Advice needed for a £20,000 debt consolidation loan

crman

Any help gratefully received. My wife and I have £19,700 between us on credit cards and overdrafts that we have built up on our wedding and buying and renovating our house. The APR's on the cards are now going through the roof so we wanted to consolidate it all onto one easy £20,000 loan over 6 years. We have never missed any payments on the cards and have both checked our Equifax and Experian records and we both score excellent on both. The monthly payment on the loan will be approx. £50 a month less than we currently pay on the cards and overdraft fee's. We have just applied for the loan with Tesco finance and were turned down so we then tried Co-Operative and were also turned down. It was explained during the applications that the money would be used to pay off the debts but the reasons given for rejecting the loans were that we would be over committing ourselves and our credit score. Does anyone have any ideas what we are doing wrong and if there are any better companies to try for a consolidation loan? We really don't want to have a secured loan but is that our only option?

Fonz_2

The problem is the lenders have no guarantee that you'll pay off the existing debt so view it as £40,000 debt total.

There's unfortunately not much you can do about this but as many on these forums will testify to - consolidation rarely works.

crman

is there no way that they can pay off the debts directly? or some kind of third party that the money can be paid in to?

molerat

Have you asked your own bank ? They are often the ones who are most likely in this scenario and will pay off the cards direct.

Thrugelmir

Firstly ignore your Equifax and Experian credit scores. That is not the basis on which any lender will appraise you. Each will have their own scoring criteria for lending.

Try tackling the issue head on. Make a record of exactly what you spend. And cut out the unneccessary expenditure. If you put your minds to it, one can get by on relatively little. Channel the savings into the most expensive borrowing first.

Rather than looking for the easy way out. Teach yourself financial discipline. While it was great spending the money and having a great time. The party's over now.

There are debt consolidation routes but it rarely solves the fundamental reason of why the debt accumalated.

Apples2

crman wrote: »

consolidate it all onto one easy £20,000 loan over 6 years.

In what possible World is having a £20k loan considered EASY???

You need to take a BIG step backwards and have a good look at why you ended up like this.

It's no good shifting it to another debt then racking it all up again on holidays and home improvements.
you need to MASSIVELY change your outlook toward debt before making another mistake... this is £40k you are trying to take on..... anything but easy.

fatbelly

crman wrote: »

We really don't want to have a secured loan but is that our only option?

No, and it's not even a good option for most cases.

Hop over to the debt-free wannabee board and they'll invite you to produce a SoA.

Take it from there. I hope things work out.

crman

OK, so not easy, and no i don't want £40,000 £20,000 or even £1,000 of debt. We know exactly how we have racked up the debt and yes we have completely stopped any extravagant or unnecessary spending, we have completed a SOA and we know what we can afford to pay back per month. The reason i wanted a loan was to give us a set monthly figure that we can afford, and has an end date in site, clearing us from all debt. I am not blaming anyone but ourselves for our debt levels and we are now very aware of how taking our eye off the ball has lead to the situation we are in.
My bank only do the loans over 5 years so ideally i wanted to spread it over a longer term.
The problem i have with snowballing is that the APR's keep increasing so we are just paying off more and more interest and not clearing much of the capital. Is snowballing really my only option? We are not at a point of having to go insolvent or bankrupt but i thought there might be a better approach to what i am trying to do, and also i'd like to thank the people who have given useful advice so far.

euronorris

Crman - consolidation rarely works and it usually ends up being more expensive than snowballing.

I know you have made some dramatic changes already, but it can be so easy to fall into the trap of 'I'll just put this one thing on the card' mentality and before you know it, the card's maxed out again. I should know. I did it a number of times!

The CC companies should be notifying you before they increase the interest. And, when they do, they usually offer the option to retain the current interest rate on the agreement that the card is blocked for future spending. Which, if you have really managed to change your habits, shouldn't be a problem.

And one time, when I happily agreed to no longer spending on the card, they suddenly decided that they didn't need to increase my interest or block the card!

You say that you are looking for a better approach, but really, snowballing is the best approach I've found! You'll clear the debt quicker and cheaper, and you'll really learn not to get into debt again.

I don't mean to offend you, but I think that what you are actually looking for is an easier option. ie, lower repayments so that you have more money for general entertainment etc. I completely understand where you're coming from, but that is exactly the reason why I don't think that consolidation is a good idea for you. Sometimes we have to do things the hard way to really learn the lesson.

Take a look at my sig and how much I've managed to clear in just a year! I bet that you and your wife could do the same, if not better, when you work together on this.

Plus, don't forget to look at the 'up your income' threads to bring in extra money to clear that debt even quicker!

bouncydog1

I suggest you take all of your information (debt/interest etc) and put it all onto the snowballing site - work out how much you can afford to pay each month - which should be more than the total of all of the minimum payments.

Then set up a spreadsheet and throw every spare penny at the debt with the highest interest rate. Yes you are going to be a while paying it back, but that is a much better route than consolidation. If you do this for a year or so and then review your situation, you may find that you are able to move things around a little or an opportunity might come up to apply for a 0% card.

£20k is a lot of debt and you certainly do not want to increase it. Take some of the advice offered by others in response to your post and bite the bullet to get the debt down. Do not apply for any more credit for at least 6 months as otherwise you appear desperate for credit.

Clive_Woody

bouncyd!!! wrote: »

throw every spare penny at the debt with the highest interest rate

Exactly what I was going to say.

• Rank all debt in order of highest interest.
• Pay minimum on all debts and anything left over pays off balance in highest interest debt.
• Once a card or OD is down to zero close the account or cancel the over draft.