Question over whether to accept rate increase

DarrenW_2

Hi all

Quick question as I am not sure what to do for the best.

I've currently got a personal loan with Santander which is at 8.9%. I borrowed £20k and have been paying back £428 per month for the last 3years and 3 months. I now have only 7 payments left :T

However, I have made the common mistake of building up other debts. The biggest one (that causes the most annoyance) is my Virgin MBNA card. I have a balance of £12k on it, and currently my interest rate is a bum clenching 25.9%APR. I've had a letter saying it's going up to 29.9% APR in October.

At the moment, I pay £300 a month off the Virgin card, which pretty much just covers the interest. My plan is to wait until I have paid off my existing Santander loan, then take out another personal loan to pay off the Virgin card. I thought this was best as the interest on the personal loan is front-loaded so I am realy paying off a lot of capital now.

However, should I actually be talking to Santander now about a new loan (to include the £12k and whatver is left on my loan?). I can't seem to work it out :mad:

podperson

Hi Darren,

Are you still using the Virgin card or are you just trying to get it paid off? If it's the latter you can write to them refusing the interest rate increase, this usually means they stop you using the account but can still pay it off per month. Am sure there was a template letter on the site somewhere but am afraid not an expert on this area so hopefully someone more knowledgeable will come along soon with the exact wording needed

DarrenW_2

Thanks pod. No, I'm just paying it off (or not at the moment!). I don't want it to affect my credit history so I was inclined to just accept it, given that I will be getting rid of it in a few months.

persian_star

Hi Darren

I fell into that trap too - build up debt, get a loan to pay it off and save on the interest, then suddenly realise I have built up debt again. It's why there's quite a major school of thought that say loan consolidation isn't actually very good for debt repayment! Sadly the only way I found to deal with it in the end was to bite the bullet, stop consolidating, and just pay off my credit cards the painful way, month by month. Major help found by using www.whatsthecost.com/snowball.aspx which advocates NOT consolidating, but shows the best way to repay without. It helps re-vamp the way you think about your debt and using it I've learnt to budget my income, so it's helped enormously.

With the CC's, if they offer you a rate hike, best thing you can do is decline it, not only do you keep your old APR but you can no longer spend on it (happened to me with 2 of my 3 cards) which suddenly means, with all your credit unavailable, you have no choice but to start budgeting and paying off your debts. It WON'T affect your credit rating - all CC's are now required to give you the option to not accept the hike and if you don't they are required to let you pay it off at your own pace (at least min. repayment) but as Pod says, they normally will not let you use it any more (but as I say, this is not necessarily a bad thing). You don't even need a template, just call them up and decline the rate hike - it's that easy.

It's not easy, but if you want to get DF, it's a good thing. Best of luck!

motoko

You should definitely refuse the rate hike, 25% is more than enough, and it also ensures you can't rack up any more debt with them. This is the first thing to do as there is a time limit you have to respond by.

If you can get another loan with Santander or anyone else, with a lower rate so you can pay off the credit card, then you should definitely do this when you can. You have three options:
1. Get a new loan to cover both credit credit and your existing loan. This the best plan if you can get it for the same / lower rate than your existing loan, and if there is no penalty for repaying your loan early. Otherwise you'll end up paying extra on the money you owe on the existing loan. If you get the new loan with Santander as well, you might be able to get them to waive any early repayment penalty.
2. Get a new loan to cover the card while still paying off the existing loan. This may not be an option, depending whether you'd be able to afford the repayments on the new loan, you'd need to see how they compare to your min payment on the credit card. You could get a loan with low repayments, but you'd end up taking longer to pay off this new loan. However if you get a loan which allows a payment holiday or lower repayments for the first few months, or a long loan which allows you to overpay without penalty, then you might be able to get around this.
3. Wait until you've paid off your existing loan then take out a new loan to cover the credit card. This is likely to be expensive since your credit card interest is very high.

I'm guessing if there's not much left on the old loan, then option 1 is going to be your best bet. But if they ask a much higher interest or there's a huge early repayment penalty then option 2 may well be cheaper, provided you can find a suitable loan which you can pay slowly at first then faster later. Option 3 would be a last resort if the other two options aren't possible or will cost you more overall.

However I can't really be sure, it depends how much you owe on the loan compared to the credit card, and what the interest rate of any new loan you take out might be. The only way to be sure is to scope out some potential loans, and work out how much interest you would pay overall in each case.

motoko

... or have you considered getting a life of balance credit card instead of a loan? They do them down to 6.9% at the moment, its probably lower than you'd pay on a loan, if you can get one that is. Also you can just pay the min payment until your other loan is paid of, then up it to a higher payment so you pay it off in a reasonable timeframe. The only thing to watch out for is never spend on it (even if the allocation of payments is favourable), I have a couple of these LOB cards at 3.9%, which I immediately cut up and throw in the bin whenever they send me a new one.