Faster way of clearing existing debt

terric

Hi everyone,

I've currently got £5,350 of a £7500 personal loan left to pay (2 years left) and was wondering what the fastest way to clear this is? I've spoken to the bank and they're VERY unhelpful once they find out I don't want to buy anymore of their money. They've offered me another loan, but the interest rate is atrocious, unless I take a minimum of £7,500 again. Basically, I want to borrow the amount I owe now, over as little time as possible, and pay as little interest as possible.

Would it make sense to look around for a 0% balance transfer card, and hammer the balance down as fast as possible? Or is there a better way, that some of you have experienced? I've got a good income, full-time secure job, haven't missed a payment for over 1 year, no CCJs, no defaults, no pay-day loans (never taken one either) etc.

Thanks in advance!

moohound

Check the terms and conditions and maybe overpay on the loan, or save up until the settlement figure is almost the same as your savings and pay off all but one months worth then let the last payment come out as normal and the loan is then cleared. This method can be used to avoid early settlement charges sometimes, it depends on the terms and conditions.

The banks are usually un helpful as they are seeing their profits sailing away if you pay it off early. They would probably charge you two months interest if you could move it to a credit card.

Post your question on the loans board perhaps, those guys there will do the maths for you.

What is the Interest rate on the loan?

The_Boss

If you can overpay then that will save more interest than putting it in a savings account. Try that. Some lenders let you reduce the monthly payment or the term; if so, ask which one will result in the best interest rebate.

As asked above, would need to know the interest rate to advise further - it may be possible to shift all or some of the debt to an MBNA card or similar to help you pay a lot less interest.

terric

Thanks for the replies!

I'm not sure of the exact rate, but it's something in the region of 22%. I'm currently paying £270/month, where £80 - £92/month interest is added on... the amount varies.

The_Boss

terric wrote: »

Thanks for the replies!

I'm not sure of the exact rate, but it's something in the region of 22%. I'm currently paying £270/month, where £80 - £92/month interest is added on... the amount varies.

Ok. What's your salary? Do you have any credit cards? If so, how many, who are the lenders, what are the credit limits and what are your balances?

Tixy

You do need to find the exact rate out, then you can make informed decisions.

You are currently paying £270 - how much is the max you can afford to pay a month?

Is the £5350 the current balance?, a settlement figure? or the total amount of your remaining installments if you run to full term?

terric

The_Boss wrote: »

Ok. What's your salary? Do you have any credit cards? If so, how many, who are the lenders, what are the credit limits and what are your balances?

Current salary is £31,500/year but my wife and I have twins due in less than 4 weeks! So a lot of money has / will be going to them, hence wanting to get rid of this debt as soon as possible. I've got about a year (maybe 2) where I can get away with giving them cardboard boxes for christmas :rotfl:

I know my income looks good, but I need to prepare for the possibility that I'll have to support 4 of us on my income alone in 6 months time when maternity pay is done. I also want to start saving up for a deposit on a house etc.

I have a £5350 / £7500 personal loan with RBS, and a £876 / £1000 credit card with RBS. I reckon I have 6 months where I can accept taking a fairly big hit (say £350 - £400/month) to go to this loan. I'd like to do this without getting into more debt, so I know I could consolidate etc. but that'd mean taking another loan and I'd have to take more than I need to not get stung on interest rates.

The_Boss

OK, so based on what you say I reckon there is a good chance of you being accepted for a credit card that could give you what you want.

These look like good cards
http://www.mbna.co.uk/credit-cards/mbna-rate-for-life-credit-card/?MC=UCBMBN001PF - has a low rate for life and 1.5% once off fee. Better if you think it will take a lot longer than 18 months to pay off.

https://apply.mbna.co.uk/UKNeoCCapp/entry?sc=1UCMMBNIAS001CV&mc=UCAMBN001NK - 0% for 18 months and 4% fee - better if you can pay that off in 18 months.

Check what the loan interest rate is by calling them or reviewing old paperwork and confirm actual balance and the settlement figure. Then if the interest rate is as high as you say, apply for a card such as that. If accepted and the credit limit allows, transfer the money from your MBNA card to your current account. Use this to settle the loan.

terric

The_Boss wrote: »

... phone for a settlement figure for the loan and transfer the money from your MBNA card to your current account. Use this to settle the loan ...

Thanks very much for that. Quick question, if the settlement figure is ridiculous or they want to charge over the odds for early settlement... what are the alternatives?

I'll give RBS a call on my way home later and see what they say, it seems to be getting (by design I'm sure) increasingly difficult to speak to someone "helpful" in a bank. They're contractually obliged to act 100% in the bank's interest and most of the time (even though I've found it's not the case) will just stop dead and say "sorry, that's all we can do".

The_Boss

terric wrote: »

Thanks very much for that. Quick question, if the settlement figure is ridiculous or they want to charge over the odds for early settlement... what are the alternatives?

I'll give RBS a call on my way home later and see what they say, it seems to be getting (by design I'm sure) increasingly difficult to speak to someone "helpful" in a bank. They're contractually obliged to act 100% in the bank's interest and most of the time (even though I've found it's not the case) will just stop dead and say "sorry, that's all we can do".

The settlement figure will be less than the current balance - you will repay the capital, but not all of the oustanding interest. You may have to pay up to 3 months interest, but that should be it. It's important to get the settlement figure though so you know what the cost saving is. You can then work out what your 4% cost would be if you went the 0% for 18 months route with MBNA and then evaluate the saving.

So for arguments sake, if they said your settlement fee was £4.8k, then 4% of this is £192. That would be MBNA's fee. So you'd owe MBNA £4,992 over 18 months instead of the roughly £5.3k to RBS. That's an almost £400 saving immediately and also I suspect your settlement figure could be lower than £4.8k. I'd be confident that you'd get a limit in excess of £5k with MBNA based on your profile info above and the fact that they seem to be a generous lender. If not, then just transfer as much as possible to your bank (they usually allow 95% of the credit limit) and repay that amount early for the interest rebate.

JimmyTheWig

terric wrote: »

I'd like to do this without getting into more debt, so I know I could consolidate etc. but that'd mean taking another loan and I'd have to take more than I need to not get stung on interest rates.

If the interest rates are the same, you'd pay less interest in total with a £7500 loan over one year than you would with a £5350 loan over two years.
So it might make sense to do that.

DON'T spend the difference between the two loans!
Use it to pay off the credit card balance (unless that is at 0%) and put the rest into savings. You could (depending on repayment penalties) use this to clear the balance of the loan early.