Taking out a personal loan to pay off debt

fatbelly

The problem with consolidation is mainly psychological.

Once you have consolidated you will have a credit card with zero balance and 3k credit limit, and an overdraft facility of maybe 2k, and no overdraft.

For many that's just too tempting and a few months down the line they will have the loan, plus a 2k credit card bill and a 2k overdraft.

ellerose

Is a 0% percent credit card not an option for you on those balances?

getmore4less

More info on the early repayments

http://www.oft.gov.uk/about-the-oft/legal-powers/legal/cca/Earlysettlement#.UxRA9ClFB0s

http://www.bis.gov.uk/assets/biscore/consumer-issues/docs/c/10-1053-consumer-credit-directive-guidance.pdf

getmore4less

GingerFurball wrote: »

I admit it was a poor choice of title. I'm still aware I have the same amount of debt just in a different form, as per the OP:

I think you can edit it.

Agree reducing the cost of debt is a good idea as long as it stays flexible and is paid off ASAP.



What's the SOA look like?

As other point out there may be other options like 0% cards that are even cheaper, a long purchase one may be of use..

Monkeyballs

Morning Furball,

It's not an unreasonable idea but there are a few questions which you need to think about first in my opinion...

1. You have £4805.67 outstanding, how much do you pay towards this each month? By paying this will you hit your Christmas 2014 target?

2. How much do you intend to borrow? I'd assume it would just be the total combined debt plus maybe another £100 to allow for any interest due in the time it takes to get the loan money and pay off your debts?

3. How much would a monthly repayment to the loan be and how does it compare to what you are currently paying against your debts at present? Is the intention to overpay/save the difference?

4. Can you tell me why you got into debt in the first place, what you have changed so you won't get into the same situation again? What have you learned?

5. Have you any sort of emergency fund in place?

Personally, I would resist the temptation of the loan because I've fallen for the consolidation trap before now and used my cards again - I'd like to think that I have learned my lesson but I'd like more time for the resulting situation of my old habits to properly sink in... That's me, could the same be said for you perhaps?

I can totally see the temptation but remember, this is one of the ways in which banks make money - if you take the offer it is your debt to pay off ASAP and not the bank doing you a favour

MB

GingerFurball_2

fatbelly wrote: »

The problem with consolidation is mainly psychological.

Once you have consolidated you will have a credit card with zero balance and 3k credit limit, and an overdraft facility of maybe 2k, and no overdraft.

For many that's just too tempting and a few months down the line they will have the loan, plus a 2k credit card bill and a 2k overdraft.

Absolutely. However, with regards to the account with an overdraft facility, I actually have no way of accessing that bar calling up the Co-op and asking them for a new debit card and chequebook (card got swallowed by a Co-op ATM years ago and I never bothered asking for a new one), so actually getting access to the account is just as difficult as actually closing it! I want rid of that account and will be glad to be rid of it when I can get the overdraft paid off.

ellerose wrote: »

Is a 0% percent credit card not an option for you on those balances?

No. My credit history isn't perfect, with the exception of the Capital One card I'm a 50/50 shot at best for a balance transfer card. Don't want to take the risk of applying for credit and being declined.

Monkeyballs wrote: »

Morning Furball,

It's not an unreasonable idea but there are a few questions which you need to think about first in my opinion...

1. You have £4805.67 outstanding, how much do you pay towards this each month? By paying this will you hit your Christmas 2014 target?

2. How much do you intend to borrow? I'd assume it would just be the total combined debt plus maybe another £100 to allow for any interest due in the time it takes to get the loan money and pay off your debts?

3. How much would a monthly repayment to the loan be and how does it compare to what you are currently paying against your debts at present? Is the intention to overpay/save the difference?

4. Can you tell me why you got into debt in the first place, what you have changed so you won't get into the same situation again? What have you learned?

5. Have you any sort of emergency fund in place?

Personally, I would resist the temptation of the loan because I've fallen for the consolidation trap before now and used my cards again - I'd like to think that I have learned my lesson but I'd like more time for the resulting situation of my old habits to properly sink in... That's me, could the same be said for you perhaps?

I can totally see the temptation but remember, this is one of the ways in which banks make money - if you take the offer it is your debt to pay off ASAP and not the bank doing you a favour

MB

All fair questions.

1. My outstanding balance is actually £3931.04 - I've managed to pay off c.£850 of my outstanding debt (and spent about £150 on top of that in interest payments!) - that's all this year.

2. I would be borrowing £3,800.

3. The monthly payment would depend on the term of the loan. It's c. £333 a month for a 12 month term, dropping down to about £100 a month for 4 years. What I am tempted to do is take the loan out for a longer term as a sort of insurance against some kind of financial catastrophe. If I lost my job in 6 months, then maintaining the loan by making payments of £100 a month is much simpler than £333 a month! The intention would always be to overpay though.

4. Being a student and running up a student overdraft, and using the credit card to maintain a level of spending that I was used to once the student loan dropped off and I struggled to find full time work after graduating. 3 major things have changed. Number 1 - I stopped smoking 13 months ago, which led onto number 2 - in my normal current account, I've gone from being at my overdraft limit the week before payday to virtually never being in my overdraft at all. My mentality when it comes to my bank balance has completely changed as well. I used to look upon my overdraft limit as my zero balance. Now 0 means 0. The third thing that's changed is being in a much, much better job - while it's still modestly paid, and I earn less than the national average, it's far more money than I've ever earned in my life.

5. I've got a regular savings account that I'm saving up in to pay for Christmas, a small ISA and a slush fund where I'm just building up small amounts here and there. Not a huge pot, but enough to sustain my loan payments for 2-3 months if needs be.

Monkeyballs

Hi Furball,

Thanks for the info, I asked question 4 because often people just don't like spending so much on their debt and want to reduce their outgoings to "have a life" which technically isn't a bad thing but what is a bad thing is when you have reduced outgoings and a longer term debt you have free money so the temptation to take more credit "because they'll be able to manage another £50 a month" and so the cycle continues...

That doesn't sound like the case with you though so that's out of the way

If I was in your shoes, I would go with the 1 year option because if you lose your job in 6 months time then you only have half the level of debt to negotiate a new repayment plan on or enter into a DMP (or similar repayment plan) if that makes sense?

So based on the numbers above, 12 months = £3996, 48 months = £4800 and that is what you would wind up repaying the remainder of if the worst does happen... Even if you do overpay the likelihood is that taing the loan over 4 years would work out more expensive so it's dead money.

That's what I'd do

MB

GingerFurball_2

Monkeyballs wrote: »

Hi Furball,

Thanks for the info, I asked question 4 because often people just don't like spending so much on their debt and want to reduce their outgoings to "have a life" which technically isn't a bad thing but what is a bad thing is when you have reduced outgoings and a longer term debt you have free money so the temptation to take more credit "because they'll be able to manage another £50 a month" and so the cycle continues...

That doesn't sound like the case with you though so that's out of the way

If I was in your shoes, I would go with the 1 year option because if you lose your job in 6 months time then you only have half the level of debt to negotiate a new repayment plan on or enter into a DMP (or similar repayment plan) if that makes sense?

So based on the numbers above, 12 months = £3996, 48 months = £4800 and that is what you would wind up repaying the remainder of if the worst does happen... Even if you do overpay the likelihood is that taing the loan over 4 years would work out more expensive so it's dead money.

That's what I'd do

MB

I hate spending so much on my debt, that's £1,000 that I could have spent booking a nice holiday, or saved up to put towards a house deposit. But the more I spend now, the less I'll spend in the long run. Short term pain for long term gain!

Monkeyballs

GingerFurball wrote: »

I hate spending so much on my debt, that's £1,000 that I could have spent booking a nice holiday, or saved up to put towards a house deposit. But the more I spend now, the less I'll spend in the long run. Short term pain for long term gain!

Exactly a year will fly by... It's already March !!!!!!! LOL

MB

getmore4less

GingerFurball wrote: »

I hate spending so much on my debt, that's £1,000 that I could have spent booking a nice holiday, or saved up to put towards a house deposit. But the more I spend now, the less I'll spend in the long run. Short term pain for long term gain!

Its not just the cost of the debt,

Have a good look at the value you get from all your spends it is easy to fritter money when you have more than you need.

It's one section that is missing from the standard SOA format as it is aimed at getting out of debt but once that is done it can also be used to set saving goals.

Change the debt section to a savings for XX section.