Debt free in 11 months using loan? Advice please!

stradam

Hi All,

My aim for 2010 is to get debt free. I am down to 10,000 now and hopefully will get rid of this in the next 11 months and would like some advice on how to do it please. Here is my debt:

Loan 1 £1630.02 7.9% and last payment is Aug this year
Loan 2 2666.64 11.9% last payment Aug 2011
Card 1 3650
Card 2 1573

Total 9519.66

Both the cards are out of offer period so high interest on those and the fee to get out of each load is pretty small, I think 1 month’s interest.

I have now been accepted for a new loan of 10,000 from Santander at 13.9% over 3 years. What I am thinking of doing is paying off everything with this one loan, then paying the £380 a month by dd. The rest of the money that I have left each month (between 300 and 800) I will put in a high interest savings account then pay the loan off as soon as I can.

I can’t be bothered to card tart anymore and I like the idea of 1 payment. I also like the idea of having some savings in case of any big problems. Since this new loan isn’t front loading interest and they will only charge me 1 months interest to pay it off early, I think what I am thinking of doing is a good idea although I am no expert and this is the reason I am here, to see if anyone can see any massive holes.

I have 2 questions,

Given the info above, is this a good idea? (I don’t think I will get accepted for any more cards so tarting isn’t really for me)

Can I pay large chunks of the loan off early in order to make the interest that is charged smaller or does it have to be all or nothing in terms of paying it off early?

Many thanks for your help in advance!

Adam

Auntyem

Hi Adam,

I'm defo not an expert but I have spent a lot of time looking at loans this week, so I think I can answer question 2. I don't think you will be able to pay off chunks as all of the products I have looked at do not allow overpayments - but I would urge you to check the T&Cs of the product you are looking at or give them a call just to be safe.

So you would have to build up the full amount in savings before you could settle.

savingmummy

I dont like the idea of using debt to clear debts, BUT it is up to you and if you feel it is right for you then go ahead!

The way you have written planned it, it sounds reasonably good though.

Some loans have set monthly repayments and i`m not sure you benefit from over paying on a loan due to the apr`s.

stradam

Thanks for both of your replies. I didn't think that overpaying would be likely. That's not too much of a problem though. The main reason I wanted to over pay was to stop me from spending the money that I have saved.

As for paying debt off with debt, well yes in an ideal world I would just whip out 10k and pay off my debt but as I can't do that, then minimising the interest that I will be paying is what it's all about right? Like credit card tarting, that’s paying debt off with debt whilst getting the lowest interest rates!

DarkConvict

It would be better to get a £10000 loan but over 12 months so you pay less in interest.

Note loans often have early repayment fees!

Use the snowballing calculator - http://www.whatsthecost.com/snowball.aspx

Roughly £10000 at 13.9%, paying back £350 a month takes 35 months (nearly 3 years) Total Interest - £2,050.00


By using your current debt.

Loan 1 £1630.02 7.9%
Loan 2 2666.64 11.9%
Card 1 3650 est. 25%
Card 2 1573 est 25%

Repaying back £150 to each creditor (£600 a month)

Total interest is £1,366.00, and you pay back in 19 months. That is 1/2 the time of taking out a loan.


If you really want to swap round, i would just take out a loan for the cards ~£5000 and have the loan for 1-2 years.

savingmummy

I think you need to do as darkconvict has said.
Loans sound good but there are easier ways.

My hubby took out a loan to pay a debt and now we are ten times worse off

Goodluck x

kindofagilr

Just thought I'd add, OH has a LLoyds loan and we can overpay on it.

DVardysShadow

stradam wrote: »

Hi All,

My aim for 2010 is to get debt free. I am down to 10,000 now and hopefully will get rid of this in the next 11 months and would like some advice on how to do it please. Here is my debt:

Loan 1 £1630.02 7.9% and last payment is Aug this year
Loan 2 2666.64 11.9% last payment Aug 2011
Card 1 3650
Card 2 1573

Total 9519.66

Both the cards are out of offer period so high interest on those and the fee to get out of each load is pretty small, I think 1 month’s interest.

I have now been accepted for a new loan of 10,000 from Santander at 13.9% over 3 years. What I am thinking of doing is paying off everything with this one loan, then paying the £380 a month by dd. The rest of the money that I have left each month (between 300 and 800) I will put in a high interest savings account then pay the loan off as soon as I can.

I can’t be bothered to card tart anymore and I like the idea of 1 payment. I also like the idea of having some savings in case of any big problems. Since this new loan isn’t front loading interest and they will only charge me 1 months interest to pay it off early, I think what I am thinking of doing is a good idea although I am no expert and this is the reason I am here, to see if anyone can see any massive holes.

I have 2 questions,

Given the info above, is this a good idea? (I don’t think I will get accepted for any more cards so tarting isn’t really for me)

Can I pay large chunks of the loan off early in order to make the interest that is charged smaller or does it have to be all or nothing in terms of paying it off early?

Many thanks for your help in advance!

Adam

This is not a good plan at all. It is crazy.

You will probably pay a penalty on Loan 1 to get rid of credit at 7.9% which you will pay off in 6 months anyway and you are taking on credit at 13.9% which will take you 3 years to pay off, You would be better off to leave it where it is and concentrate on your other debts.

Similarly the loan at 11.9%.

And similarly the credit cards if they are charging less than 13.9% - but if it is more, then it could make sense to refinance them with a loan, as DarkConvict says.

The idea of 'having savings' while you have debt is self deception. All you are doing is paying Santander 13.9% to have savings which will get you 2% if you are lucky. Take note of what savingmummy says about paying off debt with a loan.