3 Year Plan To Become Debt Free

lcheater

Yep, another person posting that they want to be debt free! It’s the new fashion I think! I want to be derive a plan to enable me to be debt free by January 2014 (3 years ish time). My debts are as follows:

Personal Loan £11000 (currently repaying £380 pcm)
Car Finance £3700 (currently repaying £135 pcm)
Credit Card £5800 (currently repaying £130 pcm)
Credit Card £3000 (currently repaying £90 pcm)
Clothes Catalogue £650 ish (currently repaying £30 ish pcm)

Total £24150

Now, the personal loan and car finance naturally– so, if I keep paying both off monthly like I am at the moment I know they will both be cleared by the end of 2013.

Whilst I do not use the credit cards very often (because they are both around their limits and I am only paying little more than the minimum payments each month), the overall debt on the cards is not decreasing by any noticeable amounts.

What I am thinking of doing is this:

Personal Loan and Car Finance – They both run out in November 2013 (they are fixed term loans), so I propose to leave them running as they are – the interest rates are pretty good and it is not worth bothering moving them (unless someone has a good reason to persuade me otherwise?)

Clothes Catalogue – pay a couple of hundred a month to clear it off within a few months.

Credit Cards – total debt equalling £8800 – apply for an £8800 personal loan to pay these cards off, close the accounts and pay the loan for 3 years. As a quick example, Tesco’s online loan calculator came out with the following for a £8800 loan: £272.45 pcm @ 7.4% AER for 36 months which is £50 ish more a month than I am repaying at the moment and I would be free of the debt after 3 years as opposed to only making minimum payments each month.

This would then leave me 100% debt free after 3 years, and would only cost me £50 more a month after paying off the clothes catalogue for 3 months or so at £200 per month.

What do people think? Have I proposed the best solution to this, or would you consolidate the whole lot into one loan, or what? Open to suggestions? Please assume I do not have significant spare income every month, enough to pay things back quicker – I know paying back as fast as possible is the best solution, but please assume this is a 3 year plan.

Thank you in advance.

Tixy

Hi

Have you started by running your current debts and APRs through the snowball calculator? I would do this first and see how long it would take to clear these debts by paying what you pay at the moment plus the £50, and how much more than 3years it would take. If you do that then you will know what you are comparing any other options to. http://www.whatsthecost.co.uk/snowball.aspx

Then you need to consider whether you will be likely to get a consolidation loan - you already have debt of £24k so you may find that you won't be able to get a loan for a further £8.8k. Whilst you want to consolidate tesco's (or whoever) cannot force you to consolidate or be sure you won't run up the debts again and so will view your potential exposure as at least £33k (more if you have unused credit limits), so it will depend on what your income is as to whether they think you could afford to service this level of debt.