PLEASE help :) paying off debts with a lower % Loan please

FreyaMC

Hello everyone
Im super, super new so please go easy on me
Can I just thank you all in advance for the amazing support I've read on the site so far - hope you can help me personally in this thread with more of it!

Basically my husband and I carry a little debt...
I myself have a Platinum Lloyds TSB card with £1900 on it
This is all the debt I have so personally...I've not done too badly...even though it haunts me so much...
My husband on the other hand has around £3000 on his credit card, and an over draft of..perhaps another £500 which he's still carrying from university days and unpaid redundancy many, many years ago.

For all these years we have kept our finances separate but I can't help but think we could perhaps support each other more.

Lloyds TSB approached me with an unsecured personal loan offer "duh duh DUHHHH" of £7000 at 13.5% for 6 years.

Would I be crazy in perhaps taking this loan, paying off my credit card and husbands card and overdraft using this loan so we are both in the "green", then splitting the monthly payment with him when paying it back? Natrually we would still be in debt because we would have that loan BUT:

I've kind of..worked it out that we would be saving a lump sum a month each in interest between us, freeing up some money for savings.

As the loan amount is for 7000, it would mean that to pay off our debts currently at high % rates, we would have a surplus amount from the loan of about £2000 give or take.

I was thinking that as Lloyds allow an early repayment, I could throw that £2k back at the loan amount, reducing it to 5k...between us? We'd end up then only paying the £66 each still at the lower % a month until we can both save up more to over pay on the loan which would be a certain from my sketchy maths...BUT I could be doing it all wrong here, which is why I'm looking to these forums

Now...Im so sorry if that sounded noobish and utterly crazy...please don't be too hard on me if it is As I say, I'm really new and a little scared of anyone shouting at me if I'm asking for silly advice hehe..:)

Thank you all so much, ANY advice at all is welcome

All the very bestest to you.
Freya

[Deleted User]

Ok. We'll need a bit more detail to advise. Could you list the debts with their interest rates, and what sort of payments you make on each - ie minimum, or more.

Can you afford to pay more? How long will it take to pay off as you are now?

While a lower rate loan can be good on the surface, if you're extending the term significantly then you'll end up paying much more in the longer term.

No more questions for now, your honour.

FreyaMC

Hehe thank you so much for replying and taking an "interest"...that's not the right word really is it :S Im nervous haha.

Okay so the % on the loan is 13.3 for 6 years. I TOTALLY don't need 6 years to pay it off, and would say it'd be gone in 2 when tackled by both my partner and I. But you might think after reading the next bit that maybe Im not so right hehe, but I'd appreciate anything either way

Okay so:
Me - Lloyds TSB Platinum Mastercard 17.5% I pay the minimum direct debit on this for "safety" but if i CAN afford more a month then I really do try. So monthly I pay about £65 on this.

My Husband - Hmm..think it's Natwest (so sorry, these details may be sketchy for now as he's at work and I'm kind of asking this in secret hehe...but my guesses should be pretty good ) Credit card with approx £3000 with 17.9%. He pays minumum payment of about £80 a month...I think...lets say £85.
He Then has an overdraft of £1500 with Natwest. Now, I've just sneakilly asked him how this is going, and he says he currently isn't in it..but WILL be by time all of our bills go out mid month..so he only dips into it monthly..by say about £200. I really don't know what the interest is on this as depending on his personal other outgoings a month, it could be any figure..but I'm sure you might be able to know more about that than me. I've never had an overdraft.

PHEW!

As we stand now, the minimum payments keep us comfortable.
We like to keep some money over a month as a "rainy day pot"..for example if we need repairs suddenly, or if anything happens.

I budget to a point that if I am 100£ surplus a month, then I'll pay an extra £70 onto my Credit Card.

I've done a yearly guestimate of my "savings" by the end of the year (december payday) at just over 5k. At this point, I was thinking to throe £3k at any debt remaining on a loan if I did take one...reducing a 7k loan by the 2k i would have extra from it anyway, and the GUESTIMATED 3k i'd have in excess at the end of the year..leaving only 2k of it left for 2013...

MAYBE im sounding like one of those people who are a bit too scared to let go of their savings...:(

It's a scarey business hehe but i want to make it better somehow.

Tixy

Hi and welcome

Is this loan offer a pre-approved loan? or is it an offer to apply and subject to a credit check.

Have you looked into how much it would cost to borrow only the amount you need - say £3600 or whatever? and see what the APR would be on that amount?

Have you consider the option of trying to switch your cards onto 0% balance transfer cards and then working on paying them off in the promo amount of time (often around 20months or so) - that could work out a lot cheaper and sounds like it might well be achiveable and easier than building up savings to them reduce a loan down by..

FreyaMC

Hi Tixy and thank you too for your advice
Yes this is one of those pre-approved things...I've been ignoring it for months but you know how it is.

Unfortunately my partner gets declined for other credit cards..i can only assume due to a bit of a squashy credit rating with his current debts. ALSO I think we have a slightly dodgey credit report at the moment as we've just moved house and apparantly that affects it..

HOWEVER in the past I managed to clear my own credit card down the the amount it's at now by transferring some of the balance to a 0%, leaving it to it's own devices at a high payment rate, and it's gone hooray But yes, I'm now just left with this other card.

But great advice!

OOOO and I've done a check on a loan amount for 3600...hmm..the % is at 16%..quite a bit more but...perhaps that's an idea...

fracturedsun

I (fairly) recently did something similar with a loan from LTSB paying off my credit card and overdraft and getting a much lower interest rate.

Couple of points - my LTSB loan has fixed montly repayments - if I pay back an extra lump sum (which I have done on several occasions) it decreases the number of monthly repayments not the amount I pay each month. This decreases the total interest but doesn't change how affordable it is in the shortterm. So make sure you check the T&Cs and that you can afford the repayments.

Is this a lower interest rate than you are currently paying? (mine was by a lot) if it is then you are saving money if not you may be better throwing that money at the exisiting debts.

Lastly If you are just going to give them back the extra £2000 why borrow it in the first place? If you have been pre approved you should be able to get a lower amount if you prefer, this may decrease the interest too so worth checking.

FreyaMC

fracturedsun wrote: »

I (fairly) recently did something similar with a loan from LTSB paying off my credit card and overdraft and getting a much lower interest rate.

Couple of points - my LTSB loan has fixed montly repayments - if I pay back an extra lump sum (which I have done on several occasions) it decreases the number of monthly repayments not the amount I pay each month. This decreases the total interest but doesn't change how affordable it is in the shortterm. So make sure you check the T&Cs and that you can afford the repayments.

Is this a lower interest rate than you are currently paying? (mine was by a lot) if it is then you are saving money if not you may be better throwing that money at the exisiting debts.

Lastly If you are just going to give them back the extra £2000 why borrow it in the first place? If you have been pre approved you should be able to get a lower amount if you prefer, this may decrease the interest too so worth checking.

Hi and thanks
Good to hear from someone who has done this kind of thing.
As i mention in my original post or response to another persons - my interest on my credit card, same for my husbands, is 17.9%. The interest on a loan is 13.3%. As I also mention somewhere, the reason I looked more to the higher borrow is because the interest % is 13.3 as oppose to 16.9% on a loan for the exact amount that I need...So i thought if I kept the 2000 in savings or a high interest ISA until i can throw lots at the remainder of the loan then I can keep the lower interest rate..but I GUESS if Im able to pay it off early then...the % perhaps..doesn't matter too much because the interest is accumulated daily? Eek! Hope I don't sound too dumb haha.

Paul_the_Painter

My advice it to NOT get the loan.

Although you are right to say LTSB allow overpayments, you are swapping a LOT of flexibility (overdrafts and credit cards) for a fixed montlhy payment, of probably more than you are required to make now

Providing that your partner has a "fee free" overdraft, and only pays interest on it, this is costing you very little (you are only borrowing a couple of hundered £ for a couple of week)

If he is paying a daily/monthly fee, you need to sort out the overdraft immediatly.

You are in debt by around £5000

You currently pay 18%

You could pay 13%

So the decision to stick with the credit cards is "costing you 5% or £250/year, in the great scheme of things not that much.

Why don't you start by applying for a 0% balance transfer card for yourself?

Get that £1900 card paid off.

if you can pay £100/month, in 6 months you'll be at £1300, if you can get a 12 month one, you'll be down at £700.

The big plus is, as a couple your average interest will come down to about 11% - if you include the 3% balance tranfer fee on a 12 month deal, then your "average" interest rate across all debts will be about the same as a loan at 14%.

Plus you won't have the nasty temptation to spend on the card(s)! And retain a bit of flexibility in case a "tough" month comes along.

If between you, you are able to pay off a bit more, and clear the smaller BT deal card, the credit card co, may offer another balance transfer deal, so you can move across some of your husbands debts - do think very carefully at this point though!!

The main problem with taking out a loan to pay off cards, is that people don't stop using the cards!

geoffky

Work harder to pay the debt off..you will spend again if you get this loan..go for the safest option and the one with the least temptation to run up debt again..IT happens so many times .clear debt with loans/more spending on the cleared cards...