Advice Needed With Priorities.

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Hi everyone,

Heard about this site on the radio so thought I'd have a look around!

My girlfriend and I have started to talk about marriage and mortgages,etc. However, she has quite a bit of debt which she'd like to clear before we "tie the knot", approximately as follows:

£10k loan at 6.5%, £150 per month repayments, 6 years left.
£5k loan at 13% (!!), £150 ish per month repayments, 3 years left.
£1000 overdaft at ??%.
£500 credit card balance at 5.6%, current repayments £13 per month.

She's talked to the £5k loan company and they've said that they'll do a new deal of 6.9% if she consolidates her credit card with the £10k loan (no details on repayments yet). On the surface, this seems OK (halving the rate on the £10k by adding the card balace). However, I'm not sure if I'm missing something here - it seems a bit too simple!

Her dilemma is this: in what order should she start to repay these debts? :confused: Should she start with the overdaft (probably the highest interest rate), then the card, then the £5k loan? Or concentrate on the £5k loan first because of the high interest rate? Are there any other options? Any help would be very much appreciated!

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  • Crown
    Crown Posts: 1,377 Forumite
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    Hi, Welcome to the site.

    Have a look at thisSnowball Calculator for a start. Also can you list her/your incomings /outgoings each month as this will provide us with an idea of a payment strategy.

    Im sure you will receive excellent advice from the experts here although I would say hold out on consolidating the debt until you can provide your incomes/outgoings as there may be a easier way.

    Also does your GF have a good credit rating? Could she possibly apply for any 0% Credit card deals to reduce the monthly payments?
    Official DFW Nerd Club - Member no. 297 - Proud To Be Dealing With My Debts :D
  • chilli_dog
    chilli_dog Posts: 843 Forumite
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    This is only my thoughts and there may be other people on here who are wiser than me!!


    If it was me i would start by hitting the overdraft with as much money as i could every month, this is probably the highest APR?

    when that has been paid off, move onto the credit card and dont forget to pay even more as you have extra money from the overdraft.

    Contact the 5k loan company and ask them do reduce the term, this pushes up the monthly figure but now you can afford a bit more, hopefully.

    then the same with the 10k loan.


    BTW do you want to pay off these debt completley or do you want to lower the monthly repayments so that they are more manageable? you would probably pay more over the life of a new loan though?

    Also think of ways to save money from all corners and also do you have the oppurtunity ( i can't spell) to earn more ie overtime etc?

    Is there anyway you can help out your future wife?

    Good luck
  • decadentlywasted
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    Cheers for the info chilli_dog - that snowball calculator is very good :T Thanks for the advice too. Pretty much confirms what I'd gathered from reading around the site. Just wanted to check that I wasn't missing anything!

    I'll find out what total outgoings are and get back to you with this and net income. It's possible for her to earn extra cash by doing more shifts - again, I'll find out how much extra this'll bring in and how often.

    Ideally it'd be nice to go into married life debt-free but I think she'd settle for debt-reduced. Bottom line is that it'll affect how much we can borrow for a mortgage so as long as it's down to maybe just having the £10k loan left then that'd be a good place to be!

    Re. me helping out - due to my girlfriend being very independent-minded (read stubborn! :D) she insists on sticking to the "I got myself into this mess, I'll get myself out of it" philosophy. No amount of reasoning or packaging a loan from me as a win-win option will change her mind! Pride has it's price I guess!
  • Crown
    Crown Posts: 1,377 Forumite
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    Hi, Im all for independence although if your getting married then this will effect you also. As you have mentioned it will effect the mortgage ect.

    I would point out that her problems are your problems.... you could win a few brownie points here ;) lol j/k
    Official DFW Nerd Club - Member no. 297 - Proud To Be Dealing With My Debts :D
  • Xbigman
    Xbigman Posts: 3,887 Forumite
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    Just to add. Overdrafts are repayable on demand and banks can be g*ts. Even if its not the highest APR I'd clear that first. This also gives you a good baseline when budgeting.
    Regards



    X
    Xbigman's guide to a happy life.

    Eat properly
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    Save some money
  • mountainofdebt
    mountainofdebt Posts: 7,795 Forumite
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    I only ask as this may affect the options open to your girl friend.

    I agree I would tackle the overdraft first as I guess its around the 16% mark although we found it much easier to sort out hubby's overdraft when the account wasn't being used. If possible put a target of say Christmas to clear it.....give both of you a challenge but one that's achieveable.

    Secondly I would be very carfully of consolidating the £5k loan. At £150 per rmonth with 36 payments to go I reckon the outstanding balance is somewhere in the region of £5400. It suggests to me that this loan is governed by the rule of 78 whereby most of the interest has been front loaded and to trasnfer the outstanding balance she might end up paying interest on interest. (I think the same would apply to the £10K loan as well)

    If she has a good credit rating why not see if she can get a 9 month 0% credit card that allows transfer balances to her bank account so that she can pay off her loan early. At least that way the amount she is paying off the credit card balance will be reducing the debt £ for £. She will need to play the system though and everytime the 0% period ends she will have to swop the balance around and NEVER NEVER spend on the card but there are tools on this site to remind her of when the 0% period is about to end.

    If she doesn't want to go down the route of credit card tarting, what about getting a flexible loan from Cahoot? Their rates are usually quite good and the advantage of them is that you can pay extra when you want to at any time and you are only charged interest on what you borrow.

    I do agree though that by posting her spending on her, the regular MSEs will be able to see where savings can be made.
    2014 Target;
    To overpay CC by £1,000.
    Overpayment to date : £310

    2nd Purse Challenge:
    £15.88 saved to date
  • nelly_2
    nelly_2 Posts: 17,863 Forumite
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    Hi everyone,



    She's talked to the £5k loan company and they've said that they'll do a new deal of 6.9% if she consolidates her credit card with the £10k loan (no details on repayments yet). On the surface, this seems OK (halving the rate on the £10k by adding the card balace). However, I'm not sure if I'm missing something here - it seems a bit too simple!
    They have offered this so they can lend you more money (in effect) you will pay out less per month but more money over the long term. Ask if you can over pay each month without penalties, like you can with a credit card.

    Definately pay off the highest first and so on, and try to really hit it hard, its no fun but quite rewarding in the end.

    Also weddings can be megga expensive I think I'm right in saying its £16000 for the average now, mines costing about £10000 in december and thats with 1 sister doing the dresses for free and the other doing the cake.
  • decadentlywasted
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    Thanks for all the help guys :T Much appreciated.

    Re. 0% balance transfers, etc. We've talked about this option but my girlfriend isn't comfortable with it so I haven't pursued it any further at the mo. Anyone any idea what kind of opening credit limit she'd be likely to get if she applied for any cards? If it's around £5k then it'd be worth doing I guess. She's probably got a good credit rating (got a card, uses it, never pays it off in full!) so she'd probably be able to get one (if she sees it as a good idea).

    Thought the consolidation offer was too good to be true :rolleyes: Might check out Cahoot though - flexible loan thing sounds like it might be a good option.

    £10k for a wedding?! :eek: Maybe we'll just live in sin :D
  • nelly_2
    nelly_2 Posts: 17,863 Forumite
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    Consolidations are good if you simply cannot afford to pay what your paying out per month, they bring the monthly payments down BUT they last much much longer , thats why they do it , its not to help you, its to help them get money out of you in the long run.


    CC balance transfere's;

    Any amount even £100 is helpfull if there is no interest to pay. Deffinately do it or check it out.

    But DO NOT keep using the card you emptied, thats where it all goes wrong for people.

    Cut the thing in half.

    We had about £5000 on the EGG a bit back and a minimum payment went out, of about £124, the interest was £60 odd quid, so we only actually paid off £60 odd.

    We did a balance transfer to a 0% card and caried on paying £120 a month which basically doubled the speed we paid it off, as there was no interest coming out of it.

    It not absolute set in stone that you pay it buy time the zero percent period ends, but you may as well it'll save you money.

    And thats what were here for init :)
  • mountainofdebt
    mountainofdebt Posts: 7,795 Forumite
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    Cancel the card that you have cleared with the 0% balance transfer.

    This has 2 advantages:

    1. You are not tempted to ring up and ask for a replacement card

    2. After a certain length of time depending on the card company, you are treated as a new customer and so eligiable for their new customer details .....usually at 0% !!!!

    If your girlfriend does decide this is the route to go down, then she has to make sure of 4 things:

    1. The credit card that she chooses initally (if she is going to use it to pay off her loan) allows transfers to her bank account. It will be a pointless exercise to apply for a card if she can only transfer between credit cards. Martin's article on Super Balance Transfers will tell you all you need to know in this respect.

    2. She NEVER NEVER spends on the card that has the 0% transfer. Cut it up as soon as the balance transfer has been completed.

    3. Use the tart alert on this site so that she can apply in good time for a new 0% deal.

    4. When she has transfered the remaining balance to the new 0% deal, close the original 0% card.

    Repeat 2 - 3 as often as is needed!
    2014 Target;
    To overpay CC by £1,000.
    Overpayment to date : £310

    2nd Purse Challenge:
    £15.88 saved to date
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