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Help me structure my debt!

Shaun.P

Shaun.P

macrumors 68000
Original poster
Jul 14, 2003
1,601
24
Omicron Persei 8
Hello there,

I was wondering if you all could kindly give me some thoughts and advice on my current situation regarding my debt. I explain the situation in great detail below, and I hope to come to some sort of conclusion on the best decision(s) to make.

----

I have a bank account with a £2750 overdraft, which is interest free, as I am a student. My balance is currently -£1750. Which leaves £1000.
I get paid on the 25th of every month (i.e. this Monday) and roughly get £600.

Aside from the overdraft, I have 4 main sources of debt:

1. Capital One Classic Visa Card - 34.9% APR
Current balance £160
Credit Limit £200

I pay around £25 each month to this account, which is about 2.5 times the minimum payment.

2. Next Directory Store Card - 26.49% APR
Current Balance ~£200
Credit Limit £3600!

Again, I pay around £25 each month to this account, which is about 2.5 times the minimum payment

3. 48 Month Credit Agreement - 21.8%
Date of Agreement - February 2007
Amount of Credit: £219.35
Duration of Agreement: 48 Months (£6.66 x 48)
Total Amount Payable (if I take the full 48 Months to pay): £319.68.

I asked for a settlement figure in November 2007 which was £202.18.
The sooner I pay it off, the less interest I pay. I would estimate a settlement figure of ~£180 if settled today.


4. 48 Month Credit Agreement - 24.9%
Date of Agreement - February 2007
Amount of Credit: £178.98
Duration of Agreement: 48 Months (£5.68 x 48)
Total Amount Payable (if I take the full 48 Months to pay): £272.64.

Again, I asked for a settlement figure in November 2007 which was £166.65.
The sooner I pay it off, the less interest I pay. I would estimate a settlement figure of ~£145 if settled today.

Total Amount of Debt Owed: £685.

I have £1000 available in my bank account that is interest free, and I am considering using it to some extent to try and pay this debt off sooner. The thing is that I don't mind making the minimum payments for all four of these accounts, as it splits it all up into manageable chunks and I feel like I'm not really losing any money by making these small monthly payments. In other words, I don't miss £25 here, or £6.66 there.

If I were to go and pay them all off, my bank account would be much much more into the red, and I'd feel bad because my account would be so low - interest free or not. About 6 months ago I was at the limit of my overdraft but I've managed to cut back and now have a better job, so I now have the available funds of £1000... seeing it all go would make me feel I went to all that hard work for nothing. Sure my debt would be paid off, but the debt doesn't seem real because it's in control with these ridiculously small payments, without any sense of urgency to pay them off!

So anyway, I'm asking your thoughts, opinions and advice. I get paid on Monday so my available balance is effectively £1000 + £600 = £1600 as from Monday. As for my other out goings, I make monthly payments to a car of £110, £45 for insurance, £30 for mobile phone and £35 for internet and combined telephone line (which I pay for my household). I also get a loan as I am at University which is paid on the 7th of every month ~ £240.

Shaun.
 
I would pay as much as you feasibly can ASAP. If you can pay off the entire thing now, and live on limited funds until you get your next paycheck, then by all means, do it. With outrageous interest rates like those (are those the normal rates in the UK?), you'll just end up in an endless cycle if you're not paying off huge chunks of it.
 
You currently pay out 62.34 per month on loans at various extortionate interest rates, but have an interest free facility that you can use.
Your total debt repayments are 172.34 (includes car) on an income of 840 which is 20% of your income. That's not too bad, but is not good either, considering that none of it is mortgage debt.

Why not pay off the loans and put that 62.34 (and a bit more if you can afford it, which you seem to be able to) into a savings account. For example Halifax do a web saver account that earns 6.1% gross. That means that not only are you not shelling out for interest, but you are using the money to earn interest that will help you pay off the overdraft when it falls due to be paid at some stage in the future. Also, banks like to see a person who saves, even if that person has debt, so it sets up your future credit relationship.

Get rid of the store card and get a better credit card - you should be able to get an interest free one, or one on a very low interest rate, and keep swapping as necessary.

If you do set up a savings account, set up the payment to go on the day your pay comes through. After a month or two you won't miss it as you never had it.

hth
 
I agree with everyone else. Just pay off the credit card debt, with those crazy interests that's a no brainer. Once you pay off those debts, just put the money that you usually pay the debts into the overdraft account and everything will be paid off in no time.
 
ShaunPriest said:
I have £1000 available in my bank account that is interest free, and I am considering using it to some extent to try and pay this debt off sooner. The thing is that I don't mind making the minimum payments for all four of these accounts, as it splits it all up into manageable chunks and I feel like I'm not really losing any money by making these small monthly payments. In other words, I don't miss £25 here, or £6.66 there.
Click to expand...
Paying only the min amount is financial suicide, espeically w/the insanely high rates you have. Paying the min amount is in the creditor's best interest, not yours.

If I were to go and pay them all off, my bank account would be much much more into the red, and I'd feel bad because my account would be so low - interest free or not. About 6 months ago I was at the limit of my overdraft but I've managed to cut back and now have a better job, so I now have the available funds of £1000... seeing it all go would make me feel I went to all that hard work for nothing. Sure my debt would be paid off, but the debt doesn't seem real because it's in control with these ridiculously small payments, without any sense of urgency to pay them off!
Click to expand...
You've saved money for a rainy day, which is good. But the rainy day is now. Use the money to pay off your debt.


Lethal
 
ShaunPriest said:
In other words, I don't miss £25 here, or £6.66 there.
Click to expand...

This is part of the problem of debt. You may not miss £25 here or there but because you're not paying off the debt, you're paying more in the end than you have to.

Use your cash reserve to pay off as much as possible. Start paying off the card with the highest interest rate by sending in as much as you can scrap up and then when that's paid off, move to the next highest rate card, and continue until all debt is gone. Considering you have £1000 in the bank and £600 coming, there is no reason you should have debt for much longer.
 
LethalWolfe said:
You've saved money for a rainy day, which is good. But the rainy day is now. Use the money to pay off your debt.

Lethal
Click to expand...

I read it differently. He has 0 in his bank account, and is 1750 into his overdraft (in the negative).

He hasn't saved at all. He is big time into his overdraft, and also has all the other debt.

You need to consolidate your debt. Use the room in your overdraft to pay off all the other debts. Now you aren't throwing money away on interest, which is what you are currently doing. Throwing money away. Then, close your credit agreements and all but one credit card.

Now you have all your debt in a 0% interest account, and don't run the risk of going back into debt. Use the money you have coming in to pay off your overdraft as much as possible each month. Once it is paid off, reduce your overdraft limit with your bank so you can't go so far into it again.

Recovering from debt isn't hard, it just takes discipline. Good luck!
 
One more thought. You said:

If I were to go and pay them all off, my bank account would be much much more into the red, and I'd feel bad because my account would be so low - interest free or not. About 6 months ago I was at the limit of my overdraft but I've managed to cut back and now have a better job, so I now have the available funds of £1000... seeing it all go would make me feel I went to all that hard work for nothing. Sure my debt would be paid off, but the debt doesn't seem real because it's in control with these ridiculously small payments, without any sense of urgency to pay them off!
Click to expand...

The debt is very real. Think of your interest this way. Each pay day, a guy walks up to you, takes out your wallet, takes a bunch of your money THAT YOU WILL NEVER SEE AGAIN, and walks away.

Would it seem real then? This is what is happening right now to you.

Just think, with all your debt in the 0% account you can stop giving that money away and use it to pay down your debt faster. Before you know it there will be no debt at all.
 
Shaun,

pay off the highest interest credit cards first. I figure in 3 months time, you could have everything paid off, except for the overdraft.

btw, if you haven't thought of it, keep 1 credit card and as you pay off the others, cut them up 1 x 1, toss them in the garbage and cancel your account. Those interest rates are beyond highway robbery.

Hope you don't think it's as bad as it seems. You may not be able to go clubbing or hit the pub after class for a few months, but if you want to be debt free, you'll give 'er as us Canucks say :)
 
I'm going to echo the sentiments of everyone here: pay down your credit cards. Debt should be paid down as aggressively as possible, the gain on savings is never going to balance out the loss on interest.
 
Help you structure your debt?
First STOP SIGNING UP FOR CREDIT CARDS WHERE THE INTEREST IS OVER 10%!!!!

Next, pay off those cards and toss them. 34% APR? Are you out of your mind? What could item is so important that would make you want to purchase it using a credit card with a 34% APR?

Get a job, save your cash, buy your toys, forget those cards.
 
jessica. said:
Help you structure your debt?
First STOP SIGNING UP FOR CREDIT CARDS WHERE THE INTEREST IS OVER 10%!!!!

Next, pay off those cards and toss them. 34% APR? Are you out of your mind? What could item is so important that would make you want to purchase it using a credit card with a 34% APR?
Click to expand...

That's the kind of interest rate they give to students. When I was in college, there was always some credit card or another offering deals right in the main foyer. Sign up, free MP3 player. Sign up, free phone. Sign up, Amazon gift certificate. Some days, there were three or four different booths lined up, each offering the "best deal" and a one way ticket to an even more exorbitant debt straight out of school. They gave me a $16 000 limit on my first card, even though I only made about 6k a year at the time (I was still in high school).
 
As a GENERAL rule: Pay the minimum on ALL credit cards then with the remaining pay in full the credit cards in order of highest APR first. Creditors prefer to see one or two credit cards paid to $0.00 rather than many only paid lower.

In your case: £160+£200+£180+£145=£685 this will leave £315 available and your paycheck is coming in 4 days. Close ALL accounts listed, wait 30 days and apply for a single credit card.
 
Thank you for all your valuable input. I have just paid off the Capital One card :). I am going to leave the account open as closing it might affect my credit rating?
 
ShaunPriest said:
Thank you for all your valuable input. I have just paid off the Capital One card :). I am going to leave the account open as closing it might affect my credit rating?
Click to expand...

I see no harm in keeping the cards, so long as you have zero balances, no annual fees, and good self discipline. The ideal way to use credit cards, is to treat them like debit cards. Pay off whatever you charge each billing cycle, and on time. This will show future creditors that you are responsible, and a safe risk when you are ready to take on a mortgage, and makes the interest rate moot, since you won't be paying interest at all. It is good to have a low interest emergency card to use for unforeseen emergencies as well.
 
I agree with what most have posted. I'll add one more tidbit. You seem to be an intelligent guy as you have recognized the problem, sought help, and have begun to make changes. The next step is to realize that intelligent people live within their means. If you want to spend more money, then work harder, work more, continue your education, and get a better job. I'm not trying to sound too pedantic, but it really is unintelligent to pile up debt.
 
Wow, those are some of the most ridiculous APR's I've ever seen...and I used to work for a bank! I've got a few credit cards. I'm also a college student. The highest one is 7%, and the other two are 0% for a year. I usually have a 0% card going all the time and close it out when the yearly promotion is over. The 7% card is the main card, and I pay it off each month. It earns me points that I get to trade in for cash. I put things like my new MBP on the 0% card and pay it off over the year, while keeping my money in the bank at HSBC making what used to be 5.05% APY, which has gone down recently a little. Basically I get to make a few hundred bucks over the year, pay off my 0% card and end up making money on the deal while having cool stuff at the same time. Its a pretty sweet deal. I don't even keep a checkbook register. I just update an excel file about once a month to make sure my money is still there. I have budgeted what comes out every month and as long as I keep close to that then I'm fine. I always figure in some wiggle room just in case. Like I said, I'm a college student too, barely making any money working odd jobs doing graphics design or photography, only working full time in the summer. The only thing that sucks is the debt I'll have after graduating from tuition. But I suppose the reason I went to college was to make more money, which should hopefully take care of that problem. I'm just worried about the job market in the US right now. I hope it gets better in the next year or I'm screwed after graduation.
 
some people are saying you should close the accounts after you pay the debt. this is not a good idea as far as keeping your credit score high. see this post for a discussion about that.
 
I was in a great deal of debt myself and we're almost debt free now. My advise would be to contact each company and ask them if it's possible to freeze the interest on the accounts as your financial situation has got worse. If that is the case for you, show that if need be.

Budget everything. Seriously it sucks but it works. I use spreadsheets and list every household debt from food shopping to bills. Include your payments to the creditors too. Then have a list of whatever is leftover at the end of the month. If you spend anything that is not on the list, write it on there and then subtract whatever you spent from the leftover amount. Try not to spend any extras but sometimes it's just not possible. But whatever you have left, send to your creditors (yeah that sucks but any extra helps get rid and faster :)).

Make a list of meals for the month and stick to it. No frozen foods (expensive) make everything from scratch (it tastes much better anyway ;)) Things like home made fish pie (coley fillets, potato mash, peas, sweetcorn, home made white sauce, so easy, so nice). Buy only what you need for your list and ONLY that, nothing extra! Lay off the luxuries. No crisps, or fizzy drinks, chocolate etc. Just get orange cordial if you want something nice to drink. If you stick to that then your food bill will be cut dramatically and again whatever you have leftover send to creditors.

Turn your heating down, wear jumpers (sweaters to you americans). Use energy saving light bulbs. Save money on electricity and gas. Use lids on pans, saves energy. Make sure your heating is only on when you need it. Don't have it on all day to keep house warm, just turn it on 30 mins before you return home. There's so much more but I'll leave it at that lol.

If you abide by the above then you will pay it off in no time, if you continue it afterwards also you'll have more money to play with. Good luck.
 
::Lisa:: said:
(snip)Make a list of meals for the month and stick to it. No frozen foods (expensive) make everything from scratch (it tastes much better anyway ;)) Things like home made fish pie (coley fillets, potato mash, peas, sweetcorn, home made white sauce, so easy, so nice). Buy only what you need for your list and ONLY that, nothing extra! Lay off the luxuries. No crisps, or fizzy drinks, chocolate etc. Just get orange cordial if you want something nice to drink. If you stick to that then your food bill will be cut dramatically and again whatever you have leftover send to creditors.
Click to expand...

At first read, I thought you were suggesting he send his leftover food to his creditors! Wouldn't that be a hoot? ;)
 
1. Capital One Classic Visa Card - 34.9% APR ?!?!!?!??!!?


WOW!!!!! that is a high apr!

Pay it all off and live on a fixed income... period. Too high of an interest rate to even charge anything on from the beginning.:mad:
 
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