About to start from fresh - advice please

[csalso]

By "fresh" I mean that after months of trying and being very frugal I have finally managed to consolidate all my debt with one personal loan.

I had 3 credit cards one a 0% and the other two not - with a total of 22K debt. I was unable to transfer the other two cards to other 0% cards. I also had a pay pal debt for 2K. I do not have mortgage or any other debts.

Over the past eight months I have been acting-up at work and getting an extra 1.5K per month.

I surprised myself by making a concerted effort not to to splurge this additional income but set up a direct debit for the "extra" 1.5K in my salary to go to credit cards. I have managed to reduce the debt to 8K.

However in order to clear all cards I would still need to pay £500 over the next 18 months (without counting interest).

Yesterday I applied for a personal loan from existing building society and was approved for the full £8K - it's sat in the bank now (and I'm having a minor wobble!)

I can clear all cards now and the monthly payments will be £250 over 36 months at 3% interest -this is more than affordable and well within budget when my acting-up and extra income ends at the end of the week.

I feel quite proud that I have managed to pay of over 13K in less than a year but scared that I'm taking on another debt. Please tell me this is the right approach. It makes total sense to DH and I but obviously we are the ones that got ourselves in this state in the first place so maybe are not the best folks to say.

Also once we have consolidated the credit card debt what should we do with the cards?

DH says keep one for absolute emergencies and cancel the others. If we did this would we have to use it occasionally for a small purchase (and pay off in full every month) to show it's active? Or do we just hide it? Should we just cancel all cards?

Thanks

Well done you. I am just starting to attack my debts. I got clear once before but used my cards again (DP lost job). I would just keep one for emergencies until you can build up some savings. You have spurred me on . Thank you

Thanks sandgrown - and good luck!

Well done, you are doing really well and the challenge now is to keep paying off the debt when your current payrise ends. So setting up regular repayment amount and budgeting so that you always make the payment is vital. Sure it will now take longer to pay off but you have less money coming in. If more money coming in again, then you may be able to increase the amount you pay off, or put it in a savings account so to you it feels like it is going towards the debt.

Keep one credit card. I have one credit card and two debit cards. I try to put all expenditure on the credit card and pay it off in full every month. I find it helps to show that I can sensibly manage short term debt.

Do you monitor your credit score? ClearScore does not currently charge, so could be worth using that to keep a monthly check on how your changes affect your credit score. You always want to keep some debt going otherwise you end up in a position my mum was in, where she was refused a mobile phone as she did not pass a credit check - she had not had any credit for over 5 years, so there was little to no credit history.

You are doing great. Budget well and keep putting any extra money you get towards debt repayment or savings. Don't fall back in to the trap of spending more than you earn.

Well done so far. That's a lot of debt to clear out of the way.

How disciplined do you feel you are now?

Have to say I don't think this is the right approach. As you've now added to your debt and at real risk of just increasing it.

What you where doing was the best approach. Please now look closer at your spending and reduce what you're spending. Please please cut up or cancel your cards and don't use them or in 12 months you'll be in more debt. Would recommend you visit the debt free wannabe board on money saving expert .com.

You don't need to use to emergency card. Please don't be tempted to use it.

Wrap your emergency card in plastic, put it in a Tupperware, fill with water and freeze it. The less you trust yourself the bigger the box.

Cindy34

Thanks for the great advice. I've set up a direct debit for the loan so should not miss any payments. Strangely enough my Experian rating is excellent so I'm less worried about that though obviously don't want to lose it!

I was worried that not having any credit cards would have consequences and you've proved me right - will keep one card and use it and pay off in full regularly.

DH and I are also looking to convert my current account to a joint one - so his income goes in as well. I think that will look healthier as well. The personal loan I got yesterday was based on my income so I think if we show we have more money then it's better.

We should be able to save now which is a great feeling - how much would you recommend?

For illustrative purposes - we will jointly (when I revet to old salary) have about £1600 income left per month (once all bills paid)

Starting to wobble now!

Thanks lovelyupnorth - it was a tough choice but we didn't get into this debt by being particularly spendthrift (though I know it looks like that). I've checked out the debt forums and have been using their advice as well. It would have been great to continue as I was doing but my income will drop by 1.5K at end of this month so it just wasn't feasible to continue on the same course.

I'm fairly happy with what we've done and know we can't make mistakes from past but they were due to very unique circumstances (can't say as they would out us but safe to say won't ever be in that position again!)

I like the tupperware/freezer idea very much!

There seems to be some difference of opinion on whether to keep one card or not and if so what to do with it (aside from freezer!)

My credit card is only really used for Amazon/eBay/kindle purchases and is paid in full each month. I don't use it for day to day purchases. If you keep one just stick it in a drawer at home so it isn't handy but you still have it if you really really need it.

And your credit rating will probably be excellent because you had the debt but were managing to keep up with repayments with no defaults. It also makes sense to me to get a cheaper loan to pay off more expensive individual debts as long as you don't then run up more debts on top of the loan.

You can also think about your longer term credit rating, start sorting things out so that your future loans are cheaper, more likely to be agreed.

While you are servicing your loan you will be clocking up 'good credit' points. So you won't need to use a card to improve your credit rating.

Once the loan and all other debt is repaid you can then focus on your long term credit rating. That is when you can decide how/if to use a CC.

You could use it for weekly food shopping; use it only when you are both present and agree to its use and always pay it off in full.

I have one (reasonable) CC which I use as a charge card. Balances are paid off in full every month and I don't ever use the credit facility on it although I could if I wanted to. It's just useful to have - especially for online shopping. I don't bother with other CCs because - what would be the point?

Thanks all!

I never saw the excellent rating as being linked to the debt I was re-paying - that's a very good point and one I'll bear in mind.

OurBlanche How do I sort out long term credit rating? By using the one (hidden in freezer/drawer/wherever) credit card that I won't have used for 36 months for manageable payments such as shopping? That makes sense.

Is there anything else I can do now?

I am on electoral roll, have no other loans (no mobile phone contracts or similar), no overdraft or debts and don't have a mortgage (paid off in full but on house abroad so couldn't use this to re-mortgage as not earning in home country any more)

Am I missing a trick somewhere?

No, you aren't missing any tricks. But you might have a very low credit profile, as did DSis (long story, shitty behaviour by Dad who basically shared her home and threw her under the financial bus).

You say you have no rolling contracts, like mobile phone, but what about electricity bills, gas bills etc? They count too, so you will have something ticking it over.

You could start to use a paid off CC once a week/month for food shopping and other necessary things. DSis did that. She knew how much she would have to spend and used her CC for that, paid it off in full every month, without fail.

Have you checked your rating? It may not be all that bad... you have carried debt and might find that it hasn't been as negative as you might imagine.

Noddle is free www.noddle.co.uk/?gclid=COia5tW-kM0CFbMK0wodv5IEqg

Clear Scoreis part of Experian and is even easier to set up than Noddle
www.clearscore.com/

Op said she had an excellent credit rating so doesn't need to improve it, just to maintain it. She wouldn't have got an £8K loan without a good rating anyway! You don't have to use a credit card to keep the rating good and you will have a credit history of being able to have debt and pay it off without defaulting. I would just concentrate on paying off the current loan and not bother using the credit card unless you really need to.

Thanks both - yep credit rating is excellent, though as PP said it may be linked to paying back credit cards.

I do have utility bills (phone, gas, water, electric etc..) paid by direct debit so I guess that will add to overall rating as well.

I think it's a case of carry on doing what I'm doing - cancel two cards, keep one for dire emergencies and don't use it (and if I do ALWAYS pay it off in full (this is doable)

I think showing that you're paying off the loan will keep your credit rating ticking along nicely. I'm not sure why you need to have a joint account, though, to make your income look healthier. It's always handy to have another current account of your own.

What you've done in repayment terms over the last year is really brilliant.

Thanks HerBigChance - it was quite tough to be honest but I became a bit obsessed toward the end and think I've learnt some valuable lessons (hopefully!)

I missed that in my first post, but was addressing the OPs new situation in the second... she won't be clocking up any new debt/repayments and could use a CC to maintain a higher credit profile if she wanted to.

That and using a CC properly, using to your credit rating and learning how to avoid using it without due care and attention, is a good habit to get into. OP hinted that she may not have that habit yet...