Advice needed!

Billy74

Hi all,

Bit of advice needed pls! My partner and I are looking to pay off our cards and car loans, by way of either a fairly large low interest 5-year loan, small remortgage, or both. We will be selling our cars and buying one cheaper car between us, and using the cash from the sales to pay off some cards/loans instantly.
We started a business last year and whilst the business is paying for itself, we have accrued around £20k each on cars, credit cards and overdrafts.

We've worked out that with a loan we can be around £400 better off by consolidating our debts into a low interest loan, however a bit of advice is needed!

1 - Is this a good way to clear debt? Paying less interest in a fixed monthly sum, freeing up cash and ensuring it gets paid off more quickly?

2 - When banks etc ask what you are going to use the loan for, is it a good idea to tell them it's for clearing debt?

Thanks in advance!

stebiz

Billy74, the truth is it all sounds good. In practice however people still keep their cards etc and in 12 months end up with a secured loan and have run their cards up again. Will you fall into that cateogory? The truth is many people sadly did and a manageable 20k loan became an un-manageable 40k loan.

If you do go along that route (and most would advice against it) then rip your cards up.

Stebiz

GeorgeUK

Billy - have you looked at other methods of dealing with the card debt?

Consolidation, unless it is a very good interest rate, is rarely advised on this board and turning unsecured debt into secured debt, unless you are in sever financial trouble is also not advised.

Do you have late payments or defaults? If not, have you looked at the possibility of getting some 0% balance transfer promotions on new credit cards? eg Virgin money?

If you post up a statement of affairs we may also be able to advise on ways to make savings from your current expenditure.
http://www.makesenseofcards.com/soacalc.html

GettingThingsDone

Hi Billy - welcome to DFW.

As stebiz says, many people here have tried consolidation loans to resolve their situation, only to find themselves further in debt. Quite a number have been through the cycle a number of times.

If you are very disciplined then consolidation can work, but check out the snowballer first... http://www.whatsthecost.com/snowball.aspx

gtd

Billy74

Cheers all, here's a breakdown of our debt as it stands:

Me:
Car Loan: £4,000 (car value approx £7,500)
Card 1: £8,500
Card 2: £4,000
Card 3 (long-term low interest): £3,000
Total monthly payments on the above approx £550

Partner:
Car Loan: £5,500 (car value approx £9,500)
Unsecured Loan: £2,000
Card 1: £4,000
Card 2: £2,000
Card 3: £4,000
Card 4 (long-term low interest): £1,000
Store Accounts: £1,300
Total monthly payments on the above approx £550

We also have a £85,000 mortgage - I pay the repayments.

Must admit I was reluctant to go down the old credit card 0% route again as it doesn't seem to have worked in the past. We were hoping to pay off what we could with the equity on our cars, and then consolidate the majority of the remainder into a loan of approx £10k each over 5 years, paying around £200-250 per month each. The long-term low interest cards we don't mind as they are paying themselves off fairly quickly.

The cards would be chopped (neither of us particularly wanted them, but buying our first house and then starting a business has meant a LOT of outgoings over the last 2-3 years) and a return to the old method of 'if you can't pay cash, don't buy it'.

The other question I had wondered about - when applying for a loan or remortgaging, is it a good idea to tell the lender you're using the funds to pay off debt? Do they see this as good intent or the fact you have debt as a risk?

Horace

Hi Billy and welcome

Firstly don't consolidate as it will take for ever to pay it off. As someone else has suggested please post your full SOA including APRs for credit cards etc. You never know, the nice peeps on here may be able to help you save money or cut down on overspending thus freeing up money to chuck at the debts.