Should I Take a loan to Pay off Credit card debts ?

debtspiral

Hi

Just here looking for some advise , I've managed to rack up £25,000 debt on credit cards , I have a mortgage and a loan already so not sure if a bank willl give me another loan to consolidate but will it be worth it?

The monthly payments for all the credit cards are now £670 pounds a month which I cannot afford, and they are all coming up to the end or near the end of interest free payments one calculated that it would take me 37years to pay off with the current interest and minimum repayment !!!

using a Quick calculator on a loan page for a 25K loan it will be around £400 a month for 6years .

Just asking as the advise on here is don't borrow more .

Also is there a movement anywhere to stop credit companies giving you credit , as although I know that I myself am unltimately to blame for getting into this mess , surely there should be a point where they shouldn't be allowed to loan you the money to you to get into the mess in the first place.

Thanks

goingforward_3

Well i consolidated my credit cards into loans twice and it was the biggest mistakes i made because we kept the cards and ran the debts back up again leaving us with loans and credit card repayments to pay !!

Also getting someone to lend you £25k may prove difficult as they dont know you will pay off the credit card debts with the loan.

As for your 3rd point i suppose the simple answer is dont apply for credit in the first place... harsh but true.. I dont blame anyone but ourselves for the amount we owe, no-one forced us to apply for credit and sign on the dotted line..

MyLastFiver

I agree with the good advice given above. Please post your SOA to give us a better understanding of your position. It MAY be that a Debt Management Plan (in which you negotiate lower payments with your creditors) will be a solution for you.

isy1011

Nooooo..dont do it. That was my trap. Just work at cutting them up, paying them off.

DVardysShadow

I've never been there, but I would echo the 'been there, done that' replies above.

If you get a loan, then you are putting yourself on a treadmill of monthly repayment. And if the debt is large enough to have frightened you into a consolidation loan, then it is likely your budget will be stretched. And when a crisis comes along, you are going to reach for your credit cards again and start racking up more debt. At least if you leave the debt on the cards, you do have the option of paying the minimum for a month or 2.

Do a statement of affairs http://www.makesenseofcards.co.uk/soacalc.html for more focussed advice.

terakris

I'm not totally against consolidation loans... the trouble with them is you need to be VERY VERY strict with your lending habits and make sure you dont get into more debt now that you have some free money each month.

If you look at the rates you are paying on your cards, and work out if the loan will be cheaper over time then it might be an option to have a fixed amount go out each month rather than the possibility of variable payments with your cards, but its just too easy to say "oh... ill stick that on the card and pay it off" and then you dont... or something comes up and you have to resort to the cards again. Its tricky and ive been there myself, i consolidated and respent and it took me ages to get out of it - however the way i did was to consolidate to a couple of loans and just went nuts over the next few years paying them off.

What you would want to do is pay as much as you can afford on the loan, lets say £400 is a good sum, and for any remainder use that to either overpay the loan or put aside to pay off in lump sums if they dont allow overpayments. Dont think now that it frees up a couple of hundred quid that you can kick back and take it easy, thats the point when you need to start to throw all you can at it. If the minimum payments all add up to £670 then allowing yourself £270 breathing space to put that money aside for debt repayment would be good.

So... it kinda worked for me, not to lower the payments but to get them all into 1 lump sum to pay off each month... but its deaf not for everyone and for most people unless you are 100% committed and a tight !!!! with money for the next few years... i wouldnt recommend it.

debtspiral

Thank You all for your support and advice , I can see where you are going with the not taking out the loan option , but basically i seem to be in a position especially after quickly doing the SOA calculator that I have a £290 shortfall every month. With that shortfall I can't see any other way to reduce my monthly outgoings substantianly unless I live like a monk and eat beans on toast for the next few years , all my credit cards are calculated on minimum payments so I can't see where I would find any cash to reduce these quickly without very drastic action (i.e selling assets) .

At least the loan option(if they give me one) I can see a date when it will finally be paid off.

I know what your saying about being tempted back to using a card again in an emergency etc but if you can't affrod to clear huge amounts from your credit card debts quickly , I can't see how that works either as it looks like you pay of the debts and then something like a major car repair bill or something and then your back in the same boat again.

The main problem was MBNA they where happy with me paying £25 a month until my interest free period ended and now its pay £260 a month and £255 interest !!!!! How this is legal is beyond me it defnitely feels unethical.

terakris

debtspiral wrote: »

The main problem was MBNA they where happy with me paying £25 a month until my interest free period ended and now its pay £260 a month and £255 interest !!!!! How this is legal is beyond me it defnitely feels unethical.

You are right in the fact that its a massive increase in monthly payments... but on the flip side, they are entitled to the money back you had off of them.

You could possibly try and re-approach them to negotiate a lower monthly payment and a freeze or lower rate of interest. explain your situation to them and see what they can do?

debtdesperado

I'm going to add an alternative view... I went the consolidation route (to the tune of £17k), and I'm pleased and proud to say that I have 2 payments left to go until it's paid off, and since I took it out have no credit card debt, which remains the case. :j

So it can work... the reason I took it out was because I had no discipline in overpaying on my credit cards. I would always come up with a reason that I 'couldn't afford' the full amount that I'd budgeted to pay that month, so it was clear after a couple of months that I was getting nowhere fast in making dent in my debt. I knew though that if I took out loan and HAD to pay it, I would.

The other problem I had was that my credit balances were too big to get full balance transfers on (in fact, the reason I ended up with 7 credit cards and my debt exploded was because I would open a new credit card hoping to transfer my balance of, say £5K, but then the new card would only give me an opening balance of £3k. So I would balance transfer that, leaving me with £2k on the old card, which of course, I would then end up using and filling up again. Meanwhile I was so good at making payments that the balance on my new card would be increased to £5k, so then I would also run that up. Then the interest free period would end, then I would do it again, and so on. In the end, I had too many cards and the interest rates were crippling. I did the debt snowball and it came out at nearly 50 years, and that was if I overpaid). So balance transferring didn't work for me.

HOWEVER (and this comes with a big warning) these are the pitfalls of consolidating - if you can deal with them, I would say go for it, but first of all check:

1. make sure you can meet each months' expenses without borrowing more (eg running out of money halfway through the month and topping it up with your credit card). You HAVE to make sure that you can cover each month our of what you bring in, otherwise you will simply run up your credit cards again as fast as you have paid them off.

2. short, sharp shock... set your consolidation repyments at a rate that is uncomfortable, so the term is as short as possible. Otherwise you will get discouraged. If you are paying £640, I would set the repayment at £500, or even £550. I am doing nearly £700 a month for 2 years. To say it has been painful is an understatement, but I'm nearly done!

3. cut your cards up as soon as you balance transfer. You will also probably have trailing interest on your cards, so you will pay interest on the interest for two months. As soon though as this is cleared, CLOSE THE CARD.

4. resist the temptation at all costs to 'add a little bit' to the consolidation loan... you will really kick yourself halfway through when you are fed up and think bitterly back to the £1000 holiday that you are still paying for, when you could have been out of debt two or three months early. Don't ask me how I know this .

5. consider a hybrid... you don't have to do all or nothing, eg ALL consolidation loan, or ALL credit cards. What about doing both? eg consolidate say £10k worth of credit card debt over a short period, and then try and clear the £6k you have left on the cards yourself (this is a good method if you have an uneven income). Once you have paid the £10k loan, then consolidate whatever is left out of your £6k (hopfully a lot less!).

6. if you have to take a long loan, as soon as you get some extra money, eg a pay rise, re-finance the loan to shorten the term by increasing the payments, eg you take an 10 year loan of £500 a month, and 3 years in, you realise you could pay an extra £200. So try and get a five year loan for £700 a month, cutting the time by 2 years... and so on.

7. start a jar for saving pound coins or odd bits of money to go towards the last payment, so you can pay the last month (or more) early and clear the loan. Trust me - you will get to the end and be so fed up you will be really happy if you can pay it off even one month early

Best of luck!

josephine82

Even though it may seem unfair, there is nothing wrong with what MBNA are doing. They told you what the rate of interest would be after the interest free period ended.

If you have a £290 shortfall in your budget then you need to take a serious look at things. You need to either:

a) cut your spending to cover the shortfall and to be able to up your payments to pay the debts off quicker

b)enter into a Debt Management Programme to reduce your payments/interest to the creditors involved and pay the money off this way. But this will impact your credit file.

I don't think loan is the way to go- it is a seemingly 'easy fix' but will have implications if you haven't sorted out the reasons for overspending etc that got you into debt in the first place.