Loan instead of overdraft?

SpagBol

Hi helpful people! I know loans are not the done thing to consolidate debt BUT hear me out, my instinct is telling me in this case it might prove a good idea. I would love your opinions though, please tell me what you would do/advise.

We have £11k in overdrafts paying a total of £170 in interest each month. We have another £47k ish to pay off, most of which is on CCs at 0% or 6.7 for the life of the balance on a barclaycard but some cards are due to lose the 0% soon and we can't persuade any other cards to give us 0% to transfer balances.

We will have about £500-1k per month to overpay our debts and I would like to start paying off the higher interest cards but this £170 per month just on interest is bothering me. However if we pay off the OD gradually the CC debt is going to rack up.

At the moment, we are up to date with payments and credit rating seems ok, no defaults. I have seen on quidco an A&L loan for 6.7% which for £11k over 5 years is £210 ish per month, assuming I would get that rate. Is it sensible or incredibly stupid to get the £11k loan, tell the bank to reduce our overdrafts to £0 and start paying off the capital for an extra £40 per month? If we only pay interest at £170 and concentrate on the CCs we will start tackling the OD debt a lot later and, as long as we are disciplined and cancel the OD, we may well be debt free sooner.

Am I in lala land? :rotfl::rotfl:

Thanks in advance!:T

DVardysShadow

You are in lala land. A loan is a treadmill which must be paid back month by month on harder terms than a credit card. So when your first crisis comes, it will go on the cards or the overdraft and you will be back where you started with a loan on top. Post a Statement of Affairs http://www.makesenseofcards.co.uk/soacalc.html and let's see what people can make of it.

niksyg

Agree with DVS - Lala land!!

You have a hell of a lot of debt, and it's great that you are keeping on top of it as you say you are not falling behind with payments.
Just keep going like that, how can £170 be bothering you but £210 wouldn't?!?
It will be a long hard slog to get rid of that level of debt, so you need to stop looking for more quick fixes.
As DVS says, post your SOA for us to have a look at.

immoral_angeluk

Fact of the matter is you simply would not get a loan unless you have a massive income, as you owe a lot already and lenders are currently very cautious and highly unlikely to lend if your overall debt including the new loan would be more than 50% of your income.
My suggestion with the overdrafts would be to change bank ASAP to one you don't have debt with, and make offers of repayment towards your ODs.
If you are in overall problems with your debt though you need to seek advice about your debt options from one of the debt charities.

SpagBol

I suppose I was asking for that! Progress in a silly way that I knew it was worth checking with you guys first...

We will keep beavering away with the huge interest payment then. I will have a closer look as to whether the OD or the CC has the highest APR.

Thanks!

SpagBol

immoral_angeluk wrote: »

Fact of the matter is you simply would not get a loan unless you have a massive income, as you owe a lot already and lenders are currently very cautious and highly unlikely to lend if your overall debt including the new loan would be more than 50% of your income.
My suggestion with the overdrafts would be to change bank ASAP to one you don't have debt with, and make offers of repayment towards your ODs.
If you are in overall problems with your debt though you need to seek advice about your debt options from one of the debt charities.

This sounds like something we will consider in a few months if we can't turn this around but then we would end up going for a DMP anyway so that would be part of the process.

We are fortunate not to have defaulted yet and I'd like to keep it that way if possible but tbh it is keeping our pride and credit rating intact that has increased our debt over the last few years

SpagBol

niksyg wrote: »

Agree with DVS - Lala land!!

You have a hell of a lot of debt, and it's great that you are keeping on top of it as you say you are not falling behind with payments.
Just keep going like that, how can £170 be bothering you but £210 wouldn't?!?
It will be a long hard slog to get rid of that level of debt, so you need to stop looking for more quick fixes.
As DVS says, post your SOA for us to have a look at.

The £170 bothers me because that is all interest, no capital as such, I was pondering the fact that at the end of 5 years paying £170 we'll probably still have the OD in all its glory but with a loan we would have paid it off with less interest. It would involve taking the OD to £0 though and you are all right, this is a gamble probably not worth taking. Although I doubt our bank would be efficient at reducing our OD limit month by month as we decrease it so we'll probably get in a mess there too.:(

DVardysShadow

SpagBol wrote: »

The £170 bothers me because that is all interest, no capital as such, I was pondering the fact that at the end of 5 years paying £170 we'll probably still have the OD in all its glory but with a loan we would have paid it off with less interest. It would involve taking the OD to £0 though and you are all right, this is a gamble probably not worth taking. Although I doubt our bank would be efficient at reducing our OD limit month by month as we decrease it so we'll probably get in a mess there too.:(

OK, an OD is hard to calculate an APR for. But you can do it by adding up all your bank fees for a year and dividing by the peak monthly OD amount [and multiply by 100 to get %]. Essentially your peak OD is the amount by which you are short for always staying in the black.

Once you have that APR worked out, you can add your overdraft into the list of debts to be paid down, highest APR first.

SpagBol

DVardysShadow wrote: »

OK, an OD is hard to calculate an APR for. But you can do it by adding up all your bank fees for a year and dividing by the peak monthly OD amount [and multiply by 100 to get %]. Essentially your peak OD is the amount by which you are short for always staying in the black.

Once you have that APR worked out, you can add your overdraft into the list of debts to be paid down, highest APR first.

I had presumed an APR of about 20% for the good of my snowball calculator but I will do that more accurately. In fact our accounts all have different dates for assessing the interest and we get paid about 10 days apart so maybe with some jiggery pokery and moving the balance between our 3 accounts (all natwest) we can pay less interest.

Thank you :beer: