How to tackle my credit card debt

Martico

horsewithnoname said:

sinlo said:

Thank you for replying.  Can I ask why it is that I shouldn't consolidate the higher APR's with the loan?  100% trust the advice on here, just for my own understanding.

I don’t understand why you wouldn’t move your debt to a lower rate of interest either. Why pay 30+% when you can pay below 20%?

The key to all of this is getting a good budget (covering the day to day, month to month and year to year) that you can and will stick to. Not getting that nailed down tends to be where people come unstuck. If the budget isn't quite right, if expenditure over a period of weeks, months or years exceeds income, then credit will be accessed again. And with consolidation loans often doubling the available credit, people can easily (and often do) find themselves with twice the original debt. 

[Edit] To add, that not everyone is in a position to get a budget that works, in which case some kind of debt management is needed[/Edit]

13thlegion

Whilst a consolidation loan does make sense mathematically with a slightly lower apr, as others have said it often doesn't work behaviourally. If it I used to clear cards those card accounts need to be closed to take away the option of accessing more credit.

The general at a distance rule that does apply to anyone getting out of debt is that we can no longer rely on it to meet any needs. So we need to manage what money we have effectively and then pay of the debts.

Others have linked the SOA calculator. If you don't want to share it that is fine, it is for your benefit anyway. The lemonfool one can also be imported into their snowball calculator to help with working out an order to pay them. And helpfully how many months it will take to clear everything. 

Some more general tips. The first time you do an SOA you will get it wrong. Don't worry we all did and do. Budgeting is hard. What makes an SOA different is it is retrospective. Have you to a year's statements in front of you and use real figures. It will be painful but useful. Don't forget about things that are not monthly. How much did you spend on Christmas and birthdays combined last year? Divide that by 12 and that will give you how much needs to be set aside each month. With your car repair bill it sounds like you don't have sinking funds set at a high enough level. You need them, think if it like saving for car repairs/a new car or a holiday when your car is fine and holiday isn't booked. As a starter I'd take the cost of the repair, divide it by 12 and add that to your monthly outgoings as savings. Do this for everything you can think of. 
This is how you live without needing credit.

Do this before looking at what is needed for credit card and loan repayment (mortgage should be in the main budget as trouble there leave you homeless). If there is still enough to live with credit and pay off just over minimums you'll be fine. If not then some other strategy will be needed depending on the results.

Good luck, you've got this, no matter what. And any questions please ask here as there are so many really helpful people who will reply.

tigergambit

sinlo said:

Any help on the best way to tackle my credit card debts would be much appreciated.  The past 3 years I feel like I have gotten nowhere with paying my debts. I had 2 years reduced income due to illness and in that time have wracked up 17k worth of credit card debt and 6k in a loan.  I have been managing to pay these just over minimum payments monthly but seem to be getting nowhere due to a hefty car repair bill before Christmas.  I am determined to get these cleared and would love to do it but feel I ned help on how to approach it.  I also came across updraft and they have offered me a consolidation loan and would appreciate your views.  

Aqua - £1800 34.8% 
MBNA - £5100 27.13%
Barclay - £7000 24.9%
Halifax - £4100 25.49%
Halifax £3000 0% to Jan 25

Halifax Loan Balance now £6200 6.9% 32 months remaining £221pm

Updraft have offered me 10.5k @ 19.9% to clear some cards.  £278 over 60 months.  I'm not keen on taking more debt as I know this is not clearing debt just moving to another provider but this is my thought process :

I take this to pay off anything with a higher interest rate than the 19.9%.  Monthly pay the updraft loan, halifax loan and any remaining monies pay off remaining card debt.  Once card debt is clear then add these payments and try to pay updraft loan off early.  I know I should only take this loan if I can commit to changing my spending habits and cutting up the cards.

My second option is not to take the loan and find an order best to tackle the credit cards.  Should I be clearing highest balance first, lowest balance first or highest apr?? 

I cannot fall behind and default any accounts as I have a mortgage that is due off a fixed rate in 2 years.  I have never missed a payment on anything and my credit file is good apart from debt level.  I have increased my monthly income by match betting and it has allowed me £800pm to tackle my debts although it is a tight squeeze.  

@sinlo
Taking the consolidation loan doesn't make sense. If you use the £278 from that and the £800 from match betting you will clear Aqua and MBNA in around 8 months. Try to get some more 0% transfers too.

The match betting will only work for around 6-9 months so use it to boost your start. See if you can get a breathing space type break on interest and charges too after you have explored the transfer cards. You need to look at all the different methods to play this. Harder than simply taking a consolidation loan, but that loan is going to cost you £6,180 of extra debt. See how much of that you can save.

sourcrates

Using consolidation loans is always the default choice, as its the easiest choice, its also the worst thing you can do.

You don`t pay off debt by more borrowing, never works for the reasons already stated, we have folk on this forum that have consolidated numerous times, and every time increased their debt by spending again, you need to break that cycle.

You say defaulting and debt management are out of the question, so a stricter budget is what is required, throw what ever you can at the highest APR first, look to take advantage of 0% card deals if you can, its all common sense stuff.

RAS

It's also the case that rather than tackling a high interest card and paying it off over say 2 years, you end up paying it off a slightly fixed lower rate over 5-7 years so pay back more interest. The reason credit providers love that sort of loan is that they make lots more money out of people who consolidate. 

It's a mugs game really, even though sinlo recognises they are not paying the moving the debt rather paying it off (lots of people pay the cards off with a loan), they don't have the flexibility of improving their credit record, or maybe get a salary increase and then transferring to 0%.cards. 

Superhoopza

RAS said:

It's also the case that rather than tackling a high interest card and paying it off over say 2 years, you end up paying it off a slightly fixed lower rate over 5-7 years so pay back more interest. The reason credit providers love that sort of loan is that they make lots more money out of people who consolidate. 

It's a mugs game really, even though sinlo recognises they are not paying the moving the debt rather paying it off (lots of people pay the cards off with a loan), they don't have the flexibility of improving their credit record, or maybe get a salary increase and then transferring to 0%.cards. 

Could you explain this point please?

kimwp

sourcrates said:

Using consolidation loans is always the default choice, as its the easiest choice, its also the worst thing you can do.

You don`t pay off debt by more borrowing, never works for the reasons already stated, we have folk on this forum that have consolidated numerous times, and every time increased their debt by spending again, you need to break that cycle.

You say defaulting and debt management are out of the question, so a stricter budget is what is required, throw what ever you can at the highest APR first, look to take advantage of 0% card deals if you can, its all common sense stuff.

I do think the advice we give on this is somewhat contradictory and confusing. We advise not to consolidate as you can't borrow your way out of debt, but we advise to balance transfer to 0% credit cards, which is almost the same thing - both move the debt to lower "minimum' payments by opening another debt account.

Superhoopza

kimwp said:

sourcrates said:

Using consolidation loans is always the default choice, as its the easiest choice, its also the worst thing you can do.

You don`t pay off debt by more borrowing, never works for the reasons already stated, we have folk on this forum that have consolidated numerous times, and every time increased their debt by spending again, you need to break that cycle.

You say defaulting and debt management are out of the question, so a stricter budget is what is required, throw what ever you can at the highest APR first, look to take advantage of 0% card deals if you can, its all common sense stuff.

I do think the advice we give on this is somewhat contradictory and confusing. We advise not to consolidate as you can't borrow your way out of debt, but we advise to balance transfer to 0% credit cards, which is almost the same thing.

Also I know the advice is general but I think we should try to understand the reasons the debt occurred (one off events/phases in life as opposed to consistent overspending), as to whether to advice should be given around additional 0% cards or cheaper consolidation loans. Sometimes the advice too generalist, i.e. it works for 75% of people so we should tell everyone to do it. Or at least engage in conversation around methods as opposed to sticking to the one size fits most approach and getting defensive when people question it on a case by case basis.

sourcrates

kimwp said:

sourcrates said:

Using consolidation loans is always the default choice, as its the easiest choice, its also the worst thing you can do.

You don`t pay off debt by more borrowing, never works for the reasons already stated, we have folk on this forum that have consolidated numerous times, and every time increased their debt by spending again, you need to break that cycle.

You say defaulting and debt management are out of the question, so a stricter budget is what is required, throw what ever you can at the highest APR first, look to take advantage of 0% card deals if you can, its all common sense stuff.

I do think the advice we give on this is somewhat contradictory and confusing. We advise not to consolidate as you can't borrow your way out of debt, but we advise to balance transfer to 0% credit cards, which is almost the same thing - both move the debt to lower "minimum' payments by opening another debt account.

Superhoopza said:

kimwp said:

sourcrates said:

Using consolidation loans is always the default choice, as its the easiest choice, its also the worst thing you can do.

You don`t pay off debt by more borrowing, never works for the reasons already stated, we have folk on this forum that have consolidated numerous times, and every time increased their debt by spending again, you need to break that cycle.

You say defaulting and debt management are out of the question, so a stricter budget is what is required, throw what ever you can at the highest APR first, look to take advantage of 0% card deals if you can, its all common sense stuff.

I do think the advice we give on this is somewhat contradictory and confusing. We advise not to consolidate as you can't borrow your way out of debt, but we advise to balance transfer to 0% credit cards, which is almost the same thing.

Also I know the advice is general but I think we should try to understand the reasons the debt occurred (one off events/phases in life as opposed to consistent overspending), as to whether to advice should be given around additional 0% cards or cheaper consolidation loans. Sometimes the advice too generalist, i.e. it works for 75% of people so we should tell everyone to do it. Or at least engage in conversation around methods as opposed to sticking to the one size fits most approach and getting defensive when people question it on a case by case basis.

@kimwp - I`m not a fan of either method, but the OP has cards that are interest bearing, and as they don`t want any kind of debt management or defaults etc, it was all I could suggest.

@Superhoopza - The kind of people that can stick to a budget and manage to service there credit debts are not usually the ones who use consolidation loans, possibly the odd few as you suggest due to unforeseen circumstances etc, may opt for one, and manage it perfectly ok.

Alas in by far the majority of cases, we see time and time again, when someone posts an SOA, large loans previously used for consolidating debt.

Its a similar situation to an IVA, they are suitable for around 25/30% of those who choose one, I would suggest similar figures apply to consolidation loans, by far the majority who take one, shouldn`t have.

MattMattMattUK

sourcrates said:

Using consolidation loans is always the default choice, as its the easiest choice, its also the worst thing you can do.

You don`t pay off debt by more borrowing, never works for the reasons already stated, we have folk on this forum that have consolidated numerous times, and every time increased their debt by spending again, you need to break that cycle.

You say defaulting and debt management are out of the question, so a stricter budget is what is required, throw what ever you can at the highest APR first, look to take advantage of 0% card deals if you can, its all common sense stuff.

Unfortunately I have a business partner in one of my businesses who has done this multiple times. He loads up on credit card debts, loans and maxes his overdraft, when that becomes unsustainable to would remortgage, taking equity out of the property, then a few months later he starts loading up the credit cards again. He has probably burned through £200k+ of equity from house price appreciation by doing this every 2-4 years and cannot recognise that this is an issue despite the car crash that his finances are, his stupid behaviour continues.

sourcrates said:
The kind of people that can stick to a budget and manage to service there credit debts are not usually the ones who use consolidation loans, possibly the odd few as you suggest due to unforeseen circumstances etc, may opt for one, and manage it perfectly ok.

Alas in by far the majority of cases, we see time and time again, when someone posts an SOA, large loans previously used for consolidating debt.

Exactly this, those who can create and stick to a realistic and functional budget are very rarely those who get into debt in the first place. I used to volunteer at a charity that offered a form of financial counselling, helping people budget etc. as a side service to it's general offering and I would say the majority of people came back multiple times having failed to stick to a budget and run up debts again/further debts, very rarely was the additional debt spent on essentials, it was usually things like holidays, buying electronics or expensive branded clothing. I ended up finding it quite disheartening in the end and it was one of the reasons I stopped volunteering, the entire process felt futile.