To get a loan or not?

talknerdytome

Me and my partner moved in together in June after I had finished university, he finished the previous year but had been unable to find a job. During university and both of us being unemployed we have got into £9,750 of debt. Luckily we have both now found jobs, I earn around £1,100p/m (I work as a healthcare assistant and with unsociable hours it can fluctuate a bit, usually upwards) and from next month he will earn £1,400p/m both after tax.

We are currently paying in total £380p/m on reducing overdrafts, interest, bank charges, etc. £90 of that is all interest and going into a black hole.

As our financial situation has changed we are looking at getting a loan to cover these costs. We have looked at Nationwide and they provisionally agreed to lend us £10,000 at 7.2% APR over 5 years. The monthly repayment would be £197.89, without PPI.

Is it worth getting the loan and paying off all our existing debt? And if we do, do we need to get PPI? Bearing in mind that my partner is on a fixed term contract, probably until December and I am hoping to go back to university in September to study nursing.

bottleofred

Hi talknerdytome,

Debt consolidation only works for around 10% of people who try it and I wasn't one of them. My advice would be to post your statement of affairs http://www.makesenseofcards.com/soacalc.html and you'll get loads of help/advice on how to save money which can go towards the debt. I'd also have thought that if you worked hard at it, you'd have the debt cleared much quicker than the 5 years the loan will take.

Red

talknerdytome

Thanks for your response,

I went on that website and this is the result we got:

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 2
Number of children in household.........
Number of cars owned.................... 1

Monthly Income Details
Monthly income after tax................ 1100
Partners monthly income after tax....... 1400
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 2500

Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 850
Management charge (leasehold property).. 0
Council tax............................. 140
Electricity............................. 50
Gas..................................... 0
Oil..................................... 50
Water rates............................. 35
Telephone (land line)................... 12
Mobile phone............................ 70
TV Licence.............................. 10
Satellite/Cable TV...................... 50
Internet Services....................... 10
Groceries etc. ......................... 240
Clothing................................ 0
Petrol/diesel........................... 50
Road tax................................ 10
Car Insurance........................... 50
Car maintenance (including MOT)......... 10
Car parking............................. 0
Other travel............................ 160
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 200
Pet insurance/vet bills................. 15
Buildings insurance..................... 0
Contents insurance...................... 10
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0
Haircuts................................ 0
Entertainment........................... 0
Holiday................................. 0
Emergency fund.......................... 0
Total monthly expenses.................. 2022


Assets
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 600
Other assets............................ 0
Total Assets............................ 600

No Secured nor Hire Purchase Debts

Unsecured Debts
Description....................Debt......Monthly...APR
Overdrafts.....................5680......310.......24
Credit cards...................2300......70........42
Total unsecured debts..........7980......380.......-


Monthly Budget Summary
Total monthly income.................... 2,500
Expenses (including HP & secured debts). 2,022
Available for debt repayments........... 478
Monthly UNsecured debt repayments....... 380
Amount left after debt repayments....... 98

Personal Balance Sheet Summary
Total assets (things you own)........... 600
Total HP & Secured debt................. -0
Total Unsecured debt.................... -7,980
Net Assets.............................. -7,380

Created using the SOA calculator at https://www.makesenseofcards.com.
Reproduced on Moneysavingexpert with permission, using Firefox browser.

dreamdreamer

Just done a few rough calculations:

Currently - you have £10k of debt and are paying £90 a month interest (to begin with) so your current average APR is 10.8%. You're repaying at £380.
Loan - you'd have £10k of debt, paying £60 a month interest (to begin with) and your APR is 7.2%. You'd repay at £197.

Currently - debt free in 30 months - total interest paid £1455
With loan - debt free in 60 months - total interest paid £1937.

By lowering your monthly repayments and spreading it over so long you're actually going to pay more in interest even though the APR is lower. Plus you'll be very much stuck with £200 a month repayments, if you go back to uni and your OH loses his job - at least you can lower credit card repayments etc, loans are fixed.

I'd stick with doing it how you are, paying as MUCH as you can. Which from your SOA is probably about £400-£450.

One last thing - £200 on medical/dentist a month?! If you don't mind me asking - what is that on? That seems VERY high...

[Deleted User]

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 2
Number of cars owned.................... 1

Monthly Income Details
Monthly income after tax................ 1100
Partners monthly income after tax....... 1400
Total monthly income.................... 2500

Monthly Expense Details
Rent.................................... 850 (This is very high? Is it competative for your area?)
Council tax............................. 140 (Can you spread this over 12 months instead of 10?)
Electricity............................. 50 (seems quite high check comparison sites - usually online tariffs are cheaper)
Oil..................................... 50
Water rates............................. 35 (would a meter work out cheaper?)
Telephone (land line)................... 12
Mobile phone............................ 70 (Very high - if in contract drop tariffs and if out of contract look at SIM only deals r go PAYG)
TV Licence.............................. 10 (12.37)
Satellite/Cable TV...................... 50 (Cancel and go freeview, if stuck in a contract drop to the basic package)
Internet Services....................... 10 (see if combining with home phone would be cheaper)
Groceries etc. ......................... 240 (quite high for 2, try dropping brands, batch cook, meal plan, shop at cheaper supermarkets like Lidl and Aldi - go to the old style board for hints and tips)
Clothing................................ 0 (nothing ever?)
Petrol/diesel........................... 50 (Is it worth having a car if this is all the mileage you do in a month?)
Road tax................................ 10
Car Insurance........................... 50 (High - try shopping around at renewal)
Car maintenance (including MOT)......... 10
Other travel............................ 160 (what does this cover, and can you get if for cheaper by getting a season ticket, monthly or weekly tickets?)
Medical (prescriptions, dentist etc).... 200 (what does this cover - it's very high)
Pet insurance/vet bills................. 15
Contents insurance...................... 10
Presents (birthday, christmas etc)...... 0 (nothing?)
Haircuts................................ 0 (never?)
Entertainment........................... 0 (nothing?)
Total monthly expenses.................. 2022


Assets
Car(s).................................. 600 (is it worth selling it?, you don't seem to use it that much, and you would save a lot in insurance and other running costs)
Total Assets............................ 600

No Secured nor Hire Purchase Debts

Unsecured Debts
Description....................Debt......Monthly...APR
Credit cards...................2300......70........42 (This one should be your priority for overpayments - it's very high APR - do you have a good credit history, see if you can do a balance transfer to a 0% or low percent APR card)
Overdrafts.....................5680......310.......24
Total unsecured debts..........7980......380.......-


Monthly Budget Summary
Total monthly income.................... 2,500
Expenses (including HP & secured debts). 2,022
Available for debt repayments........... 478
Monthly UNsecured debt repayments....... 380
Amount left after debt repayments....... 98 (Do you actually have this at the end of the month - if so pay it towards your CC. If you don't have it, keep a spending diary to see where it's going noting down everything that you spend money on from chocolate and newspapers to DD's and rent - at the end of the month review it and you'll soon see where your money's going)

Personal Balance Sheet Summary
Total assets (things you own)........... 600
Total HP & Secured debt................. -0
Total Unsecured debt.................... -7,980
Net Assets.............................. -7,380

Hi,
Consolodation loans rarely work out for people - often they keep the cards and run them up again as well as having the loan and find it very difficult to get out of the cycle once they are in it.

I would particularly advise you agains it, as you know that your partner's income is not secure, and you too are going to go back to Uni befor the loan is clear. While I think it would be a good idea to see if you can transfer some of the debt to a lower cost credit card, I would not recommend the loan.


You can make plenty of savings in your SOA that would help pay down your current debts. Your rent is high given your income - I don't know where you are in the country, but could you move somewhere cheaper? Your electric seems a little high, and your mobile phones and sky are costing you a fortune. There are also savings to be made on your food bill. And depending on what your medical/dentistry bill is there might be savings there too - it's very high.


HTH


D9

bottleofred

Hi talknerdytome,

Totally agree with domino9 comments and would also add you should take advantage of bogof and batch freezing to save money on the groceries. As I said in my initial response, you should carry on paying as much as you can, as you'll save more money in the long run.

DVardysShadow

I too do not like consolidation loans. The 1 payment argument does not really stand up and besides allowing you to run up the cards again, the rigid payment treadmill leaves you pressured to use the cards if there is any emergency.

However, if the APR on the card really is 42%, you need to pay back at least £80/month to stop the balance increasing. If you cannot get another card, I would suggest that a loan for this credit only should be considered. If the same APR applies, for £50/month, you do have the prospect of clearing it. Whatever you do, do not allow yourselves to be bullied or sweet talked into borrowing more than you need to clear this card and don't regard it as consolidation or extra credit. It would be replacement credit.

beanielou

If you owe £7900 why are you wanting to borrow £10,000?
If you were to take out this loan you would have to cancel your credit cards & overdraft.
I think you are better to keep paying down the debt that you have & you will be debt free sooner.
Your rent is very high.
Can you reduce it or take in a lodger even short term.