Should I consolidate my debts with a loan?

teddypicker

Hello,

Firstly, thankyou for taking the time to read this. I'm not sure whether this is the right place for it, or the debt-free wannabe forum but here goes!

I've got myself into a bit of trouble with debt, its nothing compared to many peoples, but I want to get out of it so as not to continue this way.

Basically, not long after turning 18, I got a new job, and couldnt afford the fuel to get to work and back, as I had been out of work for several months. So I called the bank, and explained my situation, and requested a small overdraft (£100), which I got. They also offered me a credit card, with a limit of £700. This is where it all went wrong, I wanted a new laptop, which just happened to cost £699, so yes, I accepted their offer, got the card, and went and bought my laptop. I paid that off over a few months, then gradually built the balance up again, to £600. My grandad kindly bailed me out and payed off that £600 so I owe him £600 now.

Being stupid, I've built it up again and now owe my credit card company (NatWest) near enough £700 again.

Also I bought myself a new guitar for christmas, which I shouldnt have done, and overspent in december anyway. Then last week, I lost control whilst driving (due to icy conditions) and thats cost me just over £500 to sort out.

Now, I've worked out how much I'm going to spend, solely on getting to work and back, and my direct debits for mobile phone contracts, and I'm going to be £700 overdrawn come the end of the month when I get paid.

So all in all I'm in complete debt of £2000. My overdraft (£700) has an EAR of 19.24%, credit card (£700) has APR of 19.9%. And I owe my Grandad £600.

I'm thinking of consolidating these debts with a loan. NatWest are offering a loan of £2000 for one year, with typical APR of 21.4%, meaning I pay a total of £2218.44 back to them.

I am only 19 so many lenders will not lend to me. I can afford to pay up £200 a month back.

Do you think this is a good idea? And does that interest rate sound competitive as I dont really know much about loans to be honest.

I know its my fault for getting into this debt anyway which is the most annoying thing!

Thanks again for reading my life story! Sorry if it bored you a little, but any help/advice would be greatly appreciated

Matt

[Deleted User]

whilst the apr is high it might be the best you will get for this amount at your age,providing you cut the credit card into bits after paying it off with the loan then its perhaps a good idea,pay the bank loan off over 12 months keep your spending to a minimum and you should be all straight by this time next year and lessons learned...good luck

epsilondraconis

Although the loan through your bank is probably the best option. Another option to consider is that you get another credit card on a 0% balance deal and transfer some of your debt onto that.

http://www.moneysavingexpert.com/cards/balance-transfer-credit-cards

A couple of warnings though -

1. You may not be able to get additional due to your age etc.
2. If you apply for other credit products and are rejected, this will have a negative effect on your credit rating in the short term.

At your age, apporaching your bank is definitely the best option.

As Woodbine has said, please ensure you cut up your credit cards or perhaps give them to someone you trust so you wont be tempted to use them unnecessarily.

Good luck.

teddypicker

I've certainly learned my lesson with spending on the credit card. May keep it at home in case of emergencies but certainly wont be spending on it just because I've run out of money one month and really want something! But could come in handy if anything happens with my car or anything. Once I've paid it off with the loan, if I do spend on it again, it will get paid off in full when the statement comes as I wont want to get into this situation again!

The APR is quite high from what I've seen but could that possibly be because its not a very large amount, and its quite short term and they want to make their money on it?

teddypicker

epsilondraconis wrote: »

As Woodbine has said, please ensure you cut up your credit cards or perhaps give them to someone you trust so you wont be tempted to use them unnecessarily.

I was thinking of maybe giving it to my parents to put in their safe, and tell them to only give it to me if I really need it (if something goes wrong on my car or something). Think that would be more sensible than just leaving it in my drawer.

teddypicker

Oh just a quick question. The rate of 21.4% is on the website, would there be any difference in the rate if I go into my branch?

epsilondraconis

teddypicker wrote: »

The APR is quite high from what I've seen but could that possibly be because its not a very large amount, and its quite short term and they want to make their money on it?

The APR is likely to be because of a number of factors: small amount, short term, your circumstances (age etc) and the fact that the banks aren't lending a lot of money to people due to the financial climate.

If you read these forums you'll see a lot of people get into a lot of debt through one reason or another. Your debt is still relatively small and manageable - even on a modest budget.

The fact that you came on these boards asking for advice and not burying your head in the sand shows that you've got your head screwed on. Good luck anyway...

epsilondraconis

teddypicker wrote: »

Oh just a quick question. The rate of 21.4% is on the website, would there be any difference in the rate if I go into my branch?

I've just had a look on the Natwest website. The 21.4% APR it quotes is the 'typical APR'. This means that only 66% of the people applying need to be given this rate. If your credit rating isn't great, you are likely to get charged a higher APR.

In your case that doesn't definitely mean you will be charged a high rate, its just that due to your circumstances, you may be classed as a higher risk.

The following link may be of interest:

http://www.moneysavingexpert.com/loans/cheap-personal-loans

teddypicker

Thankyou epsilondraconis (that took some brainwork to type). I thought I would get some advice from people with more knowledge than me before just going for something without knowing my options and whats best for me.

And ah... well hopefully i get 21.4%, as when I got the credit card from them, it was 19.9% typical APR and thats what I got!

Will there be any difference in rates in branch compared to online do you know?

poorandindenial

There is a golden rule that says you shouldn'tconsolidate debts because you run the risk of racking them back up, and I don't want to sound to harsh but you have previous on that......

If you look at my signature you can see how bad I let things get, I thought that consolidation was the way forwards at £8k......

Both of your non-grandad debts have a lower APR than the loan so if you consolidate you will pay more. Is £200 the absolute maximumyou can afford to pay?

If you pay £200 a month at the debts you will see them go down irrespective of which you throw them at because youare paying less interest than this (£23ish initially, dropping fast as you pay the money back)

Try the snowball calculator at https://www.whatsthecost.com and see what the various options will cost you. If you want to pay your grandad back sooner rather than later put his repayment in as a non-flexible set amount otherwise it will pay him last because there isn't any interest accruing there. The snowball calculator will tell you when you will be debt free if you repay on your existing agreement and you can put in the loan you are considering to see the difference with that too.

Good luck getting sorted, you might want to pop over to the debt free wannabee forum for more hints and tips on clearing the debt - they are a friendly bunch.

teddypicker

Thanks for the advice and information poorandindenial. I would like to pay my Grandad back as quickly as I possibly can, but obviously the longer im paying the minimum payment on my credit card, and not paying off my overdraft, they're both going to be gaining interest.

Also, how do I work out how the payments would be split between the two debts (non-grandad) to be paid off in full in 12 months time, as the loan would be