Should I get a loan to clear debts

Mumsiemoo

I'm new to this board but hoping for some advice.
I have two young children, a fixed rate mortgage which isn't a great rate, on maternity leave etc etc so basically I am in a very expensive period of my life.
My eldest will get 15 hours free childcare from the end of this year, I can apply for a new (hopefully cheaper mortgage) and my husband should be getting a decent payrise.
My question however relates to my current debt. I am able to meet repayments but not able to pay any more off at the moment. When my husbands gets his payrise we will be using all of that to start clearing debts but I'm wondering if I should keep them as they are or move them.
Current debts;
2.5k overdraft
3 credit cards (all 0%) totalling around £10k
Should I look at a loan, put them all on one card or just leave as they are?
Many thanks in advance.

Tixy

Hi

Generally consolidation loans are not well thought of on these boards, but that isn't to say they can't work for some people.

Firstly are you realisitcally likely to be able to get a consolidation loan? if you are only making minimum repayments and are in a sizable debt then it may well be that you wouldn't be accepted for a loan anyway, especially if you have very little income at the moment being on maternity leave.

Moving credit cards from 0% to a loan with interest also wouldn't usually be advised, although obviously they won't be on 0% for a long time and again it may depend on whether you can get new balance transfer deals at that point.

What interest or fees are you currently paying on the overdraft? At the moment is the overdraft high point remaining at the same level each month? as if so whilst you might be able to get a loan with a cheaper APR (or equivalent) it is likely that the repayments on any loan would be more than what you are paying in overdraft fees a month at the moment.

Have you looked at a snowball calculator at all? it might be worth calculating one, and then another with extra repayments once your husband has he payrise (have you worked out how much extra a month you expect to be able to put towards debts later in the year)
http://www.stoozing.com/calculator/snowball-calculator.php

Million_Percent

You need to work out the relative costs. If most of your CC debt is currently on 0% then it's not worth transferring that onto a loan. When the 0% period ends though it could be different matter if you are not able to transfer to another 0% deal.

If you do go down the consolidation loan route, make sure you close the credit card accounts you have paid off so that you cannot build them up again.

Also don't be too optimistic about how much you can afford to pay each month on a loan. I did a consolidation loan a few years back and at the last minute I added an extra year to the loan term to decrease the monthly payment. I am glad I did because it was a struggle to pay every month as it was.

delmar39

If it were me I would transfer the debt to one card, but as per what I wrote in another thread on here it all depends what credit limit you get. It will take some work and awareness, but I'd go for 0% cards. Close the old ones asap and make a note of the exact closure date. You cannot usually apply for the same card within a year, so by closing asap you get yourself access to more and better deals with a number of different providers. Better than leaving it open with nothing on it. I know you're struggling to find money for extra payments but try. It's amazing what you can cut back on when you really look hard at your outgoings. I also wrote on another thread about saving into say an ISA when you have all your debt at 0%. This way you don't pay on cards, but generate interest on the money in the bank. It'll all help towards clearing some of the debt prior to 1. paying them off or 2. doing another transfer. Best of luck.

[Deleted User]

You can't clear debts, by getting a loan.

All you can do is move them.

They will still exist.

Monkeyballs

Bedsit_Bob wrote: »

You can't clear debts, by getting a loan.

All you can do is move them.

They will still exist.

And add interest while doing so...

You have cards with 0% interest so there is no point moving the balance until the free period ends then it'll be worth looking to get another 0% offer...

Failing that then if you can get a loan for a lower interest rate then fair enough but remember... Don't let your aim be to obtain more credit or reduce the amount you pay each month.

This might sound rich coming from me with a pile of debt on a DMP but if someone had given me this advice 10 years ago (and assuming a 10 year younger me would listen) I'd have a lot less owing

MB

gfplux

Try also to work within the possibility that you will not be able to remortgage at a cheaper rate and your husband does not get his pay rise.
If you count on both of those things happening and one or both don't happen!!!!!
Best wishes

bubblegun

I'm no expert but I'd work on reducing the overdraft as it's probably the most expensive debt until the cards come out of 0%.

If your 0% is ending soon then look at what those rates are afterwards and how much you will be stuck paying for everything.

At best you should work out affordability based on your current income.

The loan, if you can get it, should be a last resort only if you cannot afford the payments of everything in full over the next few months but that over the shortest term possible the loan will make the total manageable. Long term re-financing deals don't work as next year or the year after you will have more things you need to pay.

Speak to your mortgage provider as this will usually be cheaper than shorter term loans but be aware it will increase your long term payments.

Really in the short term you should cancel everything you don't really need like subscription tv or the higher tier broadband or gym memberships, etc. pay as much off as you can then add these things back in order of importance as you can afford them.

As said above do not count on anything like pay rises as this is still a tricky economy.

National_Debtline

Hello there,

I would like to echo the sentiments and advice from the others. I've spoken to scores and scores of people who have taken out a consolidation loan - only for the balances to build up again. This simply causes the debt level to increase over time. Consolidations can work, but you need to be incredibly vigilant so as not to borrow again going forward. Based upon my experiences in speaking to callers over the years I think you may find it easier to find ways to tackle the debts as they are. You may wish to look to pay the debt with the highest interest rate first and then move on to the one with the next highest - and so on. This is known as 'snowballing'. The Debt Camel site has a great article on how to effectively do this: http://debtcamel.co.uk/debt-options/snowball/

I really hope you find this information useful!

Best wishes,

David @ National Debtline.