Yes or No to debt consolidation for credit cards

IndebtUK

Hi Folks,

I am new to this forum. I found the site through web searching.

I would like to seek some of your wisdom.

Like most of people in the UK, I am in financially struggling due to excessive debt, mainly from credit cards. I have over the years, cut down drastically on expenditure, but it is still not enough. I just paid off a €15,000 loan recently (what a relief!), but my debt is still mounting up...

Just to mention also that I have flawless credit rating/record. I have never missed a payment or had any bad debts. Also, I work for the scientific industry (hence my low financial IQ), so job security wise I would be considered low risk for unsecured loans.

Whilst I am managing at the moment (i.e., I have not had to miss a payment) as I still have a good full time job, I am wondering if there is any "accountant" minded person out there who can give me some advise on whether to choose the route to debt consolidation.

Basically my situation is this. I have a mortgage, multiple credit card debts and I live solely bank overdraft. So at the end of each month when I get paid, the bank balance is either "zero" or most often than not "in negative."

What would you do, keeping things going as such, or get a 2-4 short term loan to consolidation all credit debts + overdraft?

Here's the scenario:
Credit card 1
Balance: €3,000
APR: 9.12%

Credit card 2
Balance: €2,000
APR: 15.756%

Credit card 3
Balance: €2,500
APR: 14.004%

All based on purchases only. No cash withdrawal owed. I typically meet the minimum repayment each month + 20-30% extra on the minimum payment.

Bank overdraft:
Balance: -€3,500
APR: 12.45%

Alternatively, I can get a single loan to consolidation all my debts. Example: bonkers.ie

11.9% APR (fixed) for €10,000
36 months term
repayment/mo: €328.79
Total: €11,836.5

What would you do? Which would be a more sensible and cheaper option?

I am based in Eire.

Thanks for your help.

LovelyLeeds

IndebtUK wrote: »

Credit card 2
Balance: €2,000
APR: 15.756%

Consolidation is rarely the answer and you wont get many posters recommending that option.
I would address the highest interest card first, Credit Card 2 - pay the minimum on Cards 1 and 3 and the maximum you can afford on Card 2 until that one is clear, and so on. The overdraft, at least, will help you do this - so address that last of all.
If you've just cleared a £15,000 loan, then there must be additional funds available to help towards Credit Card 2?
I don't think your situation warrants more debt with a consolidation loan.

DCFC79

You owe just under 12k and want a loan of 11.83k to pay off the loan so is your wage less than 23.83k ? Have i got it right, im sure i will be corrected if not.

More debt thrown on top of more debt isnt good.

What lovely leeds and journalgirl suggested are both good options.

iolanthe07

The OP's debts are denominated in euros, so you need to lop off about 20% to get the £ figure. As others have said, consolidation is a slippery slope unless you're very disciplined.

JournalGirl

what about considering another credit card with 0% interest for balance transfers? Transfer as much of your debt off the three credit cards as you can (starting with the highest interest one), pay the minimum payment on this, use all spare cash to clear any remaining credit card debt from the other ones, and then reduce your debt on the 0% one.

opinions4u

IndebtUK wrote: »

Like most of people in the UK, I am in financially struggling due to excessive debt, mainly from credit cards.

First of all, this is a misconception. Most people aren't struggling with debt. Most people live within their means and don't take the risk of overexposing themselves to excessive borrowing. But it is fair to say that debt problems are certainly not unique.

I have over the years, cut down drastically on expenditure, but it is still not enough. I just paid off a €15,000 loan recently (what a relief!), but my debt is still mounting up...

So how is the debt mounting up? Is it that you continue to spend more than you earn, or is it interest rates that are pushing you over the edge? Are you building up new debts as you repay old debts?

Whilst I am managing at the moment (i.e., I have not had to miss a payment) as I still have a good full time job, I am wondering if there is any "accountant" minded person out there who can give me some advise on whether to choose the route to debt consolidation.

Debt consolidation is only a good idea if you have solved the problem of spending more than you earn. If you consolidate and then get tempted to spend on the cards again after you've cleared the balances, you just end up with a new set of debts in addition to the old one.

If you consolidate, never use any other form of credit again and get in to the habit of saving for the things you need and can stick with this for the rest of your life ... then it's a good idea. Slip of the wagon and it spells trouble though.

So can you go cold turkey on credit after this moment?

chalkie99

IndebtUK wrote: »

Alternatively, I can get a single loan to consolidation all my debts. Example: bonkers.ie

11.9% APR (fixed) for €10,000
36 months term
repayment/mo: €328.79
Total: €11,836.5

In addition to the other replies, is the statement above correct? i.e. Have you actually been approved for this or is it rather a rate you have seen quoted in advertisements?

If the latter then it is entirely possible that you will be charged a higher rate of interest when your application is processed based on your existing loans and the fact you are living constantly in an overdraft.

This might throw a spanner in your calculations.

forgotmyname

As above when you apply they will take your credit situation into account and think your a bit risky so they will load the interest.

Could be higher than the credit card interest. No sense at all then.

Do everything you can to pay off the highest card, Without having to borrow more from anywhere.

Once one is paid off that will make a huge difference to paying the others. Ask around if anyone needs any odd jobs doing. My mate even got a paper round. He said every little bit helps.

IndebtUK

Hi Folks,

Thanks for all your advise and quick response.

Firstly, the €15K debt was due to car purchase plus selling our old home to move into the new one (i.e., relocation cost). We did try our hardest (but obviously not hard enough) to cut expenses down. At one point I was very proud in that we had cancelled two credit cards and got the remaining 2 cards down to near zero balance.

However, it is a fact of life that things do break down in the household. For example, washing machine went; needing a new freezer, and two consecutive harsh winters, meant that we had to spend more than double (€500 each time) in filling the oil burner to keep warm...Our second car went, so I had to buy another one... We live in the country, so can't manage without one. Even ended up borrowing from a relation to buy this second car (BTW, this car is only modest at €3,500 and not a Jag! And 3/4 of the loan has been repaid already). Also admittedly, I did spend on unnecessary things like buying a new costly cameras.

So over the last three years, the credit cards went from near zero to the current bad situations. The money is not spent on holidays as we do not go anywhere for hols. Sad I know, but we simply can't afford it.

Regarding spending beyond our means, well it depends on your perspective. On the one hand, we can afford the repayments, albeit very tightly (meaning there is nothing left for savings). I would say that we are still living within our means, but not sensibly and possible dangerously...Living beyond one means, to me would like those builders and financial speculators as they borrowed far in excess of what they can actually afford to repay if something goes wrong. As for me, the only way it will go wrong is if I lose my job.

I guess, you could also take a perspective that having to borrow money to acquire something is basically living beyond one's means. Why spend or buying something if you can't afford to pay for it in full! On the other, if you take this view, then you will never own or have anything, and that includes your education.

Yes, there are some additional funds now, but I trying to save money where possible. So far I have failed as living expenses have gone up and taxes have increased.

You are right about the loan. That was only a quick quote from an online loan comparison. In reality, the cost of the loan may be much higher. Also, as the financial institutions are getting much tighter with regulations and lending criteria, I would image that I may even run into the risk of not getting an approval for the loan, since its sole purpose is for re-financing.

Just to put a perspective to this, my last 15K loan was very competitive at 7.9% APR for 3 yr. That was the good old days (well bad if you consider the reckless lending attitudes).

So, I guess the only way forward to try harder with the budgeting, reduce cost further and clear off the most expensive card plus close it down first...

Regarding my perception of people in debt, I do stand to be corrected and don't mean to insult anyone with good financial intelligence.

Thanks again.

llh189

In my own experience, consolidation rarely works! As you tend to tell yourself that you'll pay of the CC's and never use them again, but slowly but surely you use them for something! Normally telling yourself things like "I get extra protection if I use my CC" or "I get extra points / cash back if I use me CC" or "I pay this with my CC to juggle cash this month and then pay the balance of in full next month" etc etc.

And then before you know it you CC's are high again, and now you have a loan repayment and the minimums on the CC - you then consolidate again and so it goes on!

I am talking from experience and I am probably in many ways still paying off a £30 pair of shoes that I bought 10 years ago on a CC which have now cost a lot more than the £30 they cost and I probably binned the 9 years ago!

If you can get a loan, cancel your cards and promise yourself that you'll never apply for another one then it isn't a bad idea BUT I doubt for many people this is the case.

I would cut the cards up, possibly balance transfer to a better rate card if you can ( cutting that up when it comes ) and steadily pay the debt off, paying in future with your debit card and learn to live within your means. Which I acknowledge is sometimes easier said then done!

HTH

opinions4u

So, I guess the only way forward to try harder with the budgeting, reduce cost further and clear off the most expensive card plus close it down first...

From your most recent post, this is exactly the way to go.

You need to move yourself, over time, to a point where you save up for things like replacing the freezer, repairing / replacing the car, double the heating costs in a particularly cold winter.

All these things are predictable. They will happen. You might not know when the nasty event will occur, but you can anticipate it and be financially prepared for it.

So once you have managed your debt down to zero, keep going. Build your savings up from that point.

How about an eBay sale to start raising funds to reduce debts with?