Need some advice about credit card debt (NOT in the UK)

[OrangeBlossomsinthesun]

Hi,
First of all, I AM NOT IN THE UK. There are NO credit cards here with 0% interest, so I can´t do a balance transfer and pay it off with 0% interest.

I have a credit card with my current bank. I have €3000 outstanding on it and the interest is about 18%. I got in this mess because I am a freelancer and my business was badly affected by Covid and then AI has basically put me out of business. So I´ve had a couple fo years of not earning enough but not being able to find other work. As I´m a foreigner in my country of residence, it´s not always easy to find jobs. I finally have a new job starting next month but the salary is only just enough for us to manage in the first year (then it goes up).

I have a small inheritance of about €2000 that I can use to reduce this cc debt.

However, the job is just about enough to live on but it will be tight so I don´t think it´s wise to use all the €2000 on the cc debt. Maybe €1500. I have an account with a different bank (used for business income) that offers personal loans at around 7% interest (as opposed to the 18% I am paying on the cc now) so I am thinking I could pay down some of the €3000 with some of the inheritance, leave some cash for emergencies and then take a loan from the other bank to clear the rest, and pay a much lower rate of interest. So, like clear €1500 and take a laon for the other €1500. A loan for €1500 at 7% would be cheaper than paying it off at 18% interest.

Does this sound mad? All assuming I can get this loan from the other bank. But I think theyll give it to me.

After a year in the job, the pay goes up and things will be much more manageable. I just have to hang on for a year and juggle things until then.

If you think the bank will give you the loan then go for it, it’s not mad at all. As you said 7% is much better than 18.

Not sure what country you’re in so obviously depends if you have a good benefits system but see if there’s anything you’re eligible for, any financial support etc.

All the best OP 🫶🏻

Possibly worth doing as long as:

You treat this solely as an interest reduction exercise not a 'borrowing to spend' and

you actually get a 7% loan as in the UK its subject to circumstances and smaller loans are charged at a higher rate so something to check.

Does the country you live in a have debt advice charities, government advice centres or something like Moneysavingexpert.com?

If not, it's always worth looking at the budgeting section of MSE so you can work through the 'can you cancel X, Y or Z or get it cheaper' but then obviously have to check what is available locally.

The UK is very competitive for food prices and also things like broadband and mobile phones as long as you hop from deal to deal but you might not have similar options where you are.

If you do this cut up the credit card and don't use it again.

Yes, absolutely.

If you're in an EU country, there will doubtless be some kind of financial advice charity offering advice to people in your situation, which would be more useful than mumsnet because we don't know where you are and even if you say which country, most MNers won't know the intricacies of finances there. You'll be able to access general advice such as moving the debt to a lower interest account or similar and budgeting advice, but you'd be best off seeking local expert input. Try searching "debt advice <city>" in your local language. It is usually free.

In general, I would be wary of taking out a loan because they tend to have fixed payments so even if you came into some money and wanted to pay it off early it is generally not possible to save doing this as you end up paying the interest as an extra payment anyway. We have done this in the past and I really regret it. If we had kept the debt in overdrafts, then we could have paid it down and reduced the interest over time. With a loan you don't get this freedom. However OTOH, 7% vs 18% does sound like a significant difference, and the fixed payments/term of a loan is also helpful if you find you aren't disciplined enough to stick to a repayment plan you've designed/have to do manually.

There isn't really a citizens advice or MSE, no. My Internet is pretty competitive and I am locked into my current deal until June. I think then I will port one of the mobiles as it will be slightly cheaper but more importantly it will mean I can negotiate the current deal I have without changing providers. I can't really change providers as the new job is remote WFH and totally dependent on having an Internet connection. When you change here you don't really know when they will install the fibre, they kind of just turn up and it's just not feasible.

I am really trying to get food bills down but finding it so expensive these days. This week we are doing a lentil stew (traditional recipe here) cos it's cheap and healthy.

I have done a loan simulation and it's 0% commission to open the loan (sorry, kind of translating here, not sure of English terms) and it says the rate for my amount is 7%.

No benefits here that we are entitled to.

I will see if I can find some organisations. I am in Spain and the language isnt a problem, just knowing what to do.
I don't have an overdraft facility.
At the moment the minimum payment on the cc is about €70 a month. I try to pay slightly over that but even so it will take me years and years to get rid of at 18%
I was thinking if I reduced it to €1500 and took a loan at 7% to cover that it would be cheaper and I could pay less a month.
I will check the conditions for repaying early.
But I don't think that it all that feasible as I have another debt of €2500 to the dentist. They are family friends and so there is no interest and they are happy for me to pay what I can when I can.

In your situation I would be loathe to spend much, if any, of the inheritance on debt. I would want it there for emergencies so that I would not need to take on more credit if something unexpected happened.

Taking the loan to pay off the card seems a good move. Consider paying the minimum payment towards it each month and then put aside any extra you can afford into the highest rate savings account you can get. When you have enough savings to pay off the outstanding loan you can transfer it over and pay it off. The benefit if doing that is flexibility; you can save a little more or a little less based on your income every month or, if needed, it's another source of emergency cash.

OK, so translating here so excuse the weird wording :
Commission for total or partial repayment/cancellation 0,5% if less than one year before the loan is due to pay off or 1% (if less than a year left) of the amount that is being repaid early.

Not sure if that means you can only pay off early when you only have a year left.

OK I tried to look up some Spanish pages but it's just showing me pages from the US and Germany (which is where I'm based!) In Spanish, but yeah, not very helpful. It normally takes your location into account, so you should get better results than me, although often the terms can be subtly different. "Debt advice" is fairly universal, though. Most of the debt counselling agencies in Germany are religious but you don't have to be religious to use them, and the advice is secular.

It is a good point the PP makes about keeping some money spare as an emergency fund. You don't want to throw EVERYTHING at debts so that when something happens you are forced to go into debt again. I think Martin Lewis says the only exception to this is if you really trust yourself, you could keep the credit card in the back of a drawer for emergencies. It does take discipline because it's tempting to go "Oh I need to spend this right now, it's an emergency" whereas it's not really an absolute necessity.

If you are going to pay any minimum payments on a card, instead of paying whatever the minimum percentage is, if it works out at a €200 payment for example, set up a standing order for the €200 instead. Sticking to the minimum payment just traps you in a never ending cycle.

What does it say about paying it off before one year is left? And what term would you take out the loan for?

I am trying to download the full conditions to find out. I am on my phone, might need to do it on the computer.
The term would depend on the amount the loan was for. I can choose from 12-60 months. So if I took a loan for the full €3000 I owe on the cc I might need to take the longest period to make the payments affordable.

I have found a Spanish not for profit that seems to advise about debt so I will send them an email later.

The money you're putting aside for emergencies - why not put that money towards clearing the credit card, too?

If no emergencies arise - you'll have paid the credit card off a little bit sooner.

But if an emergency were to happen - you'll have extra cleared funds on the credit card at your disposal.

And if that emergency were to happen in, say, 11 months time, at least you'll have been paying less interest for the 11 months prior to needing your emergency fund.

Also...

The 7% loan rate you've seen - Have you checked if that rate is available for the amount you'd be looking to borrow?

From past experience, they wave these deals in front of you, but when you look closer, the 7% (or whatever) rate is only for loans of a higher amount. Smaller loans, less than €6,000 are often at a less favourable rate.

The 7% loan rate you've seen - Have you checked if that rate is available for the amount you'd be looking to borrow? I have done an online simulation and it offers me that rate, yes.

But if an emergency were to happen - you'll have extra cleared funds on the credit card at your disposal. but then I would be taking on debt at 18% again.

The reason I don't want to use all the money to pay off the debt is that I am not sure if I will have quite enough money that first year and I have used all my savings now just getting by.

I am a YNABer so I have calculated all my expenses and long term expenses into a monthly figure of €2300-2400 a month. That's what we need to cover everything, it includes some money for things like car msintenance, for birthdays and Christmas etc, to try to cover all expenses . But I am possibly underestimating a little.

My husband earns €1200 a month net. I will earn €1190 a month net in the first year but in 14 payments (very common here). So an average of €1380 a month. BUT I think the extra payments are June and December. I won't be eligible for a full one this December and will have to wait six months for the June one. So I have to be able to possibly pull a bit of money from eleswhere for five or six months. Or not save anything for those long term expenses.

So it's all a bit squeaky bum time at first. So I am thinking maybe I should just cover the cc with a loan to reduce the monthly payments and pay less interest overall and leave the €2000 as wiggle room.

So month to month our household income should just about cover the €2400 ish we need but it will be really tight.

OK, I think the best solution is for me to try to get a loan to pay off the credit card in full and leave the inheritance as money I can access if needed. Because I think I will have a shortfall each month in this first year.

I reckon we need €2450 a month if I pay the loan off on the longest term and pay €75 to the dentist.
In March it will drop to €2370 as I will have paid off the fridge and ikea wardrobes I had to buy last year.
But we´ll only bring in €2336 until June. Then I´ll get an extra payment of €1186. Then another six months of total income of €2336 and then another extra payment.
So I might need around €100 a month for a few months. Plus any emergencies like the car needing a repair.

Assuming I can get the loan obviously.

Just tried an online application and been denied. Probably because it's a new job (it asks how long I have been in my job). So, back to the drawing board.
I think maybe I will pay €1000 off the cc and keep €1000 back. That will reduce the payments I have to make on the cc and then I might be able to get a loan for the rest further down the line.
I will be on €3000 more a year and a permanent contract after the first year.

Just in case anyone is still interested. DH's pay check didn't come in today and our mortgage is due tomorrow (and some insurances and the cc payment). No other money available as I don't get paid til Thursday and inheritance not accesible yet.
Total fucking nightmare.
So I phoned my bank and they have given me a loan for the money that goes out tomorrow, plus the balance of the cc. The rate is 7.5% and I can pay chunks off whenever I want at a rate of 1% of the amount I pay down.

They're not technically supposed to give me a loan to pay off a cc as the rate of interest is lower, but the woman (she's been my point of contact at the bank for years and arranged our mortgage when we moved from variable to fixed last year) said just pay it off in unequal chunks so it's less obvious what you are doing.

Great news! And fantastic to have a bank manager who's willing to go beyond computer says no.