Best way to manage

tinycutepuppy

Hello,

I currently owe 6,000 on a credit card and I am able to afford minimum payments each month. After 2 years I am now being charged interest of 26.0% - 30% compound equivalent, meaning of the £250 payment I make £122 will now be the interest. I also use all of my £500 overdraft every month. I am unable to get a 0% interest credit card to transfer the balance. I have been looking at getting a loan but I am unsure of the best thing to do. Any help would be appreciated.

thank you

CliveOfIndia

A loan will not help. Firstly, you're not clearing the debt, you're merely moving it from one place to another. Secondly, a lender cannot force you to use the loan to repay the debt. They therefore have to assume the new debt would be in addition to - not instead of - your existing debt. The result being, they'll either refuse you, or else allocate a very high APR.

The first step is to fill out an SOA: https://www.lemonfool.co.uk/financecalculators/soa.php

Paste the results here, then we can hopefully make objective, unbiased suggestions as to where you can make savings in your budget, allowing you to nail the debt as quickly as possible.

£6000 is not a huge amount in the grand scheme of things, hopefully we can help you get shot of it in reasonably short order.

tinycutepuppy

[font=courier new][b]Statement of Affairs and Personal Balance Sheet[/b][b]

Household Information[/b]
Number of adults in household........... 2
Number of children in household......... 0
Number of cars owned.................... 0[b]

Monthly Income Details[/b]
Monthly income after tax................ 1950
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0[b]
Total monthly income.................... 1950[/b][b]

Monthly Expense Details[/b]
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 650
Management charge (leasehold property).. 0
Council tax............................. 85
Electricity............................. 94
Gas..................................... 0
Oil..................................... 0
Water rates............................. 27.5
Telephone (land line)................... 0
Mobile phone............................ 66
TV Licence.............................. 7.5
Satellite/Cable TV...................... 0
Internet Services....................... 17.5
Groceries etc. ......................... 150
Clothing................................ 0
Petrol/diesel........................... 0
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 20
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 12
Presents (birthday, christmas etc)...... 0
Haircuts................................ 0
Entertainment........................... 0
Holiday................................. 0
Emergency fund.......................... 0[b]
Total monthly expenses.................. 1129.5[/b]
[b]

Assets[/b]
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0[b]
Total Assets............................ 0[/b]
[b]
No Secured nor Hire Purchase Debts[/b]

[b]Unsecured Debts[/b]
Description....................Debt......Monthly...APR
Credit card....................6000......250.......30
Overdraft......................500.......0.........39.49[b]
Total unsecured debts..........6500......250.......- [/b]

[b]
Monthly Budget Summary[/b]
Total monthly income.................... 1,950
Expenses (including HP & secured debts). 1,129.5
Available for debt repayments........... 820.5
Monthly UNsecured debt repayments....... 250[b]
Amount left after debt repayments....... 570.5[/b]

[b]Personal Balance Sheet Summary[/b]
Total assets (things you own)........... 0
Total HP & Secured debt................. -0
Total Unsecured debt.................... -6,500[b]
Net Assets.............................. -6,500[/b]

[i]Created using the SOA calculator at www.LemonFool.co.uk.
Reproduced on Moneysavingexpert with permission, using other browser.[/i][/font]

RAS

OK, well done for the first attempt. I'm assuming this is half the household costs.

And since you plainly haven't got £570 to pay off your debt at the end of the month, you are spending on items next to which you have £0?

Christmas and your partner's birthday come once a year. How much do you spend, now divide by 12 and set up an instant access ISA into which you pay that much each month, by DD before you spend anything else.

sourcrates

Do you really have £570 a month left in your budget?

I doubt you do judging by what you have said, there are a few blank boxes above, but your debt is not massive, so cutting back on your spending and increasing what you pay to the card may help.

If you want to go full nuclear, default on the card, and the bank account, get new banking facilities, then the OD just becomes another unsecured debt to service.

All interest will stop on the card once it defaults, you can then pay them off at your leisure.

A new bank account with no overdraft facility will allow you to live within your means, and stop you from borrowing again, up to you how important an issue it is to you, and if you are bothered about your credit file or not.

Do not under any circumstances get a consolidation loan, its the start of a slippery slope that could keep you playing the debt game for the next 20 years.

tinycutepuppy

thank you for your help.
Yes, that is half the household costs as I live with my housemate. I don’t have a car and walk most places. I have made mistakes in the past with spending on unnecessary things such as clothes and ‘treats’ but due to my worry about this situation I have cut back. So I will now look at increasing the amount I can actually afford to pay off each month.
I am completely clueless when it comes to things like this. Could you please explain what you mean by default on the card? I am mainly concerned with the interest of the credit card.

sourcrates

This may not actually apply to you, as you may be able to find another solution by cutting back on your spending, but I will quickly explain what I mean about defaulting.

When you default on a credit agreement, it basically means you break the terms of the agreement by stopping payment to it.

Creditors will then go through a process of attempting to contact you, when that fails they will in time issue a default notice that ends the agreement between you.

At that point the full balance is frozen, no further interest is added, the debt will then be sent to debt collectors to chase, and payments arrangements can then be made, this is what some people who cannot afford their debts typically do, its called debt management, and that is the process in a nutshell.

RAS

Your focus is in the wrong place. That overdraft has a much higher APR, and is what you need to kill.

As per sourcrates, you have the option to default on the debts, open a new basic bank account with a provider not associated with either of your current debts and the interest will be frozen once the defaults are issued.

That choice will mean you can't access reasonably priced credit for the next 6+years, until the defaults drop of your credit record.

Or you could tackle the OD and when that's gone, start over paying on the card some months.

My concern is that you've flipped for "unnecessary things and clothes" to austerity and that isn't sustainable. You need a couple of pairs of shoes, socks and undies, each year. You might get more out of your heating by spending a tenner on longjohns and a couple of vests.

You mainly walk but you need to save monthly for those time you travel by public transport, including train.

That's what a tight SOA needs to address.