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I'm after a bit of advice from the more financially savvy. A bit of background...
For various reasons of being skint and an idiot, I'm living at the bottom of my £2,000 overdraft each month. I'd paid it off 3 years ago after uni then got a new job (which paid horrendously poorly), moved into a new flat with my missus, and suffered a few misfortunes which required dipping into it. One dip lead to another, which resulted in me being too scared to check my balance for 9 months and a full-on panic attack when I forced myself to eventually and found by balance was at -£1,910. That was over 2 years ago and I've been in there ever since.
Stupid me didn't tell the other half about any this until last night as a combination of pride and shame stopped me from doing so; we get married in 3 weeks and I couldn't start married life hiding that. Suffice to say I survived the fall-out but she wasn't happy and now realises why I've avoided discussing mortgages and buying our own house over the past few months.
We are now looking at how to pay it off, and the subject of a 0% credit card with a balance transfer came up to avoid paying the bank interest fees (currently £36 a month). Does anyone have any advice on doing this? What to look out for or avoid, any traps/pitfalls etc?
I know I've been an idiot up until now but am determined to fix it, get rid of the overdraft and put myself in a position to get mortgage this time next year. I've admitted to the other half that I need help and she's being fully supportive. Any advice is more than welcome.
For various reasons of being skint and an idiot, I'm living at the bottom of my £2,000 overdraft each month. I'd paid it off 3 years ago after uni then got a new job (which paid horrendously poorly), moved into a new flat with my missus, and suffered a few misfortunes which required dipping into it. One dip lead to another, which resulted in me being too scared to check my balance for 9 months and a full-on panic attack when I forced myself to eventually and found by balance was at -£1,910. That was over 2 years ago and I've been in there ever since.
Stupid me didn't tell the other half about any this until last night as a combination of pride and shame stopped me from doing so; we get married in 3 weeks and I couldn't start married life hiding that. Suffice to say I survived the fall-out but she wasn't happy and now realises why I've avoided discussing mortgages and buying our own house over the past few months.
We are now looking at how to pay it off, and the subject of a 0% credit card with a balance transfer came up to avoid paying the bank interest fees (currently £36 a month). Does anyone have any advice on doing this? What to look out for or avoid, any traps/pitfalls etc?
I know I've been an idiot up until now but am determined to fix it, get rid of the overdraft and put myself in a position to get mortgage this time next year. I've admitted to the other half that I need help and she's being fully supportive. Any advice is more than welcome.
1
In reply to Bimble:
Check money saving expert advice. I seem to remember it is that balance transfer between cards doesn't impact your credit rating, but cash transfer will. Do a free credit check online and see how you stand
Check money saving expert advice. I seem to remember it is that balance transfer between cards doesn't impact your credit rating, but cash transfer will. Do a free credit check online and see how you stand
1
In reply to Bimble:
Personally I would avoid the credit card because you retain too much control over the repayments and can give yourself a "repayment holiday" (i.e. choose not to feed it some months) whenever you want.
If you are looking to take real responsibility over this, speak to your bank and arrange a real LOAN to pay off the overdraft. That loan will have fixed periodic repayments such as (number plucked out of thin air) £130 per month taken direct from your current account. You can set the repayment date to be for example 10 days after your salary goes in, so as to be sure that it will be well covered.
Apart from the "getting married in a few weeks" aspect, I was in this situation approximately 5 years ago and the bank loan worked well for me. Yes there is interest on the loan but you don't really "feel" it.
I think that the discipline required to do this via a credit card, is too rigorous. With the loan, even when times are tight, you know you really owe it, you know you have a contractual agreement to have the repayment covered each month, so you are more inclined to tighten the purse strings or even to swallow pride and ask (for example) Bank of Mum and Dad to help out on the odd occasion. With the credit card, as I've said, it's too easy to some months say "ah it'll be OK, just double it up next month" and then you don't do so.....this way leads to the spiralling of debt.
Personally I would avoid the credit card because you retain too much control over the repayments and can give yourself a "repayment holiday" (i.e. choose not to feed it some months) whenever you want.
If you are looking to take real responsibility over this, speak to your bank and arrange a real LOAN to pay off the overdraft. That loan will have fixed periodic repayments such as (number plucked out of thin air) £130 per month taken direct from your current account. You can set the repayment date to be for example 10 days after your salary goes in, so as to be sure that it will be well covered.
Apart from the "getting married in a few weeks" aspect, I was in this situation approximately 5 years ago and the bank loan worked well for me. Yes there is interest on the loan but you don't really "feel" it.
I think that the discipline required to do this via a credit card, is too rigorous. With the loan, even when times are tight, you know you really owe it, you know you have a contractual agreement to have the repayment covered each month, so you are more inclined to tighten the purse strings or even to swallow pride and ask (for example) Bank of Mum and Dad to help out on the odd occasion. With the credit card, as I've said, it's too easy to some months say "ah it'll be OK, just double it up next month" and then you don't do so.....this way leads to the spiralling of debt.
3
In reply to Bimble:
Just don't go on an expensive honey moon, you'll probably get a load of money from people at your wedding so pay it off with that, or at least your share accept that hardship as your personal punishment for your finical weakness.
Once done, get your max overdraft reduced to £500 ish and start living within your means. If you've only dipped £2k in 3 years that is mearly £55 a month (£13 a week) on average, I'm sure you can manage that. In fact you should go further and start building up some savings, once you've got a few grand behind you, you'll start feeling a bit more secure.
Just don't go on an expensive honey moon, you'll probably get a load of money from people at your wedding so pay it off with that, or at least your share accept that hardship as your personal punishment for your finical weakness.
Once done, get your max overdraft reduced to £500 ish and start living within your means. If you've only dipped £2k in 3 years that is mearly £55 a month (£13 a week) on average, I'm sure you can manage that. In fact you should go further and start building up some savings, once you've got a few grand behind you, you'll start feeling a bit more secure.
1
In reply to Bimble:
Not a great expert as I haven't looked into it for years but...
0% cards generally charge a %age of what you 'transfer' - 3% perhaps (from memory of seeing deals)? So if you can find one that will give you £2,000 and that will let you access it as cash/transfer to a bank account (on some it may b e credit card swaps only) it would cost you £60 in transfer fee and then £166 per month to pay it off in 12 months. So, paying £36 a month to the bank now you need to find the £60 fee and an extra £130 per month to be debt free in 12 months. Total cost (based on 3% fee) £2060.
Quick google of £2,000 loan over 12 months suggests you could simply borrow £2,000 at about 7 to 8% interest - you may find cheaper but rates on small and short loans are not that great)... I found one where monthly payment is about £173 per month and total payable over the year is £2,078. Very similar to the 0% deals.
You may be simplest just taking a fixed repayment loan. The reason eth costs are very similar despite very different rates and charge structure is that the credit card charges you 3 or so per cent upfront on entire value. The loan charges a higher rate but the amount of interest declines each month as you are rapidly repaying the loan.
Depending on your level of self discipline the fixed loan may actually be better as there is never any temptation to pay less/stretch the term. However, the credit card does give flexibility as the monthly repayment minimum is generally very low so if you have a bad month you can choose to pay less than the 12th that you need to, to be debt free at end of year. The credit card route has the risk that you don't really pay the debt off, or start lumping things onto the card as it is zero per cent on purchases for X months. I'm afraid that's exactly what the card issuers are hoping for and I've been there in previous years... for me, when cash was tight I was a nightmare for increasing debt whenever I tried to reduce it so in some ways a credit card with probably a limit greater than the £2,000 you intend using may be a risk/temptation. That bit is down to you and how good you are at managing things.
Using either route (if you succeed) would probably be good for credit rating as at end you would be debt free but also have a history of having taken on a debt and paid it off.
Try speaking to your bank and see what deal they could offer on a £2,000 loan over 12 months to repay your overdraft. 20 odd years ago when I left uni my bank did a cheap or zero per cent loan for graduates within a year or two of graduation to get rid of student overdraft. Even if they can't offer anything super cheap they should have a competitive rate and the risk profile is good as they are lending you money to repay money you already owe them... offer to cancel the overdraft at same time as loan is paid to you or keep it at £100 to protect you from a few quid error in any month and you are sorted.
Main thing is that you will save interest by doing this and as loans are far cheaper than overdraft rates you actually only need to find a net of £130 to £140ish per month to be free of debt in 12 months.
Not a great expert as I haven't looked into it for years but...
0% cards generally charge a %age of what you 'transfer' - 3% perhaps (from memory of seeing deals)? So if you can find one that will give you £2,000 and that will let you access it as cash/transfer to a bank account (on some it may b e credit card swaps only) it would cost you £60 in transfer fee and then £166 per month to pay it off in 12 months. So, paying £36 a month to the bank now you need to find the £60 fee and an extra £130 per month to be debt free in 12 months. Total cost (based on 3% fee) £2060.
Quick google of £2,000 loan over 12 months suggests you could simply borrow £2,000 at about 7 to 8% interest - you may find cheaper but rates on small and short loans are not that great)... I found one where monthly payment is about £173 per month and total payable over the year is £2,078. Very similar to the 0% deals.
You may be simplest just taking a fixed repayment loan. The reason eth costs are very similar despite very different rates and charge structure is that the credit card charges you 3 or so per cent upfront on entire value. The loan charges a higher rate but the amount of interest declines each month as you are rapidly repaying the loan.
Depending on your level of self discipline the fixed loan may actually be better as there is never any temptation to pay less/stretch the term. However, the credit card does give flexibility as the monthly repayment minimum is generally very low so if you have a bad month you can choose to pay less than the 12th that you need to, to be debt free at end of year. The credit card route has the risk that you don't really pay the debt off, or start lumping things onto the card as it is zero per cent on purchases for X months. I'm afraid that's exactly what the card issuers are hoping for and I've been there in previous years... for me, when cash was tight I was a nightmare for increasing debt whenever I tried to reduce it so in some ways a credit card with probably a limit greater than the £2,000 you intend using may be a risk/temptation. That bit is down to you and how good you are at managing things.
Using either route (if you succeed) would probably be good for credit rating as at end you would be debt free but also have a history of having taken on a debt and paid it off.
Try speaking to your bank and see what deal they could offer on a £2,000 loan over 12 months to repay your overdraft. 20 odd years ago when I left uni my bank did a cheap or zero per cent loan for graduates within a year or two of graduation to get rid of student overdraft. Even if they can't offer anything super cheap they should have a competitive rate and the risk profile is good as they are lending you money to repay money you already owe them... offer to cancel the overdraft at same time as loan is paid to you or keep it at £100 to protect you from a few quid error in any month and you are sorted.
Main thing is that you will save interest by doing this and as loans are far cheaper than overdraft rates you actually only need to find a net of £130 to £140ish per month to be free of debt in 12 months.
2
In reply to Bimble:
At the moment you are paying around £400pa to service a debt of £1900. That's a fairly horrendous ratio.
First, go get a free credit check (MoneySavingExpert is a good place to do this). See what lenders are likely to be receptive to you.
Then apply for a loan or cash transfer of the same amount as your overdraft. As Strag says, a loan will be best if you fear a lack of willpower as the repayment schdule is set in stone. However, a credit card might offer a cheaper rate - for example, I recently saw Virgin offering 30 months at 0% with a 2% set up fee. If you got something like that, worked out what your monthly repayment needs to be to clear it within the interest-free period, set up a direct debit, and then cut up the card, that could also be a good solution.
But this is all going to depend on your credit score. If you've been bouncing off the bottom of your overdraft for a few years it's possible it might be quite bad. Not only might this mean you're limited on what offers you can get for credit right now, it may also be a limiting factor on mortgage applications in a year's time. Go find out what it is asap!
At the moment you are paying around £400pa to service a debt of £1900. That's a fairly horrendous ratio.
First, go get a free credit check (MoneySavingExpert is a good place to do this). See what lenders are likely to be receptive to you.
Then apply for a loan or cash transfer of the same amount as your overdraft. As Strag says, a loan will be best if you fear a lack of willpower as the repayment schdule is set in stone. However, a credit card might offer a cheaper rate - for example, I recently saw Virgin offering 30 months at 0% with a 2% set up fee. If you got something like that, worked out what your monthly repayment needs to be to clear it within the interest-free period, set up a direct debit, and then cut up the card, that could also be a good solution.
But this is all going to depend on your credit score. If you've been bouncing off the bottom of your overdraft for a few years it's possible it might be quite bad. Not only might this mean you're limited on what offers you can get for credit right now, it may also be a limiting factor on mortgage applications in a year's time. Go find out what it is asap!
In reply to Bimble:
A link to the already mentioned, and very useful "Money Savings Expert"
http://forums.moneysavingexpert.com/
A link to the already mentioned, and very useful "Money Savings Expert"
http://forums.moneysavingexpert.com/
In reply to Bimble:
If the bank will lend you say 1800 over 2 years to clear the loan go for it; the difference you pay now. Don't be tempted to borrow more. Have the bank cancel your overdraft. A fresh start, with known payments.
If the bank will lend you say 1800 over 2 years to clear the loan go for it; the difference you pay now. Don't be tempted to borrow more. Have the bank cancel your overdraft. A fresh start, with known payments.
In reply to Bimble:
What we've discussed is setting up a joint account for bills which we both DD a set proportional amount of our salaries into each month, including the payment on a credit card. I wouldn't ( and am not prepared to) have access to the credit card, and we would both be able to verify the amount has been paid off each month, which would be £100.
Would that sound viable compared to a loan? All the loan rates I've seen so far are unaffordable for the regular repayments I can make. Also, I'm guessing I can pay off bigger amounts each month on a CC if I happen to get a bit of extra cash come in etc?
As soon as my overdraft is paid off I'm having it removed completely to avoid all temptation as I'm aware I've got a problem that needs dealing with.
What we've discussed is setting up a joint account for bills which we both DD a set proportional amount of our salaries into each month, including the payment on a credit card. I wouldn't ( and am not prepared to) have access to the credit card, and we would both be able to verify the amount has been paid off each month, which would be £100.
Would that sound viable compared to a loan? All the loan rates I've seen so far are unaffordable for the regular repayments I can make. Also, I'm guessing I can pay off bigger amounts each month on a CC if I happen to get a bit of extra cash come in etc?
As soon as my overdraft is paid off I'm having it removed completely to avoid all temptation as I'm aware I've got a problem that needs dealing with.
In reply to Bimble:
From my numbers the loan is not significantly different really to the credit card so if you see the loans as unaffordable that's presumably because the monthly payment is too high? If so (bar your hope that you can pay more on a good month) how do you hope to be out of debt in 12 months?
What you suggest is however feasible and it sounds like you are being open and sensible about this.
Use a credit card to do this if that is what works. Cut the card up immediately as you will not need it again! Set up a DD from joint account of what you can afford monthly and that's pretty much job done. Your bank should facilitate reducing the overdraft whenever you want so cancel it or drop it to £100 or something as soon as you have paid the Credit Card cash into the bank. Overpay extra in the months you can.
For what it's worth - joint account and personal works very well for my wife and I. We both have the same amount of personal money each month in our personal accounts so we both live to the same means, irrespective of which of us happens to be the higher earner at any point in time. The joint account covers all reasonable joint things and both see what is going in and out. We use a spreadsheet that has a budget for each category of spend per month so we can see if we are overspending or not and to track things like 'car running costs', or 'annual holiday' where an amount is budgeted monthly but spend tends to be lumpy (annual service/MOT, annual insurance etc) so you can see the running costs balance going up over the months and then the odd bill debited against it - year on year if budget is correct it should be roughly flat. Other pots like 'food shopping' tend to have X amount in each month and lots of small amounts out that pretty much equal the budget month in month out. Means neither of us are ever fuming about having filled the car up 4 times running, while the other is equally fuming about paying at the supermarket till the last 4 times running... that all comes out of joint pot and it doesn't matter who actually does the transaction. All that is important is that average spend over time is close to budget and if it isn't, both need to amend budget or trim the spending as required.
Works well - joint spending well managed and we can both see what we have scope for or not and we both have identical personal money to do with as we wish.. means if I pay the bill at a restaurant it is me treating the missus and vice versa, not just a random dipping into the joint pot.... and when we buy each other a gift we both know precisely what impact that has had on the others available personal cash so to me it feels more personal and meaningful than if we each just bought each other stuff out if the inevitably far larger 'joint' pot. Decided long ago there was no point going with proportions of earnings into the joint account as why would one or other want to have more personal cash than the other? That may be a step too far in equality and partnership for some though I guess.
From my numbers the loan is not significantly different really to the credit card so if you see the loans as unaffordable that's presumably because the monthly payment is too high? If so (bar your hope that you can pay more on a good month) how do you hope to be out of debt in 12 months?
What you suggest is however feasible and it sounds like you are being open and sensible about this.
Use a credit card to do this if that is what works. Cut the card up immediately as you will not need it again! Set up a DD from joint account of what you can afford monthly and that's pretty much job done. Your bank should facilitate reducing the overdraft whenever you want so cancel it or drop it to £100 or something as soon as you have paid the Credit Card cash into the bank. Overpay extra in the months you can.
For what it's worth - joint account and personal works very well for my wife and I. We both have the same amount of personal money each month in our personal accounts so we both live to the same means, irrespective of which of us happens to be the higher earner at any point in time. The joint account covers all reasonable joint things and both see what is going in and out. We use a spreadsheet that has a budget for each category of spend per month so we can see if we are overspending or not and to track things like 'car running costs', or 'annual holiday' where an amount is budgeted monthly but spend tends to be lumpy (annual service/MOT, annual insurance etc) so you can see the running costs balance going up over the months and then the odd bill debited against it - year on year if budget is correct it should be roughly flat. Other pots like 'food shopping' tend to have X amount in each month and lots of small amounts out that pretty much equal the budget month in month out. Means neither of us are ever fuming about having filled the car up 4 times running, while the other is equally fuming about paying at the supermarket till the last 4 times running... that all comes out of joint pot and it doesn't matter who actually does the transaction. All that is important is that average spend over time is close to budget and if it isn't, both need to amend budget or trim the spending as required.
Works well - joint spending well managed and we can both see what we have scope for or not and we both have identical personal money to do with as we wish.. means if I pay the bill at a restaurant it is me treating the missus and vice versa, not just a random dipping into the joint pot.... and when we buy each other a gift we both know precisely what impact that has had on the others available personal cash so to me it feels more personal and meaningful than if we each just bought each other stuff out if the inevitably far larger 'joint' pot. Decided long ago there was no point going with proportions of earnings into the joint account as why would one or other want to have more personal cash than the other? That may be a step too far in equality and partnership for some though I guess.
Post edited at 11:13
In reply to Ferret:
I think my 12 month estimate for clearing it is somewhat optimistic, but I do tend to come into a bit more money over winter that I can put towards it (£35-70 a week from beating during the shooting season), and hopefully we'll have a bit of money from wedding gifts as others have said above (missus is Greek, we get it pinned to us apparently!).
Thank you all so much for the advice, I know I've cocked up and am horrendously embarrassed about it. Fortunately, my wife-to-be is being incredibly supportive after the initial bollocking and has accepted that I need help (making sure I control my spending, checking payments out and she'll be chopping up any credit card we do get).
I think my 12 month estimate for clearing it is somewhat optimistic, but I do tend to come into a bit more money over winter that I can put towards it (£35-70 a week from beating during the shooting season), and hopefully we'll have a bit of money from wedding gifts as others have said above (missus is Greek, we get it pinned to us apparently!).
Thank you all so much for the advice, I know I've cocked up and am horrendously embarrassed about it. Fortunately, my wife-to-be is being incredibly supportive after the initial bollocking and has accepted that I need help (making sure I control my spending, checking payments out and she'll be chopping up any credit card we do get).
1
In reply to Bimble:
Good luck with it. I did the same to clear large overdrafts after graduation. I'm sure you've already clocked it, but watch for the expiry date on the 0% offer as it will flip straight up to full interest after a given period. Nothing to stop you moving to a second card after the 1st offer expires, but plan ahead.
Also, do not spend anything on the credit card. The banks prioritise the order of how things are paid off. So if you owe £2k from the transfer then buy something for £100, for which you will pay interest, as you make monthly payments they go against the interest free component until that is entirely paid off. So you sit racking up interest on purchases for potentially a long time.
Good luck with it. I did the same to clear large overdrafts after graduation. I'm sure you've already clocked it, but watch for the expiry date on the 0% offer as it will flip straight up to full interest after a given period. Nothing to stop you moving to a second card after the 1st offer expires, but plan ahead.
Also, do not spend anything on the credit card. The banks prioritise the order of how things are paid off. So if you owe £2k from the transfer then buy something for £100, for which you will pay interest, as you make monthly payments they go against the interest free component until that is entirely paid off. So you sit racking up interest on purchases for potentially a long time.
In reply to Bimble:
From what you say it sounds as though your partner has more financial savvy than you. Maybe let her control the joint finances until you are out of the pickle? That way you won't be tempted to over spend. It also shows her that you trust and respect her judgement.
From what you say it sounds as though your partner has more financial savvy than you. Maybe let her control the joint finances until you are out of the pickle? That way you won't be tempted to over spend. It also shows her that you trust and respect her judgement.
1
In reply to Bimble:
That sounds quite sensible. (I'm not a financial expert)
> What we've discussed is setting up a joint account for bills which we both DD a set proportional amount of our salaries into each month, including the payment on a credit card. I wouldn't ( and am not prepared to) have access to the credit card, and we would both be able to verify the amount has been paid off each month, which would be £100. Would that sound viable compared to a loan? All the loan rates I've seen so far are unaffordable for the regular repayments I can make. Also, I'm guessing I can pay off bigger amounts each month on a CC if I happen to get a bit of extra cash come in etc? As soon as my overdraft is paid off I'm having it removed completely to avoid all temptation as I'm aware I've got a problem that needs dealing with.
That sounds quite sensible. (I'm not a financial expert)
In reply to Trangia:
That's the plan, or at least we will work together on it and make joint decisions.
> From what you say it sounds as though your partner has more financial savvy than you. Maybe let her control the joint finances until you are out of the pickle? That way you won't be tempted to over spend. It also shows her that you trust and respect her judgement.
That's the plan, or at least we will work together on it and make joint decisions.
In reply to Bimble:
Final comment - you are beating yourself up but seem to be dealing with the problem in a very mature manner. And if you only ended up a couple of thousand overdrawn despite not looking in your bank for 2 years you must have pretty good instincts and are not exactly spending like crazy! So long as you look regularly it sounds like you can relatively easily live within your means. It's not like you are over spending by hundreds per month and are having to trim back on a massive expenditure you can't afford. Your percentage error/overspend per month has been small to non existent once the initial emergencies tipped you over the edge.
Once the CC is paid off how about you keep saving the same amount you were paying for another year or two to build up that emergency fund? Plus, if you are looking to buy a house and get a mortgage etc I guess you will both be very savings orientated for a good while in any case.
Final comment - you are beating yourself up but seem to be dealing with the problem in a very mature manner. And if you only ended up a couple of thousand overdrawn despite not looking in your bank for 2 years you must have pretty good instincts and are not exactly spending like crazy! So long as you look regularly it sounds like you can relatively easily live within your means. It's not like you are over spending by hundreds per month and are having to trim back on a massive expenditure you can't afford. Your percentage error/overspend per month has been small to non existent once the initial emergencies tipped you over the edge.
Once the CC is paid off how about you keep saving the same amount you were paying for another year or two to build up that emergency fund? Plus, if you are looking to buy a house and get a mortgage etc I guess you will both be very savings orientated for a good while in any case.
1
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