Quickest way out of debt??

debsley_pig

Hi everyone

I just wanted some advice on the quickest way to get out of debt. I am now 3 months pregnant and want to get sorted out as soon as.

My husband and I have rather a lot of debt between us. :eek:

We have a consolidation loan of £24,000, but I am just about to re-mortgage and get this put onto the mortgage at a much lower interest rate which will also be fixed for 5 years.

We have a few credit cards, one for £4.5K (5% APR), one for £2.5K (5% APR) and one for £2K (10% APR). I also have two student loans I am paying at a total of £100 per month, but I will get these deferred once I am on maternity leave.

Is it best to target the smallest debt first or the highest interest?

Thanks in advance

Maz6

Hi

It's generally best to traget the highest interest first.

This link should be quite useful for you.

Good luck
http://www.whatsthecost.co.uk/snowball.aspx

tattooed_lady

Hiya!

Firstly, congrats on the pregnancy and I hope you are well :beer:

Secondly, is the loan you are about to add to your mortgage secured or unsecured? If it is unsecured it is not a good idea to add it to your mortgage and make it secured as you could risk losing your home if you default and also the total amount you will pay back over the term of the mortgage may well be much more than you would have borrowed initially.

Is your credit rating good? If so you could apply for a 0% card to put your other card balances on to.

I'm sure others will be along to offer some advice soon!

debsley_pig

Thanks for your kind words.

The big loan is secured so it is bascially a mortgage anyway. It is at a very high interest rate (9.7%) and is only fixed until 2008. I therefore thought it best to re-mortgage to a lower rate.

I might have to try a 0% card.

Thanks.

tattooed_lady

debsley_pig wrote:

Thanks for your kind words.

The big loan is secured so it is bascially a mortgage anyway. It is at a very high interest rate (9.7%) and is only fixed until 2008. I therefore thought it best to re-mortgage to a lower rate.

I might have to try a 0% card.

Thanks.

Oh, that makes sense then. Good luck

black-saturn

If you could give us a list of your expenditure and incomings we could advise you where to cut down.

Magentasue

Putting an unsecured loan on to your mortgage is usually advised against here. However, if that's what you're doing, as said above you should pay minimum payments on all of your debts except the one with the highest APR - you should pay as much as you can off that. When it's paid off, whatever you had been paying off that debt gets addes to the payment on the next highest, that's snowballing.

The other thing you need to do is cut your outgoings (bye, bye mobiles, Sky etc.) and people here would be happy to help you. Basically we (most of us have been there) have to accept that we have been spending what we don't have and change our lifestyle. Otherwise you end up taking out more credit to maintain your lifestyle while paying off your debts. So yes, sort your repayments out and pay as little interest as you can but changes need to be more far-reaching. Good luck!

debsley_pig

As I said above, it is a secured loan that I am putting on the mortgage, not unsecured.

Yes, I will start concentrating on getting the highest APR card paid off and then moving on to the next one.

I am at work now so can't list my outgoings, but I have been looking at each one recently and cutting back each one as much as I can.

I don't have such luxuries as Sky etc.

Thanks for the advice.

Thefunkygibbons

Whilst the loan is secured, putting it on the mortgage could cost more

Paying a lower rate but for a longer period (i.e. 25 years) means paying more in the long run.

A better plan would be to try 0% cards, and then for the debt that goes on the mortgage, ensure that you have flexibility to make overpayments and throw the interest saved and any other money at making overpayments

Robert_Sterling_3

Ruyareece wrote in an earlier post:-

"If it is unsecured it is not a good idea to add it to your mortgage and make it secured as you could risk losing your home if you default and also the total amount you will pay back over the term of the mortgage may well be much more than you would have borrowed initially. "
......................................................................................................

In general I agree with this advice.

I do not entirely agree with the section which I have now highlighted in blue.
It is advice which often appears in this forum.
The first part of the advice is 100% true.

Your home is at risk if any loan is secured upon it.

However the fact that you replace a short term high interest rate loan by a longer term lower interest rate is not a priori a bad thing.
The fact that for example a 15% loan payable over 5 years is replaced by a 5% loan over 20 years is a priori a good thing.
The total amount of interest paid may be higher.
The monthly installment may become manageable rather than not manageable. Inflation over the 20 year period will work to the advantage of the borrower.

Far be it from me to suggest that in general posters to this forum should convert lunsecured loans to secured loans. However I think the reason for that is the "Your home is at risk" one and not the "over a long term you pay back more than you borrowed" one.

Magentasue

debsley_pig wrote:

As I said above, it is a secured loan that I am putting on the mortgage, not unsecured.

I don't have such luxuries as Sky etc.

Sorry, didn't mean to repeat what was already said but I cross posted.

I know you say you don't have luxuries but the number of cards debts you have PLUS a consolidation loan suggests you are overspending and have been for a while.