To consolidate or not

Debtbusterintraining

Had my LBM in January of this year and as you can see by my signature I have been slowly chipping away at this,continuing in the same vane I think I can be debt free by dec 2015 so in 3 years time. I currently pay £1100 monthly to my debt,half of this goes on the interest at present. However hubby has investigated refinancing our loan to pay off all the cc's and has pretty much got £25000 unsecured agreed with a monthly payment of £550 but over 5 years. So we are not borrowing any more than we need and we will be better off each month BUT it over a longer term. We have got into debt by living beyond our means and I'm not convinced by taking what seems an easy way out that we will have learned anything from it I am also unconvinced that we would have the willpower to avoid any further cc spending by taking this route,hubby on the other half is really for the new loan. Thoughts and opinions welcome please, has anyone actually consolidated and stayed out of debt in the longterm, from what I've been reading on here seems all negative.

~Beanie~

I got a loan for £8K to pay off my credit cards. I ended up owing nearly 16k :mad:

It was far too easy just to think 'Oh, I'll just put this on my credit card and pay it off in full on paydy..' and I never did.

If you do it, make sure you CANCEL the credit cards, don't just cut them up because when they expire and you get new ones, you will just use them again.

I'm on my way to clearing my debt now, not with another loan though!

Debtbusterintraining

Thanks beanie I'm really not keen on this loan for that exact reason,it seems to be what everyone is saying,hubby on the other hand is all for it saying we will close all the accounts,this is going to sound naive but can people live without a cc,what about emergencies,I take it that's why people save,never been any good at that either hence the debts.

worried48

We tried a consolidation loan once. Ended up with the cards back up to maximum anyway.

Treadmill

I've consolidated at least three times over the years, for it to work your discipline needs to be cast iron and you need to understand why you are in debt in the first place, overspending. Easier said than done. Better to cut right back and get that card debt down in my opinion.

Plus for this to work you and your husband need to be in complete agreement about the course of action and what it involves, otherwise you can add rows about money to your woes.

UsetheFORCE

Cancel the cards but keep one open with say a 2k limit for emergencies...

happycamel_2

I'd say if your repayments are £1100 a month the take the loan and do this:
1) £550 loan repayment
2) £400 standing order in to a savings account with a notice period and limited withdrawals
3) 150 a month in to an instant access savings account. You can draw on that account to buy stuff you want. But only if there is enough in it.

Close all the credit accounts and don't open new ones.

Debtbusterintraining

Happy camel-thanks for that we were thinking of putting savings into an account and paying the loan of early but like others say we will need cast iron will for this and that is the BIG question. We can't shorten the term of the loan as based on affordability the bank won't give us it even though our monthly payments just now are more and we've never missed a payment.

happycamel_2

If its a self control issue that's not one I can pretend to understand because I'm an accountant so my problem is being very controlling of our money. So maybe you need to pay the higher interest and overpay the loans, you'll probably pay more overall but will definitely climb out of debt rather than risking consolidating then overspending again.

I'd say that the nature of the savings account would be key. It needs to be a notice account, at least 30 days, limit the withdrawals and maybe needs both your signatures to draw funds. That way the money would be really hard to access, which mimics how it would be if you handed it to a creditor.

Then you need a small fund of more accessible money that you dip in to for unpredictable expenses. Presumably your predictable outgoings are covered by your income before making the debt repayments. Fill in an SOA (on the DFW board) to be sure. Otherwise you'll find yourself wanting to borrow to pay for predictable but irregular costs eg annual car insurance.

Good luck

fozmcfc

If you haven't already, I would post your post in the debt free wanabee section of the board.

Consolidation loans, only work, if you cut up all other means of credit and change the lifestyle to keep up the payments and not taking out any other credit.

Consolidated 2 or 3 times in the past and it never worked for me, because I carried on spending.

Finally had my light bulb moment in Jan 2009, did what you are currently doing and was clear by July 2012.

Not sure you will get the loan anyway, because lenders add the amount to debt already outstanding, because they have no way of ensuring you pay off all other debt with the loan.

So they will see you as having £50k + debt, if they give you the loan. You'll need to be earning £100k + for any chance IMO.

Secondly if by some miracle they do lend, it may not be at the lowest APR, you could well end up with twice or more the APR quoted. Only 51% of applicants will get the headline rate.

One the things I did after my lightbulb moment was to apply for a 0% balance transfer credit card.

I was paying £70+ interest to an Egg card. I applied for a Virgin card and got 16 months with no interest and transferred £3500 to it. There was a small fee of 4% on top. But after that I had 16 months without worrying about interest on the card as long as I kept the minimum payments to it up each month.

That enabled me to overpay one of my loans to clear it, a year earlier.

People might be able to give better advice, if you list what your current £25000 debt is made up of. I.E. list cards, loans and the APR for each one.

pheonixrising21

Not sure you will get the loan anyway, because lenders add the amount to debt already outstanding, because they have no way of ensuring you pay off all other debt with the loan.

So they will see you as having £50k + debt, if they give you the loan. You'll need to be earning £100k + for any chance IMO.

Not strictly true. I had a meeting with an advisor at Natwest offering me a consolidation loan. I brought up this exact point with them, as I have over £7k, so if I applied for another loan would they see this as over £14k and therefore be unaffordable. They told me that they have a specialised loasn department who actually monitor your current loan accounts once you've taken the consolidation loan to make sure that they are being closed, so they don't really take that into account.

I didn't go through with an application in the end as the soft search they did on my credit file pulled up a warning flag (which is an AP marker I am fighting Santander about), so it wouldn't go through until Santander sort that out.

TBH, I've always said that consolidation loans should work in the same way the changing car finance does. Say you have a car which is worth £7k to trade in and you have £4k outstanding on finance. When you go to trade the car in, you aren't given the £7k and told to go and settle your finance are you? The dealer does it for you. They call up your finance company, settle the loan and close the account on your behalf. They then keep the other £3k as deposit on your new car (or give you some of it if you aren't putting it all in as deposit).

Why can't consolidation loans work like this? You give the loan provider details of all your debts, they pay the other lenders off and you just pay them the agreed monthly costs of the new loan. They manage to do this sort of mass and multi-party communication when they do current account switching, so why can't they do it for debt consolidation?