Consolidation loan yes or no?

KittycatM

Hi everyone, hope someone can help with this.

I currently have the following debts:
overdraft - £2750 maxed out Halifax
credit card 1 - £600 maxed out Halifax
credit card 2 - £1500 - £1200 owed
student loans - £765
manchester uni - £1500

I'm currently paying the following:
overdraft nothing at all (due to expire August)
card 1 ca £40 per month
card 2 ca £50 per month
student loans £30 per month
Manchester uni £50 per month

so I'm paying £170 a month on virtually minimum repayments. I spoke to my bank (co-op) yesterday about something else and she said I had a loan I could accept with no credit checks etc.

It'd be £7500 over 7 years at £117 a month with apr of ca 8.9%.

I'm very tempted. Any thoughts or suggestions? My biggest problem is the overdraft, the Halifax aren't likely to be lenient. My net income is £1100 a month.

Fiddlestick

KittycatM wrote: »

It'd be £7500 over 7 years at £117 a month with apr of ca 8.9%.

I'm very tempted. Any thoughts or suggestions? My biggest problem is the overdraft, the Halifax aren't likely to be lenient. My net income is £1100 a month.

What do you mean they aren't likely to be lenient?

Your debts total £7115 and the loan is for £7500.

Presumably you would be paying the overdraft off in it's entirety and canceling it?

Tixy

What APRs are you paying on all the current debts? If some of the debts are interest free perhaps the Uni ones, then it makes sense to leave them out of the consolidation.

If you can currently afford £170 per month why would you take out a loan where you are only paying £117? You would be better to take the loan out over a shorter period and pay less in interest overall.

Also why take out a loan for £7500 instead of one for £7115, again you would be paying more in interest for no reason.

Eg take out the loan above and you would pay £2328 in interest.
Take out a loan of £7115 over 4years at 8.9% you would pay £176.72 per month and pay interest of only £1368, over £900 less and your debts would be clear 3years earlier.

How confident are you that if you consolidate your debts you will cancel all your cards and overdrafts and not be tempted to spend on them again or open new ones. This is a frequent issue with consolidation and people find as they have more credit available to them they continue spending and end up in more debt not less.

KittycatM

The overdraft is interest free until august then apparently will be £30 a month. The cards are around 20% apr each. I've had the big overdraft since I was at uni and my one year after graduating is up. I can afford £170 a month, but it can be a struggle as I want to save £50-£60 a month. The cards would be cancelled and the overdraft too. All I'd have is a £300 buffer overdraft with the co-op and a £150 storecard I have nothing on and only use to get discount. I'd find it much easier to do it that way. I'd probably have the remaining loan amount for a holiday, a girl needs a treat!

Fiddlestick

KittycatM wrote: »

The overdraft is interest free until august then apparently will be £30 a month. The cards are around 20% apr each. I've had the big overdraft since I was at uni and my one year after graduating is up. I can afford £170 a month, but it can be a struggle as I want to save £50-£60 a month. The cards would be cancelled and the overdraft too. All I'd have is a £300 buffer overdraft with the co-op and a £150 storecard I have nothing on and only use to get discount. I'd find it much easier to do it that way.

I would suggest canceling the overdraft and the store card, as the "discount" is probably going to act as a temptation.

I don't mean to be harsh, but you can enter with all the good intentions in the world and still be tempted. You wouldn't be the first nor the last

I'd probably have the remaining loan amount for a holiday, a girl needs a treat!

By using debt to fund the "treat"?

Fiddlestick

KittycatM wrote: »

I can afford £170 a month, but it can be a struggle as I want to save £50-£60 a month. The cards would be cancelled and the overdraft too.

Whilst there are sound financial reasons to have some sort of buffer in case of unforseen circumstances, it's usually best to clear off your debt before saving anything.

The reason for this is that the rate that your savings will pay you is far, far less than the rate your debt will be costing you so it makes more financial sense to clear the debt off first if possible.

ANewEra

Tixy's advice is spot on, in my opinion.
Why would you 'save' £50 a month, when if you go down that route you are actually spending £900 more, so realistically it will take 18 months to just break even, which by Tixy's calculations is half way through the debt repayment.
If you have the chance to get rid of the debt in 3 years not 7 then it really would be the best advice to go for it, you do not know what can change in a few months let alone a few years, 7 years is a LONG time and to have a loan hanging on for that length of time is not a good idea. Is a holiday really worth the extra 4 years?

Just think, if nothing changes, in 3 years you could be putting £170 aside in savings each month and that will build up quite quickly!

RobertoMoir

I've said it before here and I'm sure I'll say it again. There are certain circumstances where consolidation can work, but most of the time it's a foolish move based on the false idea that the solution to a problem with too much debt is to get even more debt.

There's a reason that firefighters don't use petrol to put out a fire.

Wutang_2

RobertoMoir wrote: »

There's a reason that firefighters don't use petrol to put out a fire.

Because its so expensive?

KittycatM

I'm still very unsure. I need to work out if the loan would be better value than paying the cards and the overdraft fees. The store card is harmless, I just love clothes, but don't drink or smoke, so it's not so bad! My biggest worry is sorting the overdraft with Halifax. I moved my current account to co-op after the boy in the Halifax branch was useless! I'd rather do a loan than another card as I would just shop on it.
How do I work out my total repayment on my cards at the rate I'm paying now? Ie if I carry on as is, how much would it cost me, I think the loan at a better rate would make sense there. I see the point about student loans and Manchester uni, they are interest free so of course I'd be paying interest for the convenience of the loan. I'm still as confused as I was!!

IWantToBeFree_2

If I was you I would head over to the debt free wannabe forum and post your statement of affairs and people could give you advice on where you could cut back to get you out of debt sooner. You will also find links to a snowball calculator which will show how much interest you will pay on your debts if you only make the minimums.

A consolidation loan could work, but only if you are disciplined and don't run up any more debts - to be honest, I can see you being back in this position in a few years, you have already said that you just love clothes and a store card is harmless, its like a slippery slope, then there is paying for a holiday with debt - yes a girl does need a break, but you are never going to get a 'break' but increasing your debt on frivolous spending that you cannot afford.

Trust me, I've been there - I've taken consolidation loans and ended up spending again on cards....