Would it not make most sense to try to reduce the cost of the debt by consolidating all (or at least some) of the debt somewhere with a 0% rate? That way you could be making a bigger impact on your debt each month. If you’re not eligible for any products that offer this then yes paying off the debt with the highest rate of interest first makes the most sense to reduce your overall cost.
There’s not really much point in holding any savings right now, anything you’re making in interest on savings is being wiped out in interest on debt. You’ll save more money in the long run by using it to clear your debt.
I’d also say it’s worth having a look at what you’re spending. You can save a fortune by making sure you’re on the right utility tariffs and cutting out any monthly subscriptions you don’t make full use of.
Good luck with this all though, just from what I’m reading here it does sound like with a bit of work you’ll be moving in the right direction again very quickly.
Ok, firstly, a quick piece of advice - at your age and worrying about £1,700 on credit cards there’s no way you’re a ‘stupid 20 year old’. I that age I was still in the ‘credit card = FREE MONEY!’ stage.
I’m currently paying off my credit cards using the ‘snowball’ technique and I’ve found that works for me but that’s because I’ve got quite a few small individual debts (8 in total - debts of between £250 and £2000).
For just 3 cards - I think the more ‘traditional’ option of paying off the one charging you the most interest first will probably be better.
Another option though is that credit cards are not, inherently, evil and having 1 well managed credit card that’s used each month but also paid off in full each month can look very good on your credit history.
A fairly ‘high risk’ but if you can manage it properly option might be to take the card with your smallest credit limit and use that for your day-to-day spending each month. So, when you get paid, immediately pay off that card in full and then for the rest of the month do all your normal grocery/general spending on it for the rest of the month. This option is particularly good if your card also gives you an interest free period on everything you buy.
If you did that, it’ll mean you only have to ‘think’ about clearing the other 2 cards but you do still need to be disciplined and ONLY use your ‘living expenses’ credit card as much as possible and not dip into your bank account/cash unless there’s no other option.
Also, if you haven’t done it already, check with your cards to see how they’re going to handle any review of your credit limit (ie - increase it). You can normally do this online or in app and the options are generally either ‘Process it automatically and increase my limit’ or ‘Tell me it’s available and let me choose’. There never seems to be an option these days of ‘Just never review it and offer me a credit limit’ so you’ll want to make sure it’s set to ‘tell me about it and let me choose’.
Feel free to correct me if I’m wrong but I’m not sure this is good advice given the circumstances. The focus should be on reducing the debt not making use of available credit.
Something to aspire to? Maybe, especially if you’re talking rewards cards, but something the OP should be considering right now? I’d say definitely not.
2 Likes
phildawson
(Sorry, I will have to escalate this.)
25
I read this as out of the three cards keep only one in use, get it cleared so nothing is owed and continue to use for normal monthly spend. So if you have budgeted £310 for food (£10/day), only spend that on the card and use that £310 sitting in your current account/food pot to know you will pay that card in full. With the two outstanding card bills, stop using them and start chipping away until cleared.
If possible you want to only put about 25% of the limit. So if your card is £1200, stick to £300 max put on it to get brownie points with lenders.
When I say food I really mean “supermarket” so includes cleaning and toilet rolls etc.
I think the problem is that putting the spend on the credit card can make it harder to stick to that budget, and see what your current situation is. For someone trying to get into good habits, it might be better to stop using credit cards altogether for a while (keeping one in the drawer for emergencies as described) to regain a feeling of control and predictability over their finances. Juggling multiple cards has its own ‘costs’ in terms of keeping things in order and piece of mind.
I also wonder how much ‘responsible use of a credit card’ really helps in the long run. I have no idea, but is this a myth or based on fact? When going for a mortgage, would the fact that someone had a credit card they spent and repaid £300 a month on make any difference? I was under the impression the banks are more interested in your income and whether you have lots of unpaid debts in your past.
4 Likes
phildawson
(Sorry, I will have to escalate this.)
27
I think the idea with picking one category of spending such as food will make it much simpler to follow what is being spent. With the example at £10 a day you know you should have roughly £100 on day 10, £200 on day 20 etc. Obviously the simple maths only work if thats your actual budget.
As supermarkets take all the credit cards there’s no need to be working out how much spent between using Debit card and the Credit Card.
You could replace food with fuel, so you only do your petrol/diesel with it. If you wanted to take it further each time to filled up £50 on your credit card transfer £50 into a Credit card pot. That way it’s impossible to get carried away so you are looking at your Monzo account balance before spending anything.
I can recommend Yolt to manage my spend between accounts.
Thats going to be impossible to say for sure without knowing the devs that worked on the calculations at a particular mortgage lender and slipping them a few pints to talk outside the NDAs.
Its generally accepted that lenders like to see you can repay and don’t miss payments, so having something like a credit card can demonstrate it. You need to use it each month for it to be contributing positively, its generally accepted between 1-20% of the total limit is recommended to show you aren’t stretching, how much that plays a factor in the lenders calculations is
Having a personal loan I would have thought would impact as its cutting into your affordability. Lenders like to see how can cope with wiggle room for either when the fixed period runs out or on a variable if the rate increases can you still afford the monthly.
Your income plays the biggest factor so usually x 4.75 whatever your gross salary. So if you are on £20k, you could get a mortgage of £95k
However they may look at all your outgoings and based on affordability say we can only offer £80k.
I’ve personally had two mortgages before I ever got my first credit card so certainly not needed.
The key thing really is don’t miss payments, don’t go bankrupt, don’t get CCJs against you if you want lenders to be your friend.
Or you could just transfer £50 straight from your Monzo account to the credit card (via Faster Payments) after paying with the credit card. No need to wait for the monthly bill. When I use my credit card I try and do this – make the payment from Monzo to the card within a day of the original spend. Then I don’t have to worry about the credit card bill, and my account accurately shows how much I have in it. Of course this is impractical when making lots of transactions on a credit card, but if only doing a couple £50 transactions a month it would work well.
phildawson
(Sorry, I will have to escalate this.)
29
The only issue with that method is utilisation.
So if you spend on the credit card and then pay it off immediately after the transaction, when it comes to the end of the billing cycle when the credit card provider pushes your balance to the CRAs it’ll show 0 the same as if you had kept it in a drawer untouched. So its best to keep something on it ready to then pay when the bill comes through for that billing cycle ideally in full.
As Phil says, would be better to do almost exactly what you’re doing now but move the money into a Monzo pot instead of transferring to the CC right away. When you do get the bill, then you can pay from the monies in the pot. Sorted.
Indeed, you could pay by direct debit and set the pot as your bills pot, I believe.
Why would I look for a job that doesn’t need a car? And I’m struggling to see how its an unknown amount each month when I have a 48month plan I can see online that tells me exactly how much I will be spending on the car, how much I pay towards service plan. The most I would ever have to do is tax it, but it’s a 69 plate so that won’t need to be done till year 3 of ownership. I’ve just got this job on top of everything, and it pays me enough and I enjoy what I do, so I wouldn’t just scrap everything for a part-time/minimum wage job like I was on previously.
And no, I don’t spend money on stupid things like clothes, phones etc. Although I do have a good phone, but this is only because my previous phone was ancient and on its way out, I don’t usually upgrade every two years, I usually upgrade every 4.
I don’t want credit, I had it there to get me out of trouble with previous car and emergency money.
My goal is to get rid of credit, save more and stop biting more than I can chew!
I do want to say thank you for everyone in this thread and the support.
With the advice, I’ve been able to put my Excel knowledge to use and put together a small plan of what I have income wise, where it’s going and what I can do to pay off my debts faster. If I’ve worked things out correctly, I should be able to clear most of my debt in the next 2/3 months, yeah I won’t be able to go out and do anything crazy but it’ll allow me to get all the crap debt out the way, so I can focus on the bigger things like saving, and sorting everything out with my LISA and getting enough saved for a house deposit. But ill save that discussion for another time.
I’d recommend selling up, donating all your possessions and moving out in the middle of nowhere. Hunt and fend for yourself. Live a simple peaceful life, happy, and away from all the chaos and distractions of modern society *
*I wish
Back on topic though - very sensible (unlike me) and I’m sure 2-3 months will fly by and you’ll be far better off and thankful that you did this in the end.
One thing that has helped me, and I realise this is monumentally obvious, is to try and have as many ‘Zero’ days as possible.
It’s very easy to spend that £3 on a coffee or £5 on a lunch, but if you can not spend a penny just a few times a week, that will soon mount up.
With IFTTT and Google sheets, I have a tracker to see how many days per pay period that I can not spend a penny. Obviously sometimes you need to spend, you’ve got to eat/get to work etc.
So for last month I managed to have 9 zero days. But I had 11 days where I spent less than £5, those are the ones I’m trying to cut down on/cut out. Most of those will be when I’ve popped to the shop on the way home for 1 thing, a lunch, snacks etc.
It’s alright, we’re all going to be in quarantine for the next 3 months anyway due to Coronavirus so you won’t miss anything. You’ll be back and debt-free just in time for summer.
On your car. What if someone keys the side of it? You will have a repair cost or an insurance excess to pay. Does the service plan cover tyres? You have MOT costs at end of year 3 of course. What if fuel prices rise significantly? What if a stone jumps up and cracks the windscreen? How about a speeding fine or camera fine for that second you took your eye of the dial? You hit a pothole and the suspension snaps - covered by the service plan? What about being hit by an uninsured driver - car off the road for 4 weeks - have you got courtesy car cover in your insurance? A road side breakdown on the motorway? What about being bored with it at the end of year 1 - you now want something faster and flashier. Or a change in personal circumstances - you now need a car with better fuel economy.?
Car ownership by its nature is very expensive and an unknown quantity. I would always recommend you avoid. Come back to us in 48 months (a very long time!) and let us know how it’s gone. You asked for advice - I’m more than twice your age and owned over 20 cars - I give you my experience for free.
A big chunk of the uncertainties are covered by insurance and the fact that it’s a new vehicle so under warranty - granted that doesn’t cover everything though so I understand your point.
But anyway regardless of any of this, getting rid of the vehicle is not good advice. Getting rid of a 69 plate will be eyewateringly expensive and shouldn’t be the focus of this discussion.
3 Likes
phildawson
(Sorry, I will have to escalate this.)
39
Thats a lot of what ifs. You can’t go through life like that.
You can see a car as getting A - B, or as nice thing to feel good about, or both.
If he didn’t need a car, theres a chance he wouldn’t get one if you could take alternative ways to get places like work and shops. If you live in the middle of London that works, if you’re in the sticks then thats a non-starter unless you’re really keen on biking, motor or with feet.
I would say trying to convince someone using one quite happily to not for a bunch of what ifs is ridiculous.
Cars are expensive don’t get me wrong, you just have to budget for things like repairs, insurance, mots etc thats part of life. You can be lucky and never have any issues, or rotten luck where everything seems to go wrong.
Not sure owning over 20 cars in… 20-30 or so years is a great way to look at things?! I’m mid-40s and I’ve owned less than 10… just saying.
And what if you get knocked down by a bus tomorrow? Then what?
phildawson
(Sorry, I will have to escalate this.)
41
Well yes I wasn’t going to include the maths with 47 - 17 with 20 thats buying one every 18 months on average. Obviously younger and closer to 40 and say 23 cars that could be 1 a year. Either way thats fricking costly even if a few were bangers.
*