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what to pay first- CC vs ODraft

Hi I have £2000 over draft with the back of Scotland which I regularly get hit with massive fines and caught in a bit of a snow ball effect. I also have a £5k Bank of Scotland credit card that is totally maxed out and I am just about making minimum payments. My sister has offered to lend me £2k and I don't know if I should use the whole lot on the over draft or split it between the two debts. any advice would be much appreciated.


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You are very lucky to have such a generous sister. Please do not abuse her offer by sliding back into debt afterwards. With that cash injection your interest bill should reduce significantly which should enable you to pay off more of your debt and the snowball effect should enable you to clear it. I presume that the fact that you are hit by fines from BOS means that you are exceeding your agreed overdraft on a regular basis. On the assumption that the agreed overdraft interest rate is less than the rate on the CC rate, I would suggest that you pay enough into your current account to ensure that you stay within your agreed overdraft even just before pay day. The balance should go onto your CC account. You will then not get any fines and your interest bill will be reduced substantially so that you can pay off much more than the minimum. Are you paying the minimum by direct debit? If not, please set it up. That will ensure that you don't miss any payments and won't get any nasty letters on that account either. At pay day, transfer any excess within your agreed overdraft to your CC account, in addition to the minimum that has already been paid. You can make more than one payment each month. You should see the CC debt fall more and more rapidly. That is why it is referred to as the snowball effect. Once you have cleared the CC debt, make sure that you pay off the full CC balance each month to stay interest free. You will then find the overdraft should fall rapidly. In adition, because you are not missing any payments and staying within agreed limits, you should find that your credit rating improves rapidly. Above all review your spending and make reductions where you can. You will want to repay your sister as soon as possible, won't you? She has been very generous. It is up to you to repay that generosity as soon as possible. Mike

Absolutely tremendous post Mike

thanks guys..I have the best big sister in the world. I had thought that if I paid off the over draft and fixed my credit rating then I could get a loan to pay off the credit card- would that work? oh and I promise not to get in debt again...x

Fixing a credit rating is a long haul. Any misdemeanours, such as missing payments or exceeding agreed limits, stay on your record for 6 years. As they recede into the past, your rating will gradually rise. Mike

This may seem obvious, but you need to look careful at your spending. A few years ago I used to go overdrawn frequently and get hit with charges, my outgoings matched or exceeded my income. I had a good look at my finances and managed to reduce my outgoings by around £150/month, and haven't been overdrawn since, in fact I placed a reducer on my account and now have no OD. Things I did: - price fixes for utility contracts / using less electricity & heating - get rid of subscription TV - paid car insurance in one go (or with low interest, even if lump sum price is higher, do the maths) - driving less, walking more - drinking less! I also moved all my direct debits to the day after I got paid, so I could instantly see what my disposable income was after all my bills were paid.