Urgent opinion required

DyingToGetOutOfRed

As it turns out I am in a financial dilemma.

We have credit card debt of £18600 spread over 5 cards. And we currently use snowballing, with £340 a month, to pay it off.
On top we have an used overdraft of about £2500 and we pay about £40 interest for this.

Anyway, today I was at the bank and they offered me a loan to consolidate, £21400 over 84 month at 19%. With the demand to cancel all CC's and cut the overdraft to £300. This would mean £466 a month to pay back. :eek:

This would come to an already stretched budget.

What would you do consolidate or keep paying back the credit cards?

Thanks

debtboredom

I think lots of people will say no but it's hard to tell without having a breakdown of your expenditure.

If you won't be able to afford it then it's an obvious no. If you can make genuine cuts then it might be worth it but it also depends on the interest rates on the cards.

Might be worth applying for a good 0% card deal though and doing a balance transfer if you have high APRs on your current cards.

RosaBernicia

What are the interest rates on your cards? Without knowing that, it's hard to see whether you would be better off. (I assume the £21,400 is the initial loan amount, not the amount you will pay including interest.)

I would also think very carefully about the increased payment and having less flexibility in what you pay/ when. If you are already snowballing then you have some flexibility in case of disaster and you will be lowering your interest bill as you go. Do your snowball calculations get you out of debt faster than the 7 years (which always sounds worse than in months!)?


Rosa xx

DyingToGetOutOfRed

We won't be able to get further credit cards. Although my rating seems to be good we get declined for affordability reasons.
We have a range of interest but "only" £970 above the 19% offered by the bank.
The 21400 is the loan amount, I calculated the interest to amount to just over £17k. With snowballing we would pay £12k in interest.
My brain tells me to stick to my credit cards as it is cheaper and as mentioned above, more flexible. But on the over hand the loan feels like a clean cut...

DrunklMunkee

Hi there DTGOOR,

this is quite a dilemma! Just a few questions...

You mentioned that you use snowballing with £340 per month. Is this £340 over the monthly payments? If it is - what are the monthly payments & extra snowballing figures?

19% seems a very high APR - especially from the bank (t3sco's are currently offering loans with 'typical' APR of 6.1% - obviously depending on circumstances!!). Normally for a loan I would steer clear of any loan that has double figures for an APR. This APR is more like that of a CC.

84 months is a long time to commit to a loan. (I am currently in month 54 of my own 84 month loan). It is a very draining drag on my cash. I resent it now - but understand your strong desire to get yourself straight.

If you do commit - I fully agree that all of the CCs & O/D should be cancelled/reduced. It is very easy to start using them again - especially if your budget is going to be tight. It takes a lot of will power to keep them and not spend on them, and then find yourself in a worse situation.

What are the 5 CC balances? are you close to getting rid of any of them - so the snowball effect moves on to the next CC?

Do you have any room on any of the CCs to consider 0% balance transfers?

also, I have just done a quick calculation. If your total debt is £21,100 and you are paying £340 per month. this will take you 63 months to pay off. This DOES NOT take account of the interest that you are paying. BUT - It does not take into account the fact that once you have paid off 1 CC - then the money you would have spent on that card gets added to the £340 per month.

Having considered, that last calculation - my gut reaction is to stick with the £340 snowballing payments.

But if you hang around on here - there may be more advice on the way.

Best of luck - I'll check back to see if I can offer any more thoughts

DM

DrunklMunkee

oh yeah - what bank was this? if you don't mind me asking. I would like to watch out for these guys.

DM

Cariad9

I took out a loan to pay off certain CC debts 6 years ago. (Comes to an end next year whoop!). It worked for me as it forces you into paying off more than just the minimum payment and as it's fixed term you can see an end in sight. When I took out the loan I had just over 13.5k in CC debt, the loan was for 8k which as I mentioned finishes next year however of the remaining 5.5k on CC I still have nearly 4K. Left low interest cards but still just paying minimum However you have to be very disciplined in cutting the cards up. Last thing you need is to take the loan and run up another card....

DyingToGetOutOfRed

Hi DM,

Thanks for the advise!

The only CC with enough room to transfer money to is a Virgin which is on 25.9%. This is also the one card which I will pay of first it currently has £970 against it.

The £340 we pay makes us currently paying £20 over minimum.

DrunklMunkee

DyingToGetOutOfRed wrote: »

We have a range of interest but "only" £970 above the 19% offered by the bank.

Hi - given the information above - I am pretty sure that I would not take out the loan. If this is the only credit card over the 19% - then this could be paid back in 3 months at your £340 payments, and then you could throw the extra money plus the £340 at your overdraft.

I would look at 0% Balance Transfers though, if possible. These can accelerate the snowballing effect.

cheers
DM

DrunklMunkee

DyingToGetOutOfRed wrote: »

The £340 we pay makes us currently paying £20 over minimum.

Ah-ha - in that case, ignore my last post - I slightly misunderstood.

But I still think I wouldn't take the loan.

Basically, if you can stick to the £340, whilst overpaying Virgin first and foremost. Then next month all of your minimum payments will reduce. Only slightly - but they will reduce! What I did was ensure that the next month, I still made sure that I paid the £340, but more of it can go against the Virgin CC.

This had 3 advantages for me
1. each month I could budget that my CC would always be £340
2. each month I could throw more at the worst CC
3. in emergencies - I could if I needed to - just pay off the minimum, and use the reduced monthly payments for any nasty surprises.

It doesn't matter, if it is only pennies to start with - these pennies soon add up and soon you will find that you are overpaying Virgin by £40...£60..£80.

Are you expecting any lumpsum payments soon? PPI? bonus at work? overtime at work? Always try and throw it off the Virgin card.

Have you applied for credit quite a lot lately? this may be affecting your ability to get a 0% card. If there have been a lot of searches against you - then this is likely to affect your request for more credit. Maybe hold off applying for credit for 6 months and keep making the £340 payments. This will help in that your payment history is improved at the credit reference agencies, plus, as there are fewer searches against you - fewer alarm bells ring at the finance companies.

I hope this helps, best of luck.

DMx

DyingToGetOutOfRed

Thanks again DM,

I think I made up my mind and will stick to the CC's. The Gentleman at BoS will be disappointed ;-)

I hope I will have a PPI coming. I complained against it but it was declined, so I complained a "bit loader" and now I am waiting... but in any case I think they will pay the money (probably £300-500) onto the CC and that isn't the Virgin. But no matter, every little helps...