Need to start the ball rolling....

Toomuchtodo

Hello all, I had my LBM in Feb this year and have spent a while reading through the board and gaining some really useful knowledge. I am struggling to get to grips with what actually comes in and goes out of our household financially, either because I am busy working or looking after the kids in the day or being too tired to make sense of it on an evening. Anyway I would really appreciate some advice on getting our debts down (all unsecured) I am currently working on an SOA but my first quick question is local Halifax branch have rung wanting us to go in and discuss reducing the apr on our loan, currently at 14% but saying they can get it down to 7%. I rang them last year to see if we could reduce the interest and they said they absolutely can not as it is fixed for the term of the loan, so this seems very strange to me, can anyone advise as to whether this is likely to be a separate new loan to pay off the old one, advisor was very vague over phone I'm guessing as she wanted us to go in so they could persuade us to take more credit! Thanks in advance, sorry for long post. TMTD

sourcrates

Usually they get you to agree a new loan, with a lower APR, out of which the old loan is consolidated, and you receive the balance.
I would say a consolidation loan can be helpful in certain circumstances but the downside is it keeps you in the cycle of borrowing, extends the repayment period, and in the long run will cost you more.

FireWyrm

You need to do the calculations very carefully. As Sourcrates says, this is likely to be an entirely new loan with new conditions and you need to be wise to the following :

1) they may suggest 'additional' borrowing for whatever is coming up like a holiday - do not be tempted. You are trying to get out, not get back in. Borrowing to consolidate debts rarely works out as intended.

2) The new loan may be unfavourable. Yes, it may be 7% but if it is over twice as long, it is not what you want. Better to stick with the existing loan at the higher rate, but for less time. You need to forward calculate what happens at 14% and also at 7% and you should require them to show you a comparison of those calculations before you sign up for it.

3) The new loan may be contingent on taking out other products. Again, not what you want. Dont be tempted by the shiny card they may offer you.

As I said, consolidation loans rarely work out. Often, you just end up borrowing more over longer and this is exactly the outcome the bank wants. They do not have your best interests at heart, get that in your mind and keep it there. They dont care if you can or cannot pay, they will just sell you to a DCA if they cant get it out of you.

IF you decide to do this, you must be utterly ruthless with yourself and destroy all other forms of credit that are 'consolidated' into this loan. That means you immediately cut up cards, pay off the loans that you intend to do and do not, under any circumstances, spend a single penny more.

In the meantime, you will need some sort of budgeting software, be that either an excel spreadsheet or a more formal offering. YNAB (you need a budget.com) is excellent and well recommended. I know it costs money, but it pays dividends in the long run. Failing that, an excel spreadsheet will do just as well and you can pick up some very nicely designed ones for free at https://www.vertex42.com or PM me for a link to mine.

[Deleted User]

Toomuchtodo wrote: »

can anyone advise as to whether this is likely to be a separate new loan to pay off the old one

It almost certainly will be a new loan.

Be very careful, as it will likely have a longer term, than what is left of the term on the current loan.

Depending on how much is left on your current loan, it could go as far as the original term of your current loan.

Toomuchtodo

Thank you for your help, the loan is by no means our only debt, it itself a consolidation loan (our second, obviously never learned our lesson there or since) :mad: When the local branch rang, they had already worked out the new loan repayments for us taking into account adding on to it the o/d and the c/c!
Obviously I am keen to reduce the APR but don't want to add anything to the loan, just using the saving every month to hit some of our other debts. The other thing is the existing loan we have doesn't have any overpayment charges or any early repayment fees, and there are 4 years left to go. I will definitely compare both loans before making a decision as suggested though, thanks.
I agree that I need budgeting software, I had looked at YNAB but wanted to have my SOA done so I could make the most of the free trial. Still working on that, going back through bank statements, it's actually horrifying what is spent on unnecessary things, especially since I thought I had really cut back since LBM in Feb, hopefully this is it this time!
thanks again I really appreciate you taking the time to answer. TMTD

[Deleted User]

You say the current loan has 4 years left to run.

How long was it originally for?

How long would the new loan run for?

FireWyrm

Toomuchtodo wrote: »

Thank you for your help, the loan is by no means our only debt, it itself a consolidation loan (our second, obviously never learned our lesson there or since) :mad: When the local branch rang, they had already worked out the new loan repayments for us taking into account adding on to it the o/d and the c/c!

I bet they had. Go to www.vertex42.com and download one of the loan repayment calculators from there. Dont just take the banks' word for it as to what is best for you, use the resources you have available and work it out for yourself. In all likelihood, the new loan will not be in your best interests but you need to have worked it out before you face their sales pitch.

Toomuchtodo wrote: »

I agree that I need budgeting software, I had looked at YNAB but wanted to have my SOA done so I could make the most of the free trial.

Feel free to download my spreadsheet from here to help with the SOA : https://www.dropbox.com/sh/58m07i0jklqny0e/AADCAf2LoGN_NBZ0hOrFy6hua

YNAB is worth every penny and you can get it for £25 from here using a voucher : http://debtcamel.co.uk/ynab-review/

Toomuchtodo wrote: »

Still working on that, going back through bank statements, it's actually horrifying what is spent on unnecessary things, especially since I thought I had really cut back since LBM in Feb, hopefully this is it this time!
thanks again I really appreciate you taking the time to answer. TMTD

Isnt it just mortifying when you realise just how much money you have been wasting? I thought I was doing pretty well with Excel until I actually started being rigorous. Dont beat yourself up too much, just do better. You know where you are going wrong, now you can fix it. That is half the battle.

Toomuchtodo

Bedsit_Bob wrote: »

You say the current loan has 4 years left to run.

How long was it originally for?

How long would the new loan run for?

It was taken out in 2011, for 7 years. They told me the new one would last as long and be for the same amount monthly but that was with the added extra from our halifax credit card (currently 0%) and the o/d added. I agreed to an appointment then cancelled it as I didn't feel prepared to face the strong sales pitch I was likely to face!

[Deleted User]

So you would be paying for another seven years?

Not only that, they want to charge you 7% interest, to pay off a 0% interest debt?

That obviously makes financial sense for you. :doh:

Toomuchtodo

FireWyrm wrote: »

download one of the loan repayment calculators from there

Feel free to download my spreadsheet from here to help with the SOA

YNAB is worth every penny and you can get it for £25 from here

Thank you so much for all these tips

Toomuchtodo

Bedsit_Bob wrote: »

So you would be paying for another seven years?

Not only that, they want to charge you 7% interest, to pay off a 0% interest debt?

That obviously makes financial sense for you. :doh:

I think they meant it would be over 4 years so the total length was still 7 years. I was never going to put the 0% card in it, we have space on other cards with 0% transfer offers that I would do first. I am tempted to add the o/d though as it is currently costing me £1 a day which we are in from 2 days after payday which makes me so cross, can't break that cycle