Barclaycard credit card

3) £550 Natwest credit card

4) I also have a Natwest current account overdraft of £4,000 - which I am maxing out every month.

Therefore with the 3 credit cards and overdraft, my debts at the end of the month total £12,300.

My annual salary is approx £34k

I do have a mortgage which I’m managing, what has £86K mortgage outstanding.  The valuation is a ballpark 300k, so I have plenty of equity in the property.

My credit rating is good.

I’m not very knowledgeable when it comes to personal finance but I was thinking of the following possible options - or perhaps a combination of more than one?

a)  Taking out a bank loan to clear some or all of these debts.
b)  Taking out another credit card with a promotional 0% interest rate to replace the Sainsburys bank card, as interest will apply on this Sainsburys card from Nov ’24.  I think this is called a ‘balance transfer’ card?
c) Apply for a re-mortgage to add £8k borrowing on to my mortgage which would pay down my credit cards.

I would be grateful for any advice on what would be the best thing for me to do.

Many thanks!

elkiedee

Are you paying interest on the Barclaycard and NatWest Credit cards? If so I'd concentrate on getting those down before the Sainsburys Bank cards. Are you adding to them, for example, when your overdraft is maxed out?. Check what interest rate you're paying on everything.

At that rate of debt, I would be very careful about adding to the mortgage as if you do, the debt will be secured on your home. Your overdraft must be a lot more than your monthly income.

Before you take out any new credit commitment (increasing mortgage, new credit card, loan), you should work out what you're spending on debt repayment and what you're spending on day to day costs, because if your outgoings are more than your income, any increased credit is going to lead to increased debt. 

fatbelly

Some of your debt is at 0%. A bank loan won't be

Why BT debt that is at 0% for the next 10 months?

Securing the debt on your property is not a good idea.

It sounds like you are in a muddle and likely a debt management plan is going to be needed

If you can provide a statement of affairs we would be able to make sensible suggestions

https://www.lemonfool.co.uk/financecalculators/soa.php

MFWannabe

I would suggest you complete a statement of affairs and we will be able advise where you can cut back etc to pay off the debts 

one thing for sure is never turn unsecured debt into secured 

Brie

another vote for the statement of affairs (top sticky in the forum) and fill it out with all the APRs etc and all your expenses and income.  post it here if you are comfortable doing that and people will offer suggestions on where cuts can be made in your budget.   If you are not comfortable posting it here then take it to StepChange, NationalDebtline, Community Money Adviser (CMA) or Christians against Poverty (CAP) or some Citizens Advice and they will help you with a budget or potentially debt advice.  

Generally everyone will say that debt consolidation (taking out a loan) is not a good idea as it doesn't address the problem.  Likewise don't extend your mortgage as that's taking unsecured debt and putting it against a secured asset.  Option b might work if you don't have so much debt compared to your income and that the banks will grant you another card - in that your income should be sufficient to support all the debt you have now PLUS the extra debit of another card.  So this will be dependent on the total credit available on all of your cards plus your overdraft as well as whatever extra you are applying for.  

As an aside......I like the idea of getting rid of something small so the NW card at £550 might be a quick fix that you could then cancel to give you a bit of head space to get something extra.  Or having got rid of that they may offer you BT at 0%.

enthusiasticsaver

Surely if the Sainsburys card is 0% until November you don't need a BT card for that now?  I would address the overdraft as a matter of urgency though given most overdrafts charge 40% interest. 

I would not advise remortgaging or consolidating debt.  The best way to deal with it is to budget and cut back.  Given the debt is only £12k you can deal with this on your salary particularly as your mortgage is not huge.  I would start by doing an soa.  There is a link in my signature. 

EssexHebridean

Your plans A and C should be ruled out - you can’t borrow your way out of debt and converting unsecured debt into secured is pretty much never a good idea. Plan B has legs, but not yet - as you still have a good run at 0% on that card, best to hold off on on taking anything)g to replace it until nearer the time.

Agree entirely that putting together your SOA is your first step - and I suspect from your comment about not being very knowledgeable about personal finance that this might be the first time you have ever drawn up anything which would give you budgeted figures to work from - would that be fair? 

Get the SOA done, use the “format for MSE” option and copy and paste it into here, and let’s see what we can suggest for you. 

notation

Thanks all much appreciated!

So to summarise your thoughts…

a) Don’t do a re-mortgage

b) Don’t do anything re the Sainsburys credit card while there’s 10 months left on this 0% promotional interest rate.

c) Complete a statement of affairs (SOA)

d) Focus on reducing the overdraft and/or one or both interest-liable Natwest or Barclaycard cards

Haven’t done budgeting figures before but I will complete the statement of affairs and it should be done by tomorrow.

Thanks all – and again most appreciated!

BadDebtor

notation said:

Hi

I’m looking for advice on my best course of action for managing debts – some of which arose out of the pandemic.

My debts are:

1) £5,500 on Sainsburys Bank credit card – promotional 0% interest applies until November ‘24

2) £2,200 Barclaycard credit card

3) £550 Natwest credit card

4) I also have a Natwest current account overdraft of £4,000 - which I am maxing out every month.

Therefore with the 3 credit cards and overdraft, my debts at the end of the month total £12,300.

My annual salary is approx £34k

I do have a mortgage which I’m managing, what has £86K mortgage outstanding.  The valuation is a ballpark 300k, so I have plenty of equity in the property.

My credit rating is good.

I’m not very knowledgeable when it comes to personal finance but I was thinking of the following possible options - or perhaps a combination of more than one?

a)  Taking out a bank loan to clear some or all of these debts.
b)  Taking out another credit card with a promotional 0% interest rate to replace the Sainsburys bank card, as interest will apply on this Sainsburys card from Nov ’24.  I think this is called a ‘balance transfer’ card?
c) Apply for a re-mortgage to add £8k borrowing on to my mortgage which would pay down my credit cards.

I would be grateful for any advice on what would be the best thing for me to do.

Many thanks!

I would avoid a bank loan as the interest is fixed and you usually do not benefit by paying it off early.

It is unlikely you will get a new mortgage to cover debt and it is likely your new mortgage rate would be way more than you are paying now.

Leave the Sainsburys card until around September then look for replacement

If the Barclaycard and NatWest are interest bearing accounts then look for a zero percent balance transfer (see tips email  https://www.moneysavingexpert.com/latesttip/  

Try to get a few thousand more than the credit limit of the two cards combined BUT make sure those two cards are not maxed out, in fact I would throw extra money at them for a few months or a lump sum.

Once your cards are replaced you pare down the overdraft by doing day to day spending on the fresh zero percent cards, but pay more than the minimum payment, it always looks good if you pay more than your minimum payment otherwise it can take you donkeys years to pay off the cards costing you a fortune.

If you spend £100 a week on food then paying it via your zero percent card will reduce your overdraft.

One of the best tips I was ever given or read on here somewhere was to look what my overdraft balance was the night before my salary hit, if I was in credit then move the amount to my savings account, if I was in debt then write that number on a post it note on my fridge or in a note on my phone, then be determined to get a better number next month. 

If your overdraft interest rate is 39.9% then it is like being paid 39.9% interest on your savings.

This MSE page will show you just what a difference paying higher minimum payments will make.

https://www.moneysavingexpert.com/credit-cards/minimum-repayments-credit-card/

I heard what you are saying about maxing out your overdraft each 

This website has an eligibility checker

https://www.moneysavingexpert.com/credit-cards/balance-transfer-credit-cards/#eligibility

If a new zero percent card is not available to you then you hit the debt in order of highest interest first, you could ask for an increased credit limit on the Sainsburys card, then move some of your overdraft to it by doing day to day spending on that card.

So your next option will be to go into cost cutting mode, this website has a many methods of achieving that and if you need to ask questions about any method you can ask here in the forum.

As you are in the debt free wannabe section I think your starting point will be to list a statement of affairs, what you are paying and for what (round numbers to avoid an online fingerprint) the link below creates a forum compatible output.

https://www.lemonfool.co.uk/financecalculators/soa.php

MFWannabe

notation said:

Thanks all much appreciated!

So to summarise your thoughts…

a) Don’t do a re-mortgage

b) Don’t do anything re the Sainsburys credit card while there’s 10 months left on this 0% promotional interest rate.

c) Complete a statement of affairs (SOA)

d) Focus on reducing the overdraft and/or one or both interest-liable Natwest or Barclaycard cards

Haven’t done budgeting figures before but I will complete the statement of affairs and it should be done by tomorrow.

Thanks all – and again most appreciated!

Yes you’ve summarised perfectly 
Also well done for making the first step by posting on here 👍

EssexHebridean

notation said:

Thanks all much appreciated!

So to summarise your thoughts…

a) Don’t do a re-mortgage

b) Don’t do anything re the Sainsburys credit card while there’s 10 months left on this 0% promotional interest rate.

c) Complete a statement of affairs (SOA)

d) Focus on reducing the overdraft and/or one or both interest-liable Natwest or Barclaycard cards

Haven’t done budgeting figures before but I will complete the statement of affairs and it should be done by tomorrow.

Thanks all – and again most appreciated!

A) - spot on.
b) again, spot on - diarise for late September to use an eligibility checker to see what might be available out there then.
c) SOA - make it open, accurate and honest. It might help to sit down with a years worth of bank and card statements to see exactly what has been spent where - but it’s important to note that guesswork might not be helpful, as particularly in areas like groceries people almost always underestimate. The thinking tends to run “well I spend roughly £50 in the supermarket once a week, and there are 4 weeks in a month, so that must be £200 a month” whereas that ignores the fact that some months 5 main shops will be done, and the top up shops in between - where you go in for a pint of milk and come out £10 lighter!  Don’t fret about any risk of putting in accurate figures meaning you are somehow traceable - it’s immensely unlikely that an accurate SOA is going to be any sort of issue - just keep good diligence about other things that will potentially link to your real-life self. In the first instance you are going to use this SOA to build a household budget to work from so it’s important to be accurate - you’d be surprised how much of a shortfall/unknown surplus rounded up or down figures can create! 

Make the SOA reflect your situation right now - not what you think you should be spending, or what you imagine we “expect” to see.
D) - ok - I think like most others as you were focusing on the Sainsburys card only I assumed the other two were also on 0% at the moment. The Barclaycard one is definitely worth looking at a shift for as a starting point, and if you cold get Nationwide moved as well that would be a bonus.  You need to go straight to an eligibility checker for this one as you want to avoid the risk of applying for something that you get turned down for, which will damage your chances at having another go. You may find that the (free) MSE credit club is helpful as it also gives you full access to your Experian file.  

If you can only get a card that will take part of the balance then fine, go for it and move what you can - anything that you can get to 0% is going to be a help. If you can get a limit high enough though, aim to get both the interest bearing cards moved over. 

The SOA will inform the next steps, but will also be a really valuable learning experience for you I suspect.