Debt repayment WWYD

[MamaGeekChic]

I have some debt, not a massive amount (i guess it's all relative though) and I'm debating what to do about paying it off...

CC's- £1k costs about £20pm in interest
Overdraft- £3.5k (this varies but is prob average, i'm pretty much living in it just now) costs abot £35pm in charges

I can't take out a low interest loan or 0% card as I have a bad credit rating from robbing peter to pay paul trying to support myself as a student (graduated in 2008). I earn decent money and over the last 2years have paid of £8k of student loans plus another £6k of CCs/ODs, by last year I had pretty much cleared my debt. I then had DD in april and maternity leave etc (as main bread winner) and found myself back where i am now. I'm working again but the debt is hanging over me.

I guess my question is, should i:

a) live on the absolute bare minimum and throw every spare penny at the debt, I could probably clear it in 4 months.

b) pay a chunk each month and have a little bit spare and spread it over say 7/8 months

c) spread it over say a year and still be in debt next christmas...

i ask because i need to make decisions upfront and deal with it otherwise i'll keep paying slightly more than the minimum and worrying about it for the foreseeable while spending as if i can afford it. So, WWYD?

In your shoes, I'd do choice a.

Get the debt out of the way as fast as you can. Then save up an 'emergency fund' just in case you need it.

I was in a similar position. I chose to spread repayment over a longer period to make it sustainable. It worked.

I would phone the CCCS - a free debt counselling service

details here

They will give you excellent advice and may even be able to negotiate with your creditors to reduce your interest payments (or give you advice/letter templates to do this yourself), particularly if you're having to rob Peter to pay Paul. The best thing is to try to make sure that as much money as possible is going to pay off the actual loan, rather than paying too much interest. With high interest rates on credit cards it's possible to be paying, say, £60-80/month while only paying off £5-10 of the actual debt, which is obviously going to keep you poorer for longer.

Yes, but 4 months is not long at all to be strict with your budget if it makes you debt-free.

I'd argue for the gentler/slower approach if OP was talking about years to clear the debt...but as she's not - why not be strict and be done?

Sorry wolly, I was having to juggle when at uni, thats why I have a bad credit rating. This is not an issue now, just inhibits my ability to consolidate or get a better interest rate. Thanks for the advice though.

B, I find if we cut down the bare minimum then we can only last a few months before utter misery sets in and you end up buying something massive!

So I would spread it over a couple of more months so it doesn't feel quite so painful and thus you are much less likely to mess up

Id try to get clear by oct/nov so you could use the amount you had been using to clear the debt for xmas in Dec and wont get into debt for that.

Well done for looking at things and getting some options together - I work for a bank and its amazing how people dont look at this till they have huge debts.

I would recommend the middle option and set up a savings account for the 'spare'. It would get you into the habit of putting a little aside each month and you'd have a bit of a buffer in case a genuine emergency came along. When you are debt-free in 7 or 8 months keep the savings account going and swap your debt-payment amount into increased savings contributions. That way you're less likely to go back into debt.

Pay off the debt that's costing you the biggest interest percentage first as that will save you money. Even though you've had credit problems in the past, talk to your bank about converting the overdraft into a cheaper loan. It may not be the cheapest on the market but, if you save a % or two in interest, it will be worth doing.

Good luck