How do I pay off my overdraft?

kate705

Hi there everyone,

I have been reading these forums since January and been lurking here. My situation is worrying me to the extent that I have not been sleeping and I had to call in sick today. Like so many other people I feel stupid for wasting money and taking bad decisions in the past....

We (my OH and I) have a £97,000 Mortgage with Halifax, 8100 overdraft:eek: (Lloyds) and £8000 approx loan (Lloyds). We have no credit card debts and our house is worth maybe £200,000.

Our problem is that the overdraft charges, increase in Mortgage from fixed to BofE tracker and rise in cost of living is crippling us. I cannot see my elderly parents much or my daughter who is taking A Levels because I am constantly working shifts for a Charity to try to keep us afloat. My quality of life is pretty poor due to this and I wish that I had never bought a house at all!!!
I have an appointment with Lloyds on Tuesday to switch Mortgages to them from Halifax. My question is this:
Do I go to interest only and extend the length of the Mortgage, saving £300.00 pm to pay off overdraft which is a big one? Once we clear this debt we could try to pay off the Lloyds loan earlier if we can? We are in this mess because we kept adding our overdraft and loans to our Mortgage for years!!!!! I know how ridiculous this was now. My OH has suggested doing this again but since joining MSE I am refusing as there must be another better way. By the way, Lloyds don't seem that bothered with our debt and offered more money on the Mortgage although they said they did not recommend this as it was not responsible lending.
Thanks to everyone here, the forum is really good in times of trouble, you are all excellent!!!

katyw

Hello and welcome.

I can't really offer much advice, but do not worry, you are not alone. I'm bumping your message up the board in the hope that someone will be along to help.

mummytofour

SOA would be good. How old are you and how long is the mortgage term?

shopaholic2008

I agree a SOA would be good as people will be able to advise on areas that you could save money. There are often things that you miss which other people can pick out.

kate705

OK I will put up SOA later thanks xxx

kate705

Mummy to Four,
I am 42 and the Mortgage is 16yrs and I'm thinking of extending it to 20.
Kate x

nimbo

good luck sweetie...

count_rostov

Banks can recall overdraft debts with very little notice and they really don't like people living in their overdrafts.
What about taking a low life of balance credit card each and transfering some or hopefully all of your overdraft balances on them? It's a much lower interest rate and you can set up a standing order to pay a set amount off each month so that you know that it will clear in x amount of time. To be honest, even a 15% credit card would probably be a lower interest rate than your overdraft. Martin has an article on low interest credit cards if you search on the credit card tab.
If you can't get big enough credit card limits to shift all of the overdrafts you could get an Alliance and Leicester Premier Cirect Current Account (apply for it through Quidco for cashback) they have a 0% £1500 overdraft for 12 months and then there's a £5 charge a month which is pretty cheap. Once you're in credit on this account it has a very high interest rate, over 6% I think.
Obviously, sort out your mortgage pronto.
This is completely doable and not worth losing sleep over, but you must resist any temptation to add to your mortgage!

kate705

Count Rostov, I'm grateful for the advice.

I need to look into the credit cards. I'm not familiar with the term 'low life of balance credit card' does this mean low interest? I suppose my only doubt about using credit cards is that when the low or 0% interest runs out (after 12 months?) would I have to keep moving the debt to other cards? Is this an easy thing to keep doing? I think I may do what you say though it seems to make sense.

Yesterday was a bad day for me but maybe things aren't as bad as I thought I tend to panic sometimes !! BTW well done you seem to have reduced your debt hugely since March, was this through cutting back on your spending?
Thanks again x

count_rostov

Low life of balance cards are fixed at a low interest rate, say 5 or 6% APR, for the life of the balance. You can read about them in Martin's article http://www.moneysavingexpert.com/cards/balance-transfer-credit-cards#cheapest. You can also keep switching between credit cards which have introductory offers of 0% for a year or whatever. Each time you switch a balance you will incur a fee of about 3% though, so you need to work out how long it will realistically take you to clear your debt and whether you're better off paying balance transfer fees for 0% offers, or low interest for the life of the balance. Take a look at the snowball calculator (www.whatsthecost.com) and work out how long it will take you to pay things off with your different options.
My fiance and I have divided our finances so that I do debt repayments, council tax, mortgage, life insurance and house phone, and he covers everything else. So I don't withdraw any of my salary and about £600 goes on debt repayments a month. We live pretty frugally anyway so I don't particularly feel that we've cut down - I *even* had my hair cut last month!- but we would like to start a family soon so the idea is once we've paid off the debt we'll be used to living on his earnings and I can go part time. I think dividing it up this way really helps because my salary is paid into my own account which we don't touch and he puts money in the joint account for me for my car, housekeeping etc. Now that I NEVER touch my salary I realise how much I frittered it away before. I'm much more careful with the joint money!
So maybe it would also help you to have more than one account so that you have one untouchable for regular payments and one for day to day expenses?

cat4772

Kate

I want to say good luck to you...

Before remortgaging, I would want to work out WHY you're running up such a large overdraft in the first place; where is your money going? I would be very wary of remortgaging and adding the overdraft to the remortgage (again) until you know you can live within your means.

Post up your SOA; this will show if you have enough money to live on each month (it will also show if you are paying too much for good or services, such as groceries and utilities). However, if it shows you should have a significant amount of money left over, I would start keeping a spending diary to see where this money is going. It is amazing how those little treats add up!

If you treat the overdraft like a credit card (% interest charged a year), check out whatsthecost.com to see how long it will take to become debt free.

Good luck with this.

Cat.x