Debt Consolidation Loan - Newbie Advice Please

HP550

Hi,

I am looking to consolidate a few credit card balances into a personal loan in order to a) combat their constant raising of rates to crazy level and b) to see some light at the end of the tunnel.

Current status. Both myself and my wife are employed with a joint income of £40,000. (income can be verified via wage slips). Savings approx £3k.

Credit card balances circa £20k. Currently paying the minimum each month.

Other credit - car loan - 49 months into a 60 month agreement. Balance circa £2,900. Monthly payment £260 per month

Our credit rating should be very good as everything is always paid on time, never missed a payment anywhere.

Home owner (mortgaged with circa £30k equity).

Question is what is the best way to approach this?

I am wary of approaching my own bank as they refused me a zero % credit card to transfer a balance around a year ago. I believe this would have a negative impact on my credit file. Since then my wife has returned to work earning £15k. Should I be wary? How much influence does a history with your bank (nothing negative) have in the decision making process or is your chances of acceptance as likely by moving lender?

I would guess an unsecured loan would be the best way. Any pointers on who the best lenders are out there for my circumstances?

Current credit card payments are circa £550 to £600 per month so I would be looking to use as much of this to put toward a loan. (eg £20k over 4 years with Halifax at 15.4% is a touch over £550 per month).

The above is a heavy loan but 4 years then clear would be far better than what seems a lifetime on the credit card repayments. Is this the type of thing I should be looking at?

Any advice is greatly appreciated. Need to get this monkey off my back:o

D

Tixy

Hi

Are you aware you can opt out of any credit card rate rises?

Whilst your credit repayment history may be good from the information you have provided you may struggle to get a new loan based on the potential lenders afforadability calcs.
A potential lender will not assume that you will use the loan to repay your debts and will assume its additional debt on top of what your already owe (as you may not use the money for that, or may respend on the cards again and end up in twice as much debt).

Is there a reason you have savings when you have that level of debts? Its usually advised to repay debts before building up savings, as the interest on savings in tiny compared to the interest you are probably paying on debts.

Usually as your own bank know the most about you they are the most likely to give you a loan. Thats a general guide rather than a set rule.

maginot

You already have 50% of your earnings as credit card debt, so will struggle to get 100% unsecured debt. Remember consolidations loans are still seen as extra debt, even if you intend to pay it off.

You can refuse to accept any rate increases on your credit card and just pay it off as normal (although you are not allowed to use the credit card again) if you are worried about rate increases.

I would recommend you just concentrate on overpaying the most expensive debt, could you apply for another zero credit card to shift some debt? I would also use my savings to pay debt, however this would be down to your situation, I have no dependents, so am not overly worried if I lost job. But, you may need to have a buffer to enable you to meet priority debts if this happened!

HP550

Tixy wrote: »

Hi

Are you aware you can opt out of any credit card rate rises?

Yes, I am just about to contact the card with the majority of the balance and reject the rise. I have done this with another. Both these cards are never used anyway so no probs with removing future use.

Whilst your credit repayment history may be good from the information you have provided you may struggle to get a new loan based on the potential lenders afforadability calcs.
A potential lender will not assume that you will use the loan to repay your debts and will assume its additional debt on top of what your already owe (as you may not use the money for that, or may respend on the cards again and end up in twice as much debt).
Thats the big problem as I see it. Ideally I need them to make a payment(s) direct to the other lenders but I guess this can be tricky.


Is there a reason you have savings when you have that level of debts? Its usually advised to repay debts before building up savings, as the interest on savings in tiny compared to the interest you are probably paying on debts.
Cash came from a small inheritance. Sensible thing to do would be to use this to pay off some debt. Nice to have a wee bit set aside just in case. I would review this as part of the big picture

Usually as your own bank know the most about you they are the most likely to give you a loan. Thats a general guide rather than a set rule.

..............

Tixy

A new lender won't pay off an old one. And even if they did they won't know you can't run up the cards again.

If you big credit card balance is with your own bank then obviously they can ensure that that proportion of the loan is used to pay off that credit card so then look at the extra you are borrowing to pay off other creditors as the only additional part of the debt.

HP550

Looked at my banks options on "additional loans (secured). Whilst I know this is not a preferred option for obvious reasons both my own and my wife's jobs pretty secure. A 5 year deal could save me £200 per month and clear the lot.

Financially it makes loads of sense (6% on the secured against 26% on the CC's).

Anyone think this option may be open to me and if it may be my best option given my current lending to salary ratio.

I have circa £30k equity (25%) on the house.

Alternatively is there any specialist companies who could factor the transfer of funds from a new loan and pay off the existing debts.

Whilst I understand no one is gonna double my lending I cannot be the only person ever caught in this whirlpool, especially in today's climate. There must be someone who can factor something for me.

Bottom line is I accept the debts, I have the income to repay and have an unblemished credit history.

Tixy

You are right lots of people are in the same position as you in terms of debt to income ratios. The problem is there are plently of others seeking loans who are not and so who lenders will prefer as being lower risk than someone in your position.

I don't believe there are any specialist lenders left who pay off the old debts themselves. There used to be some a few years ago although there were also horror stories of them not actually making the payments and the debtor ending up being chased by both old and new companies and not having proof that a pyment was made or should have been made.
And even if a company did offer this with credit cards you could still run up the debt again by going out spending on the cards (new lenders cannot see your cards are stopped to new spending).

With only 25% equity in the house I think you may struggle for a secured loan, and would certainly advise against it. Even if you think your jobs may be secure there are other reasons for a change in circumstances reducing income (ill health, accident etc).

Have you worked out a statement of affairs to see how much you should have left for debt repayments after normal living expenditure? and then looked at ways you can increase this to pay more off your debts (either by reducing outgoings or increasing income?). Might be worth posting on the Debt Free Wannabe section and seeing if people can make suggestions for getting things cheaper/finding costs you reduce by switching providers/shopping around etc.

HP550

Just spoke to the company my major debt is with regards a personal loan. They say they will take into account it will be a) for consolidation of existing debt and b) the debt is to them and can be paid off and account closed there and then. This would remove the risk of adding to my borrowings total.

Suppose I need to take the risk of a black mark on the credit file if it fails.

I also have a zero % option on my current active card for balance transfers which I can move some more and up the repayment £££ should I be successful with the above loan as the payments would be lower.

Cheers for your advice, it has been very helpful.

D

blacksta

The Key strategy here, is to make sure that the consolidation loans does not cost you more on the long time. Consolidation loans only make sense if you are paying a lower interest rate than previously. do your sums well - dont be sway by lower monthly payments.