High credit utilization, some high interest - but credit score not overly bad. How to attack debt in this situation?
You need to pay off the entire balance of 7450 as soon as possible. This should be your primary financial goal at this point above anything else. A basic structure that you can follow is this: Is the £1500 balance with the 39.9% interest rate the obvious starting point here? Yes, that is fine. But all the cards and overdraft debts need to be treated with the same urgency! What are the prospects for improving my credit score in say the next 6-12 months enough to get a 0% balance transfer or loan for consolidation? This should not be a primary concern of yours if you want to move on with your financial life. Debt consolidation will not help you achieve the goals you have described (home ownership, financial stability). If you follow the advice here, by the time you get to the point of being eligible, you may not see enough savings in interest to make it worth the hassle. Focus on the hard stuff and pay off the balances. Is that realistic, or am I looking at a longer term struggle? You are looking at a significant struggle. If it was easy you would not be asking this question! The length of time will be determined by your choices: how aggressively you will cut your lifestyle, take on extra jobs, and place additional payments on your debt.  By being that extreme, you will actually start to see progress, which will be encouraging. If you go in half-committed, your progress will show as much and it will be demotivating. Much of your success will hinge on your mental and emotional toughness to push through the hard work of delaying pleasure and paying off these balances. That is just my personal experience, so you can take it or leave it. :) The credit score will take care of itself if you follow this method, so don't worry about it. Good Luck! The bottom line is you have an income problem.  Your car payment seems very high relative to your income and your income is very low relative to your debt.  Can you work extra jobs or start a small business to get that income up?   In the US it would be fairly easy to work some part time jobs to get that income up about 1000 per month.  With that kind of difference you could have this all knocked out (except for the car) in about a year.  Then, six months later you could be done with your car. Most of the credit repair places are ripoffs in the US and I suspect it is similar around the world. While paying off your debt quickly is obviously desirable it is simply not going to be possible. Even with tight budgeting I think you will struggle to put more than £500 or so per month towards your debt. I would keep trying to move the highest interest debt onto something cheaper, be it a loan, a balance transfer credit card ( http://www.moneysavingexpert.com/credit-cards/balance-transfer-credit-cards#nofees ) etc.  It is also worth looking at your current credit cards more carefully. Sometimes you may be able to get a balance transfer deal on an existing card by talking to the card issuer, then shuffle your debt around to take advantage of it ( http://www.moneysavingexpert.com/credit-cards/cut-credit-card-interest ) Some think it's taboo but in your position I would also be seriously considering if you have any friends and family who can lend you money at a less crippling interest rate.
In addition to the advice already given (particularly getting rid of high-interest debt), I would add the following: "There are other good answers to the general point that the essence of what you're describing exists already, but I'd like to point out a separate flaw in your logic: Why add more complications so that ""should I call this principal or interest"" actually makes a difference? Why's the point (incentive) for this? The incentive is that using excess payments to credit payments due in the future rather than applying it to outstanding principal is more lucrative for the lender. Since it's more lucrative and there's no law against it most (all) lenders use it as the default setting." K, welcome to Money.SE.  You knew enough to add good tags to the question. Now, you should search on the dozens of questions with those tags to understand (in less than an hour) far more than that banker knows about credit and credit scores.  My advice is first, never miss a payment. Ever. The advice your father passed on to you is nonsense, plain and simple. I'm just a few chapters shy of being able to write a book about the incorrect advice I'd heard bank people give their customers. The second bit of advice is that you don't need to pay interest to have credit cards show good payment history. i.e. if you choose to use credit cards, use them for the convenience, cash/rebates, tracking, and guarantees they can offer. Pay in full each bill.  Last - use a free service, first, AnnualCreditReport.com to get a copy of your credit report, and then a service like Credit Karma for a simulated FICO score and advice on how to improve it. As member @Agop has commented, Discover (not just for cardholders) offers a look at your actual score, as do a number of other credit cards for members.  (By the way, I wouldn't be inclined to discuss this with dad. Most people take offense that you'd believe strangers more than them. Most of the answers here are well documented with links to IRS, etc, and if not, quickly peer-reviewed. When I make a mistake, a top-rated member will correct me within a day, if not just minutes) In this example you are providing 4x more collateral than you are borrowing.  Credit score shouldn't matter, regardless of how risky a borrower you are.  Sure it costs time and money to go to auction, but this can be factored into your interest rate / fees. I don't see how the bank can lose. "Unless you have a history of over-using credit (i.e. you've gotten yourself into debt trouble), then I think that the banker is giving you bad advice in telling you to get your own credit limit reduced.  Having more credit available to you that is left unused will make your utilization ratio lower, which is generally better for your credit score, according to this article on CreditKarma.com.  The ""sweet spot"" seems to be 1-20% utilization of your total credit.  (But remember, this is only one factor in your credit score, and not even the biggest-- having a long history of on-time payments counts the most.) My own personal experience seems to bear this out.  I have two major credit cards that I use.  One card has a high credit limit (high for me anyway) and I use it for just about everything that I buy-- groceries, gas, durable goods, services, you name it.  The other card has a limit that is about 1/3 of the first, and I use it for a few recurring bills and occasional purchases where they don't take the first card.  I also have a couple of department store cards that I use rather infrequently (typically 1 purchase every 3 months or so).  At the end of each month, when the respective statements post, each card has a balance that is 15% or less of the credit limit on that card.  I pay off the entire balance on each card each month, and the cycle repeats.  I have never been late on a payment, and my credit history for all of these cards goes back 10 years.  My credit score is nearly as high as it can go.  If having unused credit were a detriment, I would expect my score to be much lower. So, no, having ""too much credit available"" is not going to hurt you, unless you are not using it at all, or are tempted to abuse it (use too much).  The key is to use common sense.  Have a small number of cards, keep them active, spend within your means so you can pay off the balance in full after the statement posts, and never be late on your payments.  That's all it takes to have good credit." Close the account.  The age doesn't outweigh the fact that you have to pay for the card.  It would be one thing if the credit line was a couple thousand but showing the credit bureaus that you are staying away from the $425.00 doesn't really make them think you are any more trustworthy with your available credit.  Utilization matters when you are staying away from much larger chunks of your available credit (across all cards). "You really don't know how credit scoring works. Let's think about the purpose of a credit score: to assess whether you're a high default risk. A lender wants to know, in this order: Utilization factors into the solvency assessment. If you are at 100% utilization of your unsecured credit, you're insolvent -- you can't pay your bills. If you are at 0%, you're as solvent as you can be. Most people who use credit cards are somewhere in the middle. When a bank underwrites a large loan like a mortgage or car loan, they use your credit score an application information like income and employment history to figure out what kind of loan you qualify for. Credit cards are called ""revolving"" accounts for a reason -- you're supposed to use them to buy crap and pay your bill in full at the end of the month.  My advice to you:" Well typically you're borrowing a shit ton of money for 30 years so yeah you're paying a lot in interest over that period.   But your situation sounds especially bad, that's over a 10% constant assuming 80% LTV. What are you being quoted, like &gt;9% interest? "good vs ""bad"" debt in the context of that post. At least in the UK this can be a good tactic to reduce the cost of credit card debt. Some things to consider" This works even better when you have a good credit score when you want to arbitrarily inflate it for bragging rights or lowest interest rates, I'm only pointing this out because it has nothing to do with your current score and CK's recommendation. The presence of an installment loans is 10% of your credit score, according to some credit scoring models. So theoretically someone with a solid 720 score could gain 72 points, while someone with a 480 score would only gain 48 points. But the scores are weighted so you wouldn't get that kind out outcome regardless, it will have less of an impact. You can do this, amongst other things, but if that installment loan alters your utilization of credit it will more greatly lower your score, and the hard inquiry to apply for the loan will also temporarily hurt your score and you also might not be approved. These are the things to consider (but fortunately utilization has no history). Yes you can pay the loan off with a monthly payment. The loan's interest will cost slightly more than the monthly payments, by the end of the loan term. I've done this with a 5 year $500 installment loan at a credit union. As others pointed out, you don't have to spend money to raise your credit score (unnecessary interest, in this case), but you certainly can! "If the balance on the low rate loan is very high (say, an IBR student loan at 6% that accumulates interest every year), and the balance on the high rate loan (say, a CC at 18%) is comparatively very small, then you'd want to make sure that you've at least ""stopped the bleeding"" on the high balance loan before starting to pay off the CC." One of the other things you could do to improve your score would be along the lines of what Pete said in his answer, but using the current financial climate to your advantage. I'm not sure what interest rates are available to you in the UK, but I currently have 4 lines of credit aside from my house. One is a credit card I use for every day purchases and like you pay off immediately with every statement. The other three are technically credit cards, however all three were used to make purchases with 0% financing. The one was for a TV I bought that even gave me 5% off if I pay it off within 6 months. That cash has been sitting in my savings since the day I bought it. I'm making regular payments on all three, but not having to pay any interest. My credit score dropped 25 points with the one as it was an elective medical expense (Visian eye surgery), so for the time the balance is near my credit limit. However, that will bounce back up as the balance lowers. My score was also able to take that hit and still be very high. If you don't have 0% (or very close) available, your better bet would be to follow the other suggestions about saving for a sizable down payment, or other every day expenses like a cell phone. Credit Score is rather misleading, each provider of credit uses their own system to decide if they wish to lend to you.   They will also not tell you how the combine all the factoring together. Closing unused account is good, as it reduced the risk of identity theft and you have less paperwork to deal with. It looks good if a company that knows you will agrees to give you more credit, as clearly they think you are a good risk. Having more total credit allowed on account is bad, as you may use it and not be able to pay all your bills. Using all your credit is bad, as it looks like you are not in control. Using a “pay day lender” is VERY bad, as only people that are out of control do so. Credit cards should be used for short term credit paying them off in full most months, but it is OK to take advantage of some interest free credit. "The simple answer is that what you are doing is an incredible waste of time. The normal process is to charge, say, in January, the bill is cut at month end, and due by the 15th of February. No interest accrues. As long as the credit line is sufficient for your monthly spending, that's it.  Now, if you are watching your score closely, utilization might become an issue, if the statement amount is much over 20%, there's an impact to your score. This is easily addressed with a second monthly payment, made just before the bill is cut.  Keep in mind, the phrase ""carrying a balance"" commonly means not paying the bill in full, and letting interest accumulate. I understand you didn't mean that. The way you are paying your account isn't common, and really serves no value." "A drop in credit score of 300 is pretty significant, right?  You describe the cause of this as ""unfortunate circumstances"".  Lets say you observe a mother giving a small child a ball to play with in the median of a busy interstate.  Once the inevitable happens, would you also describe that as ""unfortunate circumstances""?  Because really it is the same thing. You overextended yourself and did not consider risk in the decision to borrow money.  This may sound harsh, but you have proven that you cannot handle credit.  So your solution is to borrow more?  That makes no sense. The best thing you can do for your credit score is to reduce, then eliminate all debt."