Keep thinking one thing then the other...

miniscule_mule

Hi all, I'm after some advice.

I currently owe £12,200 on two credit cards. One of these is an Egg card that they were going to increase the interest rate on. So that one is 'closed' and I'm clearing the balance (slowly) at my old rate. The other is a Lloyds card which I have given to my friend to keep hold of unless I desperately need it for an emergency. I can make slightly above the minimum payments on each of these cards every month. I can't make the payments higher than they are, I just don't have that money.

I had an appointment at the bank on Friday (they hassled me for so long I gave in) and tried to get me to have a loan. Now I know that generally loans are seen as a bad thing because they free up credit cards again, but I have been giving it some thought.

One thing the bank man said was that a loan is seen as a 'better' type of debt than credit cards on credit files. Is this right? I don't think my credit rating is that great at the moment, as I have a lot of credit in relation to my salary...

I did the snowball calculator and if I do that correctly I will clear it by May 2014 and have paid £5,500 in interest. I got a loan quote through the lloyds website and I could get a loan where the payments are slightly less than I currently make, it would be over 4 years, the interest would be under £4,000 and it would maybe improve my credit rating (if he was right when he said that). So I am tempted by the loan option (unless they are just teasing me with that quote!).

I have sat and done a 'proper' budget (but it's on my computer at home) and know that I just lived way beyond my means before. I am putting money aside to pay for things like Christmas and car tax etc already, so that I can get away from relying on the card. I won't benefit a great deal financially per month from taking a loan, it will still be a struggle for me, but I could be free of this debt quicker and more cheaply.

So do I go with the loan or keep plugging away on my own with the cards? Any help/advice gratefully received!

Tixy

I would be careful to see if the loan quote was based on a typical APR. If so
you may find the rate you are offered is substantially higher.

What are the APRs on the 2 card balances? What is the APR given on the loan quote?

I'm not sure about the idea that loans look better on your credit report, I've not heard this before, I suppose the theory is that with a loan you are paying it down over a fixed period but with a credit card the balance could be remaining at the limit constantly.

I would think very carefully before you do take this option - as you are aware consolidation loans are not well liked on here. If you do decide to take out a new loan then you need to cut up the card your friend has and make sure both accounts are properly closed and show as satisfied and closed on your credit file.

The downside with a loan is that you will not be able to make overpayments should your circumstances improve. With a credit card it may be that you could actually pay off the debt quicker than you think which would save you in interest.

Have you filled in a statement of affairs to detail your full financial position? - it may be worth posting it on here as you would be amazed how good people are at spotting areas where you may be able to get services cheaper or where you could cut costs. With maybe 100 people looking at it, there are bound to be some ideas you haven't had yourself. This is itself could free up enough money to greatly reduce the amount of time it will take to clear your cards.

If you haven't completed one at all yet then this is the link to use - http://www.makesenseofcards.com/soacalc.html

DancerSupreme

I have been in this situation before. The downside is with the credit cards cleared it is all too tempting to say "oh I'll stick it on the card this one time". One time turns into two times turns into ten times and before you know it you have a loan and credit cards.

I did this. I have ended up with two loans and at one point had three credit cards. Not good way to start married life I can assure you.

I think you need to think carefully about why you feel consolidating into a loan would be good for you. Have you thought about paying off a chunk of the card and then speaking to one of your card companies to see if you can get a 0% balance transfer to then "consolidate" onto one card. I did this and I have today paid off the last of my credit cards.

I too have never heard of a loan looking better than a credit card on your credit record. To be honest either way having that amount of debt should appear the same on the record - only reason I can think otherwise is as previously said, the steady and regular guaranteed payments.

miniscule_mule

Thank you both for your replies.

Tixy, actually, that quote did indeed seem to be on typical APR. I did get a quote in the bank and the rate was a bit higher (20%), but it all seemed manageable still. I have a friend who works in the bank and she's going to get me some quotes and print off the details for me (the guy on Friday wouldn't give me the printouts). I would apparently be able to make extra payments which would reduce the term of the loan. I have a car loan that finishes in 2 years, so at that point I will have more money that I can use.

The thing about it being 'better' on credit reports - the bank man said that credit cards are seen as short term, loans as mid term and mortgages as long term. He pointed out that you can have a big mortgage and still get credit, but don't have to have heaps on credit cards before it adversely affects your rating. That seemed like a sensible thought process to me.

I will go and sort out my SOA...

Thank you again!

miniscule_mule

Household Information
Number of adults in household........... 3 but the soa is just mine. i live with 2 friends, one of whom is the owner and so sorts everything out
Number of children in household.........
Number of cars owned.................... 1 just mine...

Monthly Income Details
Monthly income after tax................ 1170
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 1170

Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 365 this is all inclusive, hence many blanks below
Management charge (leasehold property).. 0
Council tax............................. 0
Electricity............................. 0
Gas..................................... 0
Oil..................................... 0
Water rates............................. 0
Telephone (land line)................... 0
Mobile phone............................ 35 this is contract
TV Licence.............................. 12
Satellite/Cable TV...................... 0
Internet Services....................... 0
Groceries etc. ......................... 0
Clothing................................ 15 don't buy many, but this is what i agreed with my housemate who helped me sort out my budget
Petrol/diesel........................... 30
Road tax................................ 3
Car Insurance........................... 25
Car maintenance (including MOT)......... 42
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 21 dentist, optician, contact lens solutions and also included toiletries!
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 45 have cut down quite a lot on this and on course to come in way under budget for christmas
Haircuts................................ 3
Entertainment........................... 25 this is 'social' money in my budget...
Holiday................................. 0
Emergency fund.......................... 10
Money for lunch at work etc............. 40 generally take packed lunch from home, housemate thought it would be good to have it listed as 'pocket money'
Gym..................................... 5
Cahoot account.......................... 20 this is a current account i opened that is in its overdraft, am trying to get it to zero so i can close it
Total monthly expenses.................. 695

Assets
Cash.................................... 40
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 4000
Other assets............................ 0
Total Assets............................ 4040

No Secured nor Hire Purchase Debts

Unsecured Debts
Description....................Debt......Monthly...APR
Lloyds cc......................8500......180.......17.9
Egg cc.........................3700......100.......17.9
Car loan.......................3500......177.2.....9.9
Total unsecured debts..........15700.....457.2.....-

Monthly Budget Summary
Total monthly income.................... 1,170
Expenses (including HP & secured debts). 696
Available for debt repayments........... 474
Monthly UNsecured debt repayments....... 457.2
Amount left after debt repayments....... 16.8

Personal Balance Sheet Summary
Total assets (things you own)........... 4,040
Total HP & Secured debt................. -0
Total Unsecured debt.................... -15,700
Net Assets.............................. -11,660

Created using the SOA calculator at www.makesenseofcards.com.
Reproduced on Moneysavingexpert with permission, using IE browser.


These figures are from a budget which I sat and did with my accountant housemate. I need to be better at sticking to a budget, so this is what I'm working towards...

Thanks.

Tixy

If you are talking about a loan that is higher (or even nearly as high) as you CCs APRS then to be honest I would stay well away.

If you do decide to do it be really careful to read the details that say overpayments are allowed, often they are not or mean only full redemption is allowed. If the interest is front loaded (all added on at the start of the loan) then again stay well away.

Your budget looks quite sensible, your cahoot overdraft should really be listed as a debt, not in expenses.

Only issue is you seem to have no groceries/food costs included? Is this really right, does your friend/landlord buy your food as part of your rent budget?

If you find you are struggling and don't have the money you have predicted then it may be worth doing a spending diary where you write down everything you spend for a couple of months, either note it down in notebook as you go or get receipts for everything and then enter them onto your budget spreadsheet each week (if you go the receipts option make sure you always get a reciept even if just for a chocolate bar or newspaper).

Good luck

miniscule_mule

Thanks Tixy.

I will get hold of more information and give it some proper, serious thought.

Re my SOA - yes, all food is included in my rent payment. I know I am incredibly lucky with my new living arrangement. Most of my debt was run up from moving out of home long before I could actually afford it and being naive. I ended up using cards for all kinds of everyday things and it just got worse. Moved out 7 months ago and decided it was time to try and sort this out. And here I am!

Thank you for taking the time to read and advise.