How to pay off debt more quickly?

jumpingene

My "lightbulb moment" was some time ago but I only recently discovered this website and forums and learned about all the ways I could be paying my debt off more efficiently.

My debt as it stands today is £6502

£1739 Natwest loan, which I'm paying off at £200 a month
Natwest advantage gold current account £600 overdrawn (my agreed o/d limit is £1300 and my account usually runs close to that by the end of the month)
£4163 Smile credit card (paying £100 a month, slightly more than the minimum - oh but £500 of this is work expenses which will be reimbursed)

Last month I got £200 extra in my pay so I paid my student loan off in full, only a few months early and probably not the best way to use that £200, but the psychological aspect of having cleared it made it worth it!

The loan will be paid off in full in September 2008. I already have a fairly strict budget but would like to cut back further to try to clear as much as possible of my other debt by then as well. This is where I need your help!

My plans are:
1) Load up my Egg Money card with £160 a month and use that for day-to-day spending, socialising, and small grocery shopping. And not spend any more than that!

2) Reduce my overdraft simply by not buying anything off-budget. I should have about £200 a month spare if I stick to budget, so I could be in the black for the current account quite quickly, although logically I should pay the credit card debt first.

3) Consequently stop paying bank charges because I'm no longer over my overdraft limit at the end of each month - it added up to a LOT and was the ruination of previously carefully crafted budgets.

4) Claim back my bank charges when (if) the ruling goes through and put the money straight onto the credit card.

5) Get round to ebay-ing all the things I've been storing behind the sofa and put the money straight onto the credit card.

6) Transfer my Smile balance to a lower rate card? I don't know whether I should risk my credit rating by applying for another card so soon after I just got the Egg Money one - ideas? I currently pay about 15% interest.

7) Switch to PAYG mobile? I am on a £25 contract at the moment and never go over the free minutes/texts allowance - my last bill suggests I use 100 talk minutes and 50 texts per month. I can cancel my contract any time if I want.

8) Stop paying £12 a month for the Advantage Gold account? I'm very aware that there are plenty of free accounts, but I got a preferential rate on my loan because of this a/c and I don't know how much more it would be if I closed or downgraded this account. How would I find out?

9) Replace the advantage gold with a Nationwide Flex account? I am going to be abroad for work a lot this year and it would be very nice not to have to get money changed in advance. Plus the reason I'm doing this is so I can take a six month sabbatical and travel the world, so it would be useful in the long run. Is there a limit on how many current a/cs you can have, and if they stay in the black but you don't put much money in, does it affect your credit rating?

I don't think I can cut back on my budget any more. I already do a lot of the things suggested here, like meal planning and bringing a packed lunch to work - my major outgoings are rent, bills and travel, none of which are negotiable. But any more ideas are really welcome!

Thanks for your help, and sorry for such a long rambly first post

Snaggles

Hello - welcome! :wave:

Good luck with clearing the debts. I understand exactly what you mean about the psychological boost of paying off a debt completely, and although it might cost you slightly more in the long run, if it keeps you motivated, then it's probably quite a good idea. Do have a play around with the snowball calculator though (www.whatsthecost.com I think, although I will double check that in a sec) to see how best to prioritise your debt repayments.

You said you had a preferential rate on your loan because of your advantage account? Usually, once a personal loan is taken out, the interest rate is fixed, so I would be surprised if they could increase the rate if you change to a standard account - but do check that obviously.

If you are switching to PAYG, make sure you wont end up spending more because you are using it more heavily than you realised/expected. We have actually gone back onto contract phones because we only pay £15 a month, and stick within our limit, whereas before we had been topping up about £20. But if you are a relatively low user, PAYG could be quite a bit cheaper for you.

Your credit rating IS affected by searches, but only for 6 months, so if you haven't applied for much else recently, it shouldn't be a problem to make another application. If you have made quite a few though, it might be worth hanging on a few months. Overall available credit will make a difference to your credit rating too though, so make sure you cancel any cards you are no longer using.

MoneyGypsy

Sounds like you're on top of it - good luck.

How is your food budget? Check out the Old Style board for tips on dramatically cutting that.

Lol.

Jenna

Hey,

Welcome to the site don't worry, I ramble too lol, besides you've given us lots of info which is very helpful in trying to reply! In response to your points, then (I've used your numbers):

2) A spending diary might be useful here - this will help you track what you are spending that's not on your budget - try www.spendingdiary.com (you can have categories, total amounts, monthly reports etc so it's quite handy!). As Snaggles suggests, look at the Snowball calculator for tips on what to pay back first

6) When did you apply for the Egg Money card? I would leave it 3 months min. between credit applications, although obviously it's up to you!

8) I agree with Snaggles on this one, but also, even if the rate would go up if you "downgraded" your account - would it cost you more than £12 a month in increased interest? You can find out quite simply by calling your bank & asking!

9) Nationwide aren't bad if you're going abroad (I have an account with them), because they don't charge you fees for withdrawing cash, or a fee for the currency conversion (called pre-loading). This link may be removed, apologies in advance if I'm not allowed to post it, but this is a clearer explanation (than mine anyway - lol) that I just Googled for you:
http://www.thisismoney.co.uk/help-and-advice/advice-banks/article.html?in_advicepage_id=133&in_article_id=425181&in_page_id=90
I don't think there's a limit to how many current a/c's you can have, although (even if you're in the black) if they have overdrafts (e.g. access to credit - even if you don't use it!), this could affect your rating.

If you post up an SOA then some of the more experienced posters on here will be able to suggest ideas for cutting back / getting a better deal - it's amazing how a fresh pair of eyes can help with this.

Hope that helps! Take care

jumpingene

The snowball thing is great! I spent a long time playing with it and have worked out that I should pay my overdraft off first (actually hadn't realised how much interest I was paying on that), and that it is well worth getting a 0% credit card. If I stick to budget and do my ebay stuff, I could have everything paid off in 12 months or less . I'm feeling very positive today.

Ok, here is my SoA - my finances are really very simple!

In:

Net Pay - £1330
(plus about £1000 per year for extra teaching when I can get it - I try to put this straight onto debt and not count it for the budget)

Out:

Money to Joint Account - £400
[This pays for rent (£775 for a 1.5 bed flat in SE England), gas (£30), electric (£30), internet, cable tv and phone (£60), Council Tax (£100), Water (£36), TV license (£12) Gym membership (£21 each) and the occasional Big Shop. My boyfriend earns about twice what I do and our contributions reflect that, which is why it's quite low for me. Since he contributes so much I don't think I can really take away his TV and gym membership. Our tenancy agreement says we shouldn't change gas/electric supplier, and we actually overpay for these, then claim a nice lump sum back every so often.]

Bank service charge - £12

Mobile phone bill - £25

Loan repayment - £200
Minimum for credit card - £70

Travel - £200 (Train and bus, we don't have a car)

Food/household/toiletry shopping on top of the big shop - £40 last month. Will get on that old-style thing.

Total £947

1330 - 947 = £383

So if I give myself £160 for socialising and the other things that make life worth living, that leaves me another £200 for further debt repayment and some loose change in case anything costs more than expected.