Consolidate with a loan or not?

MissionMoney

Hi, I was looking for some advice, or opinions on my situation. I want to get debt free ASAP so I can save up for a house (currently In a flat).

I have:
£2792 on a loan @ 6.9% and about 2 years to go.
£1493 on a credit card 0% currently for around 6 months I think.
£1864 on a credit card 0% for 25 months.
£128 on a credit card that's not interest free
£1340 on a student overdraft that is 0% until Sept '15 then £1 a day:eek:

I pay out £302 between credit cards and the loan. I also need to pay £150 to the overdraft a month if I want it cleared before it starts being £1 daily.

I know I will gain interest on the credit cards if I use a loan to pay them off, as the loan is 4%. But I will save interest on the loan and will save so much on monthly repayments by repaying to only one loan and not to several cards, loans, and overdrafts.

I would only be paying out £170 per month instead of £452 and all my debt would be cleared in 4 years. If I carried on making the payments as I am, I have no idea how long it would take me to be debt free.

The saving I make each month could go towards saving for a new house, building my emergency fund or overpaying my current mortgage.

I know it's maybe silly taking out a loan to pay off interest free items but I think the overall benefits are clear. What's everyone's thoughts? Best way to get myself debt free?

Pixie5740

Try the snowball calculator to see how long it would take to pay off your debts without consolidating.

http://www.whatsthecost.com/snowball.aspx

Many people on this board have got into a spiral of running up debts, the consolidating, running up more debts, consolidating again....and so on.

MissionMoney

Thanks Pixie.
I've just finished uni so have slowly gained these debts (apart from the old car loan) over the last 3 years. I've now got full time employment and can start to organise myself better financially.
Good point about the potential to spiral though. Would not want that to happen! :eek:

Thrugelmir

You may well struggle to obtain a consolidation loan. Perhaps a few months of hard budgeting will be a salutory lesson to you.

Anything you can sell on Ebay or a part time job to boost your income?

theoretica

MissionMoney wrote: »

I know I will gain interest on the credit cards if I use a loan to pay them off, as the loan is 4%. But I will save interest on the loan probably not, 6.9% is a very good rate - sorry missed the 4%, are you sure you would be accepted? Still saving 2.9% on less than half your debt while adding 4% on more than half averages to losing money and will save so much on monthly repayments by repaying to only one loan and not to several cards, loans, and overdrafts.

I would only be paying out £170 per month instead of £452 and all my debt would be cleared in 4 years. If I carried on making the payments as I am, I have no idea how long it would take me to be debt free.

Carry on paying £450 a month (and ideally a bit more to get rid of the £128 as soon as possible) and you will be debt free far sooner than 4 years. Nearer 18 months, and then you could save for a deposit.

greensalad

I'm in a similar situation to you. Similar debts from being a student.

If you post a SOA it'll show you how much money you have left each month.

- Make a spreadsheet with all the costs of your regular outgoings monthly (those that don't change)
- Sign up to Money Dashboard and tag as many transactions as you can to identify where your money is going. Use this to form a budget for food, toiletries, medical, beauty etc (things you need every month but can vary in cost)
- Work out how much you want to budget a week for all the other things in life (cinema, coffee in town, takeaway etc). I find it better to budget weekly because then, at most, you'll be penniless for 2-3 days, instead of being penniless for the last 2 weeks before payday.
- The remainder from all above is your debt repayment.

The key to debt repayment to lower interest is to keep the same repayment each month, even as the debt decreases. If you were able to afford £300 in March, then you should be able to afford £300 in April and so on. And each time you pay £300, you're reducing the interest on your debt. That means your £300 has a heavier impact as you'll be paying off more debt and less interest (if that makes sense).

Typically you'd pay off the higher interest debts sooner. But because some of your debts will go up form 0% you would want to investigate how much they will cost after they jump. You may emotionally wish to remove the £128 as well as it's a small amount in comparison and will be one less "debt" on paper to think about.

Keeping at your current repayment level though I don't see why you can't have your debts paid off by Summer 2016.

MissionMoney

Thrugelmir, I have a good credit score and I did the soft check which showed I was likely to get the loan. I just wasn't 100% sure if it was the best way to go about things or not.
I already sell bits on ebay here and there - I could probably do more though! :rotfl:. And I regularly do a days overtime every week at work.

Theoretica, I can manage paying the £450 but it doesn't leave much. I've been a student and have managed to pay lots to my upcoming wedding throughout my degree, so I already cut back on everything I could. But I never had an emergency fund, and my roof started leaking and the boiler broke so hence ending up where I am now :eek:

Green salad, i'm so glad I'm not the only one! Being a student was hard going as I worked and had around 2 days off a month! Ahh the struggle! And I still ended up in debt. :mad: My salary fluctuates by around £300 depending if I work wknds or nights so I wouldn't necessarily always be able to make the same extra payments