# Help with plan to reduce credit card debt



## debthelp (4 Nov 2010)

Age: 30
Spouse’s/Partner's age: n/a

Annual gross income from employment or profession: €50,000 (basic and commission)

Type of employment: permanent private sector 

In general are you:
(a) spending more than you earn, or
(b) saving?

was spending more

Rough estimate of value of home €150,000
Amount outstanding on your mortgage: € 320,000
*What interest rate are you paying? 2.15% (tracker)*
*Reduced repayment of €700pm until February (Interest only of €575 and the overpayment to go towards arrears of €1400) full repayment will be circa €1150 – would hope to get the arrangement for €700 extended for a further 6 months. *

Other borrowings – car loans/personal loans etc

1)     PTSB €5500 o/s repayments = €205pm
2) Halifax €4500 o/s repayments = €145pm
3) Credit Union €1200 o/s repayments = €120pm 
4) PTSB overdraft €1800 – reducing at €200pm
5) Parental loan €20,000 repayment = €300 pm (cannot be reduced as it is part of their mortgage)


Do you pay off your full credit card balance each month? No
If not, what is the balance on your credit card? 3 cards

1)     MBNA €8000 balance minimum payment circa €120pm
2) PTSB €1700 balance min payment circa €60pm
3) Tesco €3000 balance min payment €85 pm

Savings and investments: None

Do you have a pension scheme?  No

Do you own any investment or other property? No 

Ages of children: n/a

Life insurance: €51pm (medical loading on it so cannot be reduced)


*What specific question do you have or what issues are of concern to you?*

*Basically looking to clear down all borrowings asap. I have sold my car, rented out my house and moved in with my parents for the next 6 months. Receiving €850pm rental income. Paying my parents €220pm rent – but don’t have any utility / grocery bills etc. I was unemployed for 12 months but have recently secured a new permanent job. Basic salary will be 32k but it is a sales role and I have been told I should earn a further 15-18k commission and bonuses (industry has picked up so this should be a realistic figure). Will probably take 3 months or so before commission is paid. *

*I am aiming to use every penny of my salary to pay down my debts and use the €850 rental income to live on (hoping to save €200 a month of this to build back up an emergency fund) *

*From my estimates I should be coming out with a net salary of circa €2500pm at least. I suppose I am just looking for advice on how to go about clearing the credit cards – should I concentrate on clearing the ones with the lowest balance first or put any extra funds into the higher rate ones? Should I continue to pay the minimum repayments and save my commission in the credit union with the view to maybe getting 1 big loan to clear everything? Credit cards have been cut up so not spending on them*

*I need to be in a position to move back to my house next summer so have to reduce my monthly outgoings before then.*

*Thanks*


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## debthelp (4 Nov 2010)

Hi,

They would all be about 18%. Personal loans are around 10%  - not sure about the credit union.


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## niceoneted (4 Nov 2010)

Out of your salary so of 2500 you will be paying 700 on mortgage and 1235 on current payments of other debts. This leaves you with 565. 

What I would do is use the snowball method and clear of the 1700 CC debt first then the 3000 one and so on working on those CC cards first. 

What is the amount in shares at the CU if you were to clear the 1200 loan - could this share amount clear off another loan. 

I would write to all your CC companies esp MBNA and see will they freeze the balance if you send them back the card assure them you will not use it and commit to a specific payment a month. 

When the commission kicks in I would pay the lump of a loan at a time until they are clear. 

Selling your car and moving back home is a great thing you did. 
What did you use with the proceeds of the car sale - did you clear off some loans? or do you still have it?


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## debthelp (5 Nov 2010)

Thanks for the reply,

In relation to the credit union loan - €1200 is the net figure (loan is €3200 shares are €2000)

I used the proceeds of my car - €5k to clear arrears on my PTSB loan and mortgage and pay my management fees

I'll have a look into the debt snowball method, sounds like that could be a good idea - just want to get out of this hole as soon as possible, my parents have been great letting me move back home but definitely dont want it to be a long term thing!!


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## so-crates (5 Nov 2010)

The snowball method is a good morale boost as you start to reduce the number of different debts that you owe, however it is not necessarily the best in terms of paying off the debt by the cheapest means unless your highest cc interest rate is on you lowest balance or you can clear your smallest debt quickly. Work out the cost difference between clearing your lowest balance as fast as possible and by clearing it at a lower rate but clearing more on your other cards.
If you need a morale boost, perhaps a chart would help, allowing you to mark off debts achieved would help.


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## PaddyW (8 Nov 2010)

Just a quick question about the snowball method. Does this mean that you leave your other debts untouched while you clear them down one at a time? Does this not cause problems with the creditor?


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## niceoneted (8 Nov 2010)

PaddyW no you will pay the minimum on all loans but aggressively pay off one at a time - usually smallest first. You do this rather than spread additional money over all loans.


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## Mongola (8 Nov 2010)

Hi Debthelp!
Could you please tell us the duration of each loan?

The first thing that I would say to you is don t rely on bonuses, they are self explanatory: they are bonuses, if you get them : great but if not, you would have counted them in your budget already!


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## PaddyW (8 Nov 2010)

niceoneted said:


> PaddyW no you will pay the minimum on all loans but aggressively pay off one at a time - usually smallest first. You do this rather than spread additional money over all loans.



Aha, I get it now. Thanks niceoneted


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## Protocol (8 Nov 2010)

Forgive me, but I am curious how a single 30-year-old has 9 loans??


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## Greta (8 Nov 2010)

niceoneted said:


> PaddyW no you will pay the minimum on all loans but aggressively pay off one at a time - usually smallest first. You do this rather than spread additional money over all loans.



In the snowball method you'd usually aim to first pay off the loans with the highest interest rate, rather than the smallest ones.

However, in some cases it may make sense to pay off the smallest ones first, if their lenders are harassing you most, for example.


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## PaddyW (9 Nov 2010)

Greta said:


> In the snowball method you'd usually aim to first pay off the loans with the highest interest rate, rather than the smallest ones.
> 
> However, in some cases it may make sense to pay off the smallest ones first, if their lenders are harassing you most, for example.



Thanks for that Greta. Yes, I imagine paying off the highest interest rate loan would make most sense, unless of course, as you said, you are having hassles on other loans.


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## niceoneted (9 Nov 2010)

Greta I think different people use different methods but it is meant to be smallest balance first - see here http://en.wikipedia.org/wiki/Debt-snowball_method
It is the quickest way because the higher interest rate debts could have the highest balance so it doesn't make sense.


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## Greta (9 Nov 2010)

niceoneted said:


> Greta I think different people use different methods but it is meant to be smallest balance first - see here http://en.wikipedia.org/wiki/Debt-snowball_method
> It is the quickest way because the higher interest rate debts could have the highest balance so it doesn't make sense.



Yes, some people need the motivation of "quick wins" - reducing the number of outstanding loans, even if smaller ones, and pay the debts with the smallest balances first. Whichever way works for them
However, if they keep larger highest-interest loans longer, choosing to repay smaller low-interest ones first, OVERALL it will take them longer and cost more, as is explained at the end of the wikipedia article you mentioned 



> People with more financial discipline can get ahead quicker by paying off the credit cards and loans with the higher interest rates first.[2] This will minimize costs to become debt-free faster than the smallest-balance approach. Dave Ramsey, a proponent of the debt-snowball method, concedes that "the math" leans toward paying the highest interest debt first; however, based on his experience, Ramsey states that personal finance is "20 percent head knowledge and 80 percent behavior" and that people trying to reduce debt need "quick wins" in order to remain motivated toward debt reduction



I guess, the main thing is to clear the debts, using whichever method best suits you


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## dobsdave (10 Nov 2010)

The reduction in overdraft of 200e per month, is that mandatory or voluntary?
If voluntary, then I would suggest using some/all of this to pay off credit cards first instead.


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## debthelp (11 Nov 2010)

Thanks for the replies, 

I currently have 2.5 years left on the PTSB loan and 4 years left on the Halifax one. The credit union has 10 months left. The others are credit cards.

In relation to the overdraft, the €200 per month reduction is mandatory. PTSB have indicated however that they will look at consolidating my debt with them now that the arrears have been cleared, so I could get 1 loan for just under €9000 and clear the OD and PTSB visa. Repayments would be about €300pm

I found an online calculator for the debt snowball thing so will definitely look at doing that


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