What order is best for clearing debts?

Trout69

Hi All,

Can i ask a couple of pieces of advice?

I want to reduce my monthly outgoings....my initial idea is to pay off my Catalogue account with a credit card, as the CC minimum payment is less:

Catalogue - Owe £470.49
Have £415 availanle on Credit card with 11.8% APR.

My catalogue payment at present is about £45, whereas my CC is about £5. Im not very good with calculating payments from APR (this comes later) but i would say my minimum payment (5%) Would be around £25???

Also, has anyone an equation for calculating Minimum repayments, whereby you can input your balance, APR and Minimum payment % and it would calculate your Minimum Monthly repayment. I've searched the site, and search engines but cannot find anything. I want to add it to my debt reducton spreadsheet so i can easily work out how best to shuffle my debts?

If not in Spreadsheet format just information on how to work it out would be great, and i will adapt it to my spreadsheet myself.

Best Regards

Donna

Xbigman

The biggest variable in both your questions is the rate at which the debts are being paid off.

You are switching a catalogue debt to a credit card on the basis of a cheaper minimum payment. This is unlikely to be effective. A credit card takes most (nearly all :eek: ) of your payment in interest, meaning years or even decades to pay off. The catalogue will usually be trying to clear the debt in 20 or 38 weeks, so you are actually having an impact on the debt.
If you switch to the credit card it will take much, much longer to pay off and you will pay more overall.

Your second query is also asked from the wrong basis. If you want to pay off debts the quickest you can, it is APR that is king. Pay off the highest APR debts first (although you might want to clear any overdraft first unless 0% APR because the bank can muck you about and cancel it overnight). If you have credit card capacity available switch then balance transfer all you can onto the lower APR cards.
Regards




X

Trout69

Thanks Xbigman,

After a 3 hour phone call to my friend we have decided on the following outcomes:

At the very top of my list is my HSBC credit card, as i have just received a breakdown and it is looking very scarey:

Total balance : £2130
Broken down as follows:
£875 @ 5.9% APR expires 20 Jan 06
£404 @ 7.9% APR expires 18 Feb 06
£851 @ a whopping 20.1%

Therefore my previous balances will refer to this rate after the expiry dates....yikes i hear you say!!

So...my plan is as follows: I have applied for an Amazon 0% for 6 months card (and asked for the entire balance to be transfered), i have also upped the limit on my Egg card (even tho this rate is still High 14.8% it is the only card that i can increase the limit on. Hopefully Amazon will pull through). Plus i get 500 points for applying through rpoints, if i'm accepted.)

Let me know what you think, and i'll keep you posted on the progress of the amazon application.

Donna

Trout69

Me again....im having a very motivational week as you can see....now this post may seem like a silly question but here goes...

I have read the information on making free money from credit cards, and i know it says not to do it unless you are debt free, but....

Would it not help to do this and put all the cash made towards paying off the high interest debts?

I know it will take alot of determination and concentration to make this method work...but seen as i have cut up all my cards i cant use them anymore...so i thought this might help...

Regards

Donna

wigginsmum

Hi Donna - I've got a similar amount of debt to you on an overdraft and 2 creditcards. I've decided to concentrate on the £6000 overdraft first (paying minimum on the two CCs); the APR may only be 9.5% (lower than both cards), but the bank made a marketing call to me this week to try to get me to take out a loan and if they decide to call the overdraft in, I'm stumped, so that'll be first to go. And it'll force me to balance my current account on a daily bass and set a 'virtual' limit each month in order to reduce it. I've recruited my best friend as 'budget buddy' to keep me on the straight and narrow and tell me off if I do anything extravagant.

I really wouldn't try to make money out of CCs until you're debt-free; you'll have extra monthly minimum payments to make and it could get incredibly complicated. Any interest you make on the stashed cash will be small compared to the amount of interest you'll be charged on other outstanding debt. Concentrate on clearing what you already have, and congratulations on what you're doing so far! It's been an inspiration to read.

Have you seen the snowballing calculator?

http://www.whatsthecost.com/snowball.aspx

Jules

Trout69

Hi jules,

thanks alot for your post..the calculater is exactly was i was looking for the other day but couldnt find...fantastic!!

And thanks for the 'inspirational' note, if one person reads this and feels that then i'm happy.

I'm kinda using this as a debt reduction diary...can't wait till my final posting...

Regards

Donna

wigginsmum

That's what I'm doing in my signature - starting balance, current balance, interim goal every few months, then DFD (Debt Free Date!).

I'm fortunate in that I work in investment banking and get an annual bonus which, while not guaranteed, has been fairly static for the past 7 years, so I'm aiming to pay off the overdraft by Jan-07, Egg by Jan-08, and MINT by end of 2008. Also doing major economising on household shopping - getting husband on my side took a little time as he doesn't like change but now he's fired up by the thought of price comparisons with Lidl etc.

Jules

tomstickland

The rest of the money i am putting into a savings account, therefore earning interest and also paying off teh loan for the van (as my monthly repayments wont go down in price if i pay it staright back to the bank).

You're paying around 10-15% APR on credit card debts and most savings accounts are offering around 5% max. So there's no point in saving any money in an account whilst you have other debts at a higher rate.

Trout69

tomstickland wrote:

You're paying around 10-15% APR on credit card debts and most savings accounts are offering around 5% max. So there's no point in saving any money in an account whilst you have other debts at a higher rate.

Hi tomstickland,

As the money is from the business loan, it has to be kept separate from my personal debts....so the most constructive way of utilising the extra cash would be to put it in a savings account, and then i can use the interest to pay off my personal debts? If that makes sense??

Regards

Donna :j

Trout69

Oh....I can't remember whether i have mentioned this already...(too much caffeine at work, and the weekend looming, means i can't read either)...

But i've actually now moved out of my very expensive to live in cottage, and am currently lodging in a friends spare room for a mere £30 a week...fantastic!!!

Going to continue selling my excess stuff on ebay too...just sold $20 worth of american express gift cheques, which i received for completing online surveys, as i couldnt figure out an easy way to use them, so sold them both for £8...i've had them about 3 years so am quite pleased.

Also, ...i am looking for a nice weekend getaway around Valentines day time, i want to try and keep the cost to a minimum (obviously), but also want something really nice. I've been looking at Rome and Barcelona...but for 2 people on 2 nights the cheapest i can find is about £250 - maybe im trying to save too much...i have also had a quote for a 2 night stay in a cabin in Wales for £148...any other suggestions?


Best Regards

Donna

P.S. i got my mum the new 'Money Diet' book for xmas, Bargain, specially as i used my Ipoints!!! This site is great!!