Is a personal loan the answer?

cybergirl2

Hi All,

I need some advice!

Basically my partner and I both have debts (which are currently managable), however we are due to have a baby early next year so I'm looking at ways to reduce our out-goings.

My partner currently has a loan with Welcome Finance :mad:(no comment!) which he has £1800 left to pay. He pays £195 per month - which will be for eternity I think.

I have a £1000 overdraft and £6000 on 2 credit cards (balance transfer rate which is due to end later this year). I pay £177 at least per month, but usually try and pay more.

What I am thinking of doing is taking out a Nationwide personal loan of £9000 to pay off both our debts at £180.09 for 5 years at 7.7%. Thus reducing our monthly outgoings and hopefully getting rid of that awful company Welcome Finance. The only flaw I can see would be 2 months interest if we pay back early (which ideally I would like to think we would be able to do, but who knows kids are expensive!).

Does this sound like a good idea? Or am I missing something!? My aim is to pay off our debts, without getting into more problems whilst our earnings are cut due to maternity leave.

Any advice would be much appreciated.
Thank you

Jesthar

Hi, cybergirl, and welcome!

The usual wisdom around here is that consoldation loans are often no the answer to debt problems, as unless spending habits are changed it is very easy to simply relax and run up yet more debt.

However, it is always difficult to give specific advice witthout knowing your full circumstances, so would it be possible for you to do a Statement of Affairs (SoA) for us? This is a sort of comprehensive summary of your current financial position, and gives us an idea of where you are and where you could make some savings. You can find our favurite online too for doing this here:

http://www.makesenseofcards.com/soacalc.html

If you use the 'MSE' button in the format section, it will produce a version you can copy and paste straight into a new post here.

~Jes

BeautyandtheBeast_3

Hi there!

I understand why you would want to take out the loan and i know that general opinon of consolidation loans on here is NO. But it may work for you as long as you got rid of the Cards?

My Signature is the result of consolidation loans and me being an ostrich! just think very carefully xxx

cybergirl2

Hi,
Thank you both for the replies.
I will do a SOA, but in the mean time our out goings have been drastically cut. (It's amazing how much you save not being able to drink!;))

If I got the loan then there would be no credit cards ever again! I'm aware of the spiral that can happen. But I'm also aware of how I came about the debts (divorce and unable to pay for the my house alone a major factor), so I'm hoping this is a turning point.

The problem with the credit cards and owing to different people is that the monthly payments are greater. After 6 months I need to be living off just my partners salary which is do-able if we have £180 out going on debt, its not so great if thats nearer £400 as it is now!
The other issue is if we do nothing with his Welcome Finance loan then he will be paying that off for years and years which infuriates me! :mad:

I was thinking that it would be better to take the loan out (if accepted) and in addition save as much as possible in the next 6 months so that our debts would have been consolidated and we would have enough cash saved (2k is my aim) for the initial things a baby needs rather say taking a £7000 loan, using the 2K to pay off the remaining debt than paying by credit cards for all the things we need!!

I just don't want to make the wrong decision!
Many thanks

fatbelly

If the answer is a consolidation loan I'd want to look more carefully at the question...

If your credit rating is good enough for a personal loan then it's probably good enough for 0% balance transfers and a 0% overdraft

cybergirl2

Thanks for the reply.
I can get 0% balance transfers (I have 2 now) however I can't get the debt on just one card, so the monthly payments work out too high... plus there is the issue of my partners loan, that I wouldn't be able to add.
If there wasn't an issue with my future earnings taking a hit then I'd stick with 0% for sure.
My bank doesn't offer 0% over draft, but I'll look into that further
Thank you

Jesthar

Hmmm, could you transfer part of your debt to one 0% CC (the longest term you can get) and take out a smaller loan? Just a thought

Good to hear you've been taking control already, though; it means a loan may be a viable option for you mind-set wise. I look forward to seeing your SoA!

If you do go down the loan route, shop around - if you can get one with a slightly higher interest rate, but which lets you overpay on the loan without penalty up to a certain point (for example, I can do this on my mortgage up to £500 a month), then providing you overpay you could wekk be better off. No idea if you can get that kind of loan (never had one!), but if you can...

Oh, and watch out for things like 'front loaded' interest (where they add all the interest at the start of the loan so overpaying doesn't reduce the amount you actually repay) and PPI you don't need...

~Jes

Hippocampus

ANy interest rate has to be infinitely better than Welcome's rate.

Caz3121

Another thing to be aware of is the 7.7% is "typical" but not necessarily what you will be offered (you may get accepted but at a higher rate)

cybergirl2

Hi

My SOA - Please bare in mind this is only for the next 6 months as my earning will be drastically cut! And child expenses will increase. I haven't included any luxuries in my SOA its just the items that are less negotiable!
Also you will notice extra insurances (income protection etc) which I will cancel and therefore save a bit more:

Statement of Affairs and Personal Balance Sheet

Household Information[/b]
Number of adults in household........... 2
Number of children in household......... 0
Number of cars owned....................

Monthly Income Details
Monthly income after tax................ 1200
Partners monthly income after tax....... 2100
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 3300

Monthly Expense Details
Mortgage................................ 541
Secured/HP loan repayments.............. 164
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 98
Electricity............................. 38.25
Gas..................................... 38.25
Oil..................................... 0
Water rates............................. 31.92
Telephone (land line)................... 10
Mobile phone............................ 10
TV Licence.............................. 12.01
Satellite/Cable TV...................... 22
Internet Services....................... 5
Groceries etc. ......................... 200
Clothing................................ 0
Petrol/diesel........................... 120
Road tax................................ 12.5
Car Insurance........................... 33.3
Car maintenance (including MOT)......... 25
Car parking............................. 0
Other travel............................ 200
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 17.29
Pet insurance/vet bills................. 0
Buildings insurance..................... 15
Contents insurance...................... 15
Life assurance ......................... 29.1
Other insurance......................... 45.85
Presents (birthday, christmas etc)...... 0
Haircuts................................ 0
Entertainment........................... 0
Holiday................................. 0
Emergency fund.......................... 50
Total monthly expenses.................. 1733.47


Assets
Cash.................................... 1000
House value (Gross)..................... 115000
Shares and bonds........................ 0
Car(s).................................. 1
Other assets............................ 0
Total Assets............................ 116001


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 98000....(541)......5
Hire Purchase (HP) debt ...... 4000.....(164)......0
Total secured & HP debts...... 102000....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Capital One....................3258......100.......6.9
Natwest........................1400......35........7.9
EGG............................1111......27........7.9
Partners WF Loan...............1800......194.......50
Over Draft.....................1200......0.........17.9
Total unsecured debts..........8769......356.......-


Monthly Budget Summary
Total monthly income.................... 3,300
Expenses (including HP & secured debts). 1,733.47
Available for debt repayments........... 1,566.53
Monthly UNsecured debt repayments....... 356
Amount left after debt repayments....... 1,210.53

Personal Balance Sheet Summary
Total assets (things you own)........... 116,001
Total HP & Secured debt................. -102,000
Total Unsecured debt.................... -8,769
Net Assets.............................. 9,232

Jesthar

Whoba - hon, you do realise that *if* you only spent what you have put in this statement, you could be rid of all your debts within 7 months anyway?

I know things are going to change, but if you stick to that budget you don't really have a reason to NEED a loan until perhaps just before you finish work to have your baby! You could pay off your overdraft in one month, for example, and there goes a shedload of interest too.

Heck, you could save up and pay off the WF loan in two months flat!

I suspect you need to do a spending diary - go over all your bills for the last few months and see where your money has been slipping away. There are a few areas on your SoA where you could make some savings, but to be honest, if you are disciplined and stick to that budget (keep the spending diary going so you don't waste money), you won't need a lona by the time your baby arrives.

If, on the other hand, you know you probably can't stick to this budget, you need to do another SoA and include the 'luxuries' too. Ideally you'll take on the challenge of the above SoA, of course, but it's much better to be honest with yourselves from the start. However, either way you could at least save up and pay off the WF loan before Christmas, leaving you with less monthly payments than your proposed loan.

*hugs* Hope that dodn't come across as harsh, isn't meant to be, but you are in a fabulous position to make massive progress, and it'd be a shame to waste it!

~Jes