It’s been a while since I’ve been able to post a reader question for you. I occasionally get emails from readers who are in debt and are looking for support or advice. I’m not a qualified financial advisor of course so I can’t give professional “advice”. But I do try to offer help wherever possible. 🙂
For anonymity purposes, I’m referring to the reader as “Claire”. Claire (who is from the UK) emailed me a few weeks ago about her debt problem.
One of the reasons she struggles to get rid of her debt is because she’s always in her overdraft well before the end of the month. With Claire’s permission, here is her question below and it’d be great if you could chip in with some advice for her too:
“I’ve been in debt for 4 years, I owe just over £8K and can’t seem to make headway in paying it off. My debt is split across two credit cards and a personal loan. I always mean to pay extra off my debts at the end of the month but I’m always in my overdraft by at least £1000 before I get paid again so I literally can’t afford anything extra. I earn a reasonable wage and I have £3K in savings which I scraped together with a PPI refund as I’m trying to save for a new car. I need my car for work and the one I have now is always breaking down and costing me a fortune. How can I find more money to pay off my debt?”
Here’s my reply to Claire below:
Hi Claire
I’m sorry to read about your struggle to get out of debt and to get out of your overdraft too. I can imagine how you feel because I spent many years in my overdraft – for a long time I ended up in my overdraft just after payday. It was like my wages were swallowed up the instant I got paid. Being stuck in your overdraft every month after payday is no fun at all and it can make you feel like you’re swimming through mud when it comes to getting your finances into shape.
To me, it seems there are a couple of things that need tackling here. The first and foremost in my opinion is dealing with your overdraft because if you have no money leftover at the end of the month, it’s going to be very difficult to start paying off your debt without getting even further into your overdraft – which ultimately is another form of debt. Plus, being in the red every month is pretty soul destroying. Maybe you could use some of your savings to clear your overdraft? You could probably get a car that is more reliable than the one you have now for £2K?
After you’ve cleared your overdraft, then you’ll be in a much better position (both mentally and financially) to pay off your credit cards and loans. To do both of these things, yes you’ll need extra money but also some willpower to see the process through too.
You haven’t said how much your income or expenditure is each month, so without knowing exactly what goes in and out of your account, I can’t identify any particular areas for savings. However, with that said, if you haven’t already done this, you should make a list of your outgoings and see where you can cut back and then work to a strict budget going forwards.
It sounds like you’re surviving each month which is the main thing. If you’re trying to clear debt, you’ll need to be pretty harsh with reining in your spending. The most important items to spend money on each month are your bills of course and food. You might be able to cut back on food shopping by planning your meals, cooking in bulk and buying items that are on offer. Here are a few quick tips that I used when I was trying to save money like there was no tomorrow:
- Buy food shopping with loose change, coupons or vouchers.
- Use own label products wherever possible.
- Partake in free activities and get friends round for a night in rather than a night out.
- Make your own takeaways.
- Cancel Sky or Virgin packages if you have one and get Netflix instead for £6 per month.
There are lots of ways you could make some extra money and one easy way is to see if you can get a part-time job or overtime at work to begin with. You could offer help to friends with gardening, decorating or even party planning in return for cash. You could sell your stuff (car boot season is now upon us here in the UK), do freelance writing, tutoring and much more.
If you don’t want to use your savings to clear your overdraft, try to set yourself some small targets for getting your overdraft paid off. You said that you often end up £1000 overdrawn each month. So try to reduce your overdraft to £900 next month by cutting back and making some extra cash to help increase your income. You might just be able to reduce your overdraft by more than £100 each month and then you’ll be out of it in no time!
Once your overdraft is paid off, I’d then tackle the debts (this is exactly what we did by the way!). I don’t know the interest rates for your debts but either way, I would concentrate on the overdraft first. Afterwards you could pay off the debt with the highest interest rate first or take the smallest debt and clear that one (the snowball method).
Would you agree that Claire should tackle her overdraft first? What advice would you have for Claire to help her get out of debt?
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8 Comments
The overdraft is one of the big debts that is one of the most annoying as it’s really tough to get interest frozen on it, meaning you end up paying a huge amount on interest and charges at the end of each month.
Clearing the overdraft will free up those interest payments to go towards clearing other debt or saving for that car, but it all really depends on how much interest she is paying on her other debts.
It’s probably best if Claire conacts the great people over at http://www.stepchange.org/ and they can talk her through what’s best for her own circumstances.
Naomi @ The Skint Dad Blog recently posted…Microwave Chocolate Mug Cake Recipe
Thanks Naomi – I know what you mean about the interest payments, they can really add up the more you use an overdraft. I should have mentioned I let Claire know about StepChange and National Debtline in my original reply to her just in case she wanted to contact them. Am I right in thinking StepChange helped you and Ricky out with your debts?
Just a thought. But it might help if you set up a new bank account somewhere else that doesn’t have an overdraft. Then get all your bills and your wages paid into that account. Once that is done, you can start putting any spare income you’ve got into your old current account to gradually pay down the overdraft. That way you don’t get any further into debt, will gradually pay it off and not spend any of the money that you’ve made progress with.
Jenny, I really like this idea, thank you for contributing! By getting a new account without an overdraft and leaving the old one behind, Claire will be able to see where her money is going much more clearly (as it won’t be getting sucked into the overdraft straightaway) and then she could transfer any money she has left into the old account to start paying off her overdraft as you say.
This is a great idea!
Kayla @ Shoeaholicnomore recently posted…Online Income: March 2015
Thanks Kayla! 🙂
Hi Hayley,
Although Claire was asking how to find more money, I think you are right to focus on her savings and the overdraft first. Overdrafts can be one of the most difficult to debts to clear as they tend to creep back up again – I have looked at this problem here http://debtcamel.co.uk/overdraft/..
Sara @ Debt Camel recently posted…More payday refunds – should you get one?
Thanks Sara! I couldn’t think straight when I was living in my overdraft. That was the first debt we cleared and it was very refreshing to be back in the black!