Persistent debt letter from Vanquis explaining the maths

Mary_Alice

My friends son has had a letter form Vanquis to tell him he is in persistent debt. I am trying to explain the maths to him but he is not getting it, so can someone explain it in terms a 20 year old can understand please.

He has a £1200 debit on his card and pays the minimum each month and has not spent on it since Xmas. He is paying £55 but the interest is £42, he cannot understand that his payments are basically wasted as only £13 is being paid of so it will take years. He has £4000 in savings so i have told him to use that to pay it off but he says he is earning interest on his savings so is reluctant to do so. He lives at home so doesn't need a safety net of savings. Am I wrong to tell him to pay it off then put his £55 a month back into his savings. ?

I learnt the hard way, his Mum doesn't understand it either, I just want to help

Woodstok2000

Try to show him the numbers written down. You can use a calculator like the one below so he can see how much he's paying in interest, then compare that to how much he's earning in savings and how much he could save by paying it off now.

https://www.lloydsbank.com/credit-cards/interest-calculator.html

Keep_pedalling

just tell him he is earning less than 5% interest on his savings and paying 40% on his debt. So he earns at best £200 but pays out £500 in interest so is losing £300 a year. paying off that debt will mean he will be paying no interest and earning £140 in interest so will be £440 a year better off.

If that does not work give up 😈

mta999

He is paying £42 a month interest but receiving a lot less than that from his savings so every month he is losing money. He should pay off the credit card.

Mary_Alice

https://forums.moneysavingexpert.com/discussion/comment/82050660#Comment_82050660

I think that will work, even worse his savings is with Barclays so less that 2% interest. I think seeing £440 in his pocket will be a good visual. He can see how much trouble his Mum has with the likes of pay in 3 deals and doesn't want a bad credit history so hopefully this will help him Thanks

fatbelly

His card is on the path to being cancelled as things stand. He has been identified as not being able to manage his debt sensibly. He is expected to engage and work with the lender to reduce his debt. If he does not, he will find his card is blocked for further spending.

ManyWays

A good point to make is that lenders set the minimum payments low to keep borrowers trapped paying debt for 15, 20 or more years.

And another one is that the best way to maximise his credit score is to clear the balance, then use the card for something small each month and set the card to be repaid in full every month by direct debit. This maximises his credit score.

If he needed to use all his savings to clear the balance, it would be good to perhaps use half. But he has a lot more savings, so clearing this Vanquis balance is a very good idea.

In the end if he won't listen, this is not a tragedy as he will later be able to dig him self out with the savings. but he will have wasted a great deal of money in interest in the meanwhile.

molerat

At minimum payment that £1200 will take at least 10 years to pay off. Paying it off from savings and putting £55 back per month will repay in under 2 years.

born_again

https://forums.moneysavingexpert.com/discussion/comment/82050714#Comment_82050714

Credit score means nothing to lenders, As they never see the made up number.

Sounds like it might be something that this person will buy into the rubbish that the CRA's spount about it though.

redux

https://forums.moneysavingexpert.com/discussion/comment/82050717#Comment_82050717

Not only pay that off, but learn something about monthly savings accounts that earn 5 to 7 per cent interest

grumpy_codger

There's MSE article, but most likely he's incapable of understanding it either.

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