Credit Cards vs Loan - Best Option!!

gemmyjam

I currently have about £7K over 3 credit cards with varying interest rates, 1 with 0% for 10 months (currently 8 remaining), 1 with 5.9% for the life of the balance & the final 1 on 14.9%. I currently pay around a total of £230 off all 3 cards monthly & only paying the minimum on 1 of the cards I exceed the minimum on the other 2.

I have my own plan in place to pay off the debt & if my calculations are correct I can pay the credit card debt off with 2 ½ years – however this is dependent on being able to transfer my current debt (once the 10 months 0% finishes) to 1 “life of the balance” card.

I was wondering if I would be better off getting a personal loan for the total amount & therefore paying a set amount each month paying off the loan within 3 years.

However the reason for asking is when I was going through the purchase of my house 2 years ago I had a loan of about £4k & about £7k on credit cards I was told by the mortgage lender that they would not lend me & my partner the full amount for the house unless I paid off my loan, with help from my partner & family I was able to pay off the loan to purchase the house. Our mortgage ends its fixed term at the end of this year & I therefore don’t want to be in the same situation again when we come to switch if necessary.

Do the banks favour credit cards over loans when offering other financial products i.e. mortgages or was it the fact that I had credit cards as well as a loan?

All help gratefully received!!

climbgirl

Banks don't favour credit cards over loans, it's all debt to them!

To be honest, it's hard to advise you without knowing what interest rate you'd get the loan at. It sounds to me like you're doing pretty well at the moment and if you can move it to the life of balance card as you plan to, then I doubt you'll get a loan rate that's going to save you much in interest.

Do you know what rate you'd get? If it's a low one, it might be worth doing but it's unlikely to be lower than that life of balance rate. Do you trust yourself to cut up the cards, close the accounts and not spend on the credit cards again!??!

fistfullofdollars

I'd go down the LOB rate for the card on 14.9% now and weigh up your options in 8 months time for the 0% card.

Setup a regular amount for your LOB with CC company. It's working great for me. Just dont spend on the cards!

angelavdavis

When you apply for any credit - including a mortgage, the lender will ask you for details of any of your credit you already hold as they check your capacity to repay the debt.

The reason the bank wanted you to get rid of the loan was purely that the two debts together totalled £11k, I don't know what percentage of your earnings that is, but probably they felt that the repayments per month were proportionally too high for you to maintain.

Have you tried to enter your debts into the snowball calculator? This will help you work out the best method of repaying the debts. It allows you to alter your repayments so you can see what the best options are and how it affects the debt free date.

Remember that every credit application requires a credit check and not to have too many checks on your credit report when you remortgage as this could affect the interest rate you are offered.

You have received good advice so far - I also would recommend a lower life of balance rate to help clear the debts without you having to remember to switch cards on a regular basis (remember paying the admin fee every few months will effectively mean the debts will rise initially every time you switch cards).

HairyHandofDartmoor

I think credit cards are more flexible as you can repay as much as you want when you want, you can also shuffle the debt onto lower interest if you need to.

Whereas loans you have to pay a set amount each month and no more, if you pay it all off there may be a penalty, and the interest can be higher (I am paying 3.9% on nearly £7,000 on my M&S card; I would never get a loan at that rate on interest!)