Personal loan v Further lending

Philip624

I have debts of £15k in total on overdrafts and credit cards. I have a mortgage with A&L, and am trying to decide between further lending on that or a personal loan to clear the debts. A personal loan from A&L would be 8.9% but if I go for further lending the rate is 4.99%. It seems a no-brainer, especially as my mortgage payments have fallen by nearly £300 since the dip in rates and with the extra lending I would still be paying much less each month than I have been since the dip in rates. I would be looking for a ten year term. Apart from the fact that the debt would now be secured against my property are there any other pitfalls I should be wary of. As I understand it, the interest rate of the further loan will not rise when mortgage rates do. As house prices stand i have around £100k equity in my property.

talana

Philip624 wrote: »

I have debts of £15k in total on overdrafts and credit cards. I have a mortgage with A&L, and am trying to decide between further lending on that or a personal loan to clear the debts.

Well let's be clear to start with. Neither of those options clears the debts, they merely shift them and consolidate them.
For what it's worth, neither consolidating the debt nor shifting unsecured debt to secured debt are good ideas in general.

Why not investigate the 3rd option? Give yourself a financial health check, cut back your monthly outgoings, and look to pay them off quicker and perhaps also shuffle the debt onto cheaper cards?

Rafter

Philip,

As talana says, you you really still want to be paying off overdraft and credit card bills in 10 years time?

You are also putting your home at risk by securing debt against it.

Personally I would take the further advance to minimise the interest cost. I would also set myself a tough budget, savings goal and rip up all but an emergency credit card.

I would then think about what I have spend the £15k on and how quickly I want to challenge myself to repay it. Personally I'd go for 3 years tops - but it all depends on your attitude to debt and of course what you can reasonably afford.

Good luck

R.