considering a loan to repay existing loan and credit card

danlightbulb

Hi all,

I am considering getting a new 3 year loan of £11k, to repay an existing loan (£6.6k) which has just under 3 years left and also a credit card (£4.4k) which is currently on a 0% deal until December 2012.

My repayments on the loan are £200 a month, which was originally 9.9% APR and I'm repaying the minimum (around £100 a month) on the credit card (at 0%).

If I was to get an £11k loan the repayments would be around £330 a month for 3 years. So the repayments would be about the same as I'm paying now and the repayment period about the same as my existing loan.

My main concern is that in December I will struggle to find a credit card transfer deal, loading hefty interest onto my credit card repayments. The security of a fixed 3 year loan does appeal to me for this reason.

However I'm also concerned that if I repay the credit card, that I will start putting spending back on it. My finances are very tight as I'm divorced, living alone and paying child maintenance, as well as paying off the existing loan and credit cards. I can't seem to help putting stuff on the credit card. The credit card balance isn't going up over time, but it isn't coming down either. Due to spending, the credit card balance is the same now as it was a year ago.

I am slightly concerned that I won't get accepted for a loan, although I have no history of defaults or missed payments. Thats why I was thinking of applying now, as if I get refused I have a few months in which to try again before my 0% deal runs out.

Would appreciate any thoughts people have, or if there are options I haven't considered.

Many thanks
Dan

CLAPTON

what do you earn?

danlightbulb

£36k which is about £2100 a month net.

jason1231972

danlightbulb wrote: »

However I'm also concerned that if I repay the credit card, that I will start putting spending back on it.

Lock the card away? Cut it up? Completely close the account?

As for your concerns of not getting a loan, you should be OK if you still have the income and (on paper) the appropriate affordability that presumably you had x amount of years ago when you drew down your first loan. But you'll run the risk of a further debt trap unless you completely kill off the credit card.

Hazzinho

Your problem is lenders don't see it as an 11k loan they see it as increasing your debt to £22k which is over 50% of your annual wage.I think you may struggle to borrow an extra 11k, you must have big out goings as your debt for your wage isn't that bad to manage.

danlightbulb

jason1231972 wrote: »

Lock the card away? Cut it up? Completely close the account?

My problem is stuff like car servicing / repairs and holidays. I struggle to absorb these into my normal outgoings. I know I could opt to not go on holiday but I have 2 little boys and I want to take them on a small holiday once a year. We are only talking £300 for a 4 day seaside break.

My fixed outgoings are these:
Rent 525
Child maintenance 420
Loans and CC 300
Council tax 80
Utility bills 80
Car insurance 80
Virgin broadband, tv, phone 38 (only basic package)
Mobile 10
Fuel 150
Contact lenses 20
Life insurance 7

That leaves about £400 for the month for food & activities with the kids.

I struggle to see what I could cut from these outgoings.

Thanks

CLAPTON

it's unlikley you would get a 11k loan as already said; and if you did it might be at a higher APR than the one you have

maybe try for a smaller loan to clear the CC

maybe some scope for reducing the 400 for food and activities with the kids; best to do that now and have a little savings before being forced to do so.

Hazzinho

I think you'd be better paying the CC hopefully you'll be able to get another 0% card. At present you either need another income or a wage increase, once the loan is over you will be in good shape. I think a consolidation loan would be a bad move as you're paying the same amount but could max your card out again.

danlightbulb

Hazzinho wrote: »

I think you'd be better paying the CC hopefully you'll be able to get another 0% card. At present you either need another income or a wage increase, once the loan is over you will be in good shape. I think a consolidation loan would be a bad move as you're paying the same amount but could max your card out again.

I have a tesco credit card with a credit limit of £4500 which is completely unused. I'm gonna see if they will give me a promotional balance transfer offer (they are currently offering 18 months on their website for new applicants).

Unfortunately another income or wage increase is not on the cards. I am lucky to earn what I do, its above average, but it doesn't go far when living alone.

As you say, if it wasn't for the loan I'd be in alot better shape. I don't think £300 a month is a huge amount of debt, its just my other circumstances that make things alot tighter financially.

My own bank (Santander) has an offer on my online banking which is a guaranteed 6.7% APR. I know I may not get accepted, but I wonder whether this is a good option, provided I also close my cards. I would probably keep one for emergencies, but reduce the limit to £1k. I have heard though that its good for credit history to have a high limit available on cards, and currently accross 3 credit cards I have nearly £10k of unused limit.