Loan vs Snowball

IsoChick

We have about £30k of unsecured debt - mostly CC, and a bank loan due to finish in 7 mths. We pay approx £1200 in debt repayment every month (min payments only).

Our original plan was to snowball the CCs once the loan had finished (with the money that the loan was taking up), and close the CCs as they get paid off (we no longer spend on them).

This weekend, we have been offered a bank loan to consolidate our debts. £30k, over 5yrs, £600 monthly payment, with an option to overpay if we want to. We have passed the credit check (surprise!)

The snowball would finish 6mths earlier than the loan, but takes up all of the £1200 every month. There is also the extra hassle of making the extra payments every month.

The loan only takes up half of the £1200, giving us a £600 cushion, which is important, as I lost my job earlier this year, and am currently working on med-term fixed term contracts, with no real job security. It would also mean that we can start to build up savings for stuff and wouldn't have to do the "OMG, the washer/cooker/car is broken" panic anymore.

I don't know whether to take the loan, or just snowball the CC when the original loan has finished.... am I missing any options/pro's/con's here?

bargainbetty

Taking out debt to clear debt is usually frowned upon, but if you are already snowballing etc, and are sure that you will be able to destroy all the cards and not run up the debt again, then it might not be the worst thing.

From the figures you mention, the loan interest rate must be much lower than those on your cards - work out the total owed each way, and see what will work best for you and your family.

Only do it if you can be sure you will close the cards. I've done consolidation twice.

MJ41

Is this a secured loan? I was under the impression that you could only borrow £25000 unsecured (may be completely wrong here!)

If its secured I wouldn't switch the debt as you are risking your house, otherwise I would take it, build up a small cushion then overpay as much as possible to reduce your loan term and get of of the debt.

It's vital you close the cc accounts though!

blisteringblue

I've consolidated twice also and am still paying the price. The last one is now part of my mortgage which is doubly annoying as the cards are still racked up again.

We too have 8 payments left in a loan but no way would I consolidate again (they've started sending all the new loan bumf) but the loan payment is going straight into my snowball.

We'll pay off 30k in 3 years on the current snowball, and to be honest our standard of living is not too bad. OK we're not going abroad this year, but the last couple of holidays are now a large part of the card debt anyway.

Only take that loan if you have already cut up your cards. But if you are used to living on your snowball just stick it out and then you won't have the temptation.

IsoChick

Thanks guys - definitely food for thought!

We've already got rid of about £15k of debt in the last 2 years, and paid off and cut up 2 credit cards, so I know we can do it!

Moneywise, we're in a better position than we were a few years ago, when we were having to use CC for food/petrol etc - we don't need to do that now; and haven't spent anything on CC in the last 2 years.

We've never consolidated before (the other bank loan was for a car), so I'm hoping this will be the first and only time!!

DVardysShadow

I suggest that you do not consolidate the full amount if you consolidate at all. The problem with a loan is that the repayment schedule is not as flexible as cards - wit the result that if a crisis pops up, you have less wriggle room.

I would suggest considering consolidating no more than 50% - and try it in the snowball calculator to see how it looks - take out your highest APR card debt to match the loan and put in the loan your are proposing.