£22k debt, ideas to clear it faster?

tsb88

Hi,

Looking to help a friend if possible, and just wondering, if you were in this situation what would you do (if anything):

You're married to a debt free partner, but have £22k debt yourself (i.e. in your name only-you are open about finances with o/h), a single loan at ~19% for 7 years, due to be repaid in 2020.

You've previously had more debt via ccs/ods but not recently. Your loan was originally for £15k but was refinanced a couple of times to consolidate the other debts. However, for the last couple of years you have taken on no more debt, and have been making steady progress repaying the loan (it was originally £25k). You have never missed a payment on any debt, and have checked your credit file. It looks fine, save for 3 addresses in as many years due to being unfortunate and having to move first for a job, and then because the landlord chose to move back in. However no CCJs, on electoral role, no missing/incorrect details etc, all previous accounts known and settled. Credit file for o/h looks fine too. You're both working full-time and live modestly.

The loan repayments are £525 p/m. You can afford them together with all outgoings on your income but not comfortably, leaving little for anything else. You have reduced your expenditure by using MSE to switch providers, haggle etc. The loan is the big thing left that hasn't been given a makeover.

The MSE loan eligibility checker reckoned a 70% chance of being accepted for a Sainsbury's loan for £22.5k (settlement figure for existing loan, better rate), but applied and was declined.

Options to me seem to be:
-Do nothing, just keep paying the original loan at the high rate until maybe it's a lower amount (say ~£15k) and then they try to get a better loan to repay again
-Appeal the Sainsbury's loan decision. Seems some people here have had success. Actually the new loan was only wanted for £20k (i.e. lower than the existing loan) as able to make up the difference to the settlement figure via free overdraft. But choosing 'debt consolidation' as option in the application required entering existing loan, and did not allow that value to be higher than what was asked for. Maybe 'debt consolidation' was the wrong choice, as technically there is just one loan to one loan - no consolidation. Could be seen as a red flag.
-Potentially look into a joint loan with partner to maybe increase chances of being accepted, and then use that to pay off the original one as planned.
-Something else. Cheap balance transfer cc's etc look like a no-go given the amount of debt

Any ideas welcome

Cheers

rockm87

Hi TSB

I would firstly say that paying debt with debt isnt the answer.

Maybe you could do a SOA? http://www.stoozing.com/calculator/soa.php and get some forum advice?

or try the snowball calculator to see the best way to pay off your debt?

Candyapple

If you have £22k debt and were looking to take on further debt of £22k in the form of a loan, you would need to be earning circa £85k.

I would go with option A, continue paying as is until your debt is lower and the possibly look at re-jigging it to a lower rate when it is sub £15k.

Have you posted a SOA? Anything you can sell? Take on a second job?

sourcrates

Hi OP,

You'll find the folk on here are not too keen on consolidation loans, as a lot of us have been there, done that, and bitterly regretted it.

Unless your friend can address the issues of overspending, that got them into debt in the first place, then they may just end up re-using those lines of credit, and ending up with twice the debt, it happens a lot !!!!

I think they have already hit there first obstacle with this, been turned down by the bank, you said yourself, affordability was an issue, the bank would of seen this, hence the loan was rejected.

Affordability is as important as credit score these days, if not more so, perhaps your friend needs to look at other ways of tackling the debt, its difficult to advise without knowing more detail, but obviously the current monthly payments are too high, and they are looking to reduce them.

If they cant increase there income, and/or reduce there outgoings, then they may be better off looking into some kind of debt remedy, there are a number of solutions laid down by statute, for dealing with problem debt, get them to have a look on Nation Debt-line`s website, there`s loads of valuable information on how to address these issues.

https://www.nationaldebtline.org/

DebtFree2012

You are me a few years ago it seems.

Do not refinance. Do not consolodate. It's the worst thing you can do. Overpay where you can and don't forget to live but by live I mean a very frugal lifestyle where fun is free.

I was supposed to be DF in 2012 then I refinaanced, got offered more money (debt) and ended up in a shed load more. Simply do not do it.

DebtFree2012

PLUS it's taking me an age to rebuild my credit.

Pixie5740

STOP BORROWING MONEY

That would be my advice to your friend. If your friend makes overpayments to the loan that will decrease the term and therefore mean paying less interest.

tsb88

Hi, thanks for all the replies so quickly!

rockm87 wrote: »

Maybe you could do a SOA? http://www.stoozing.com/calculator/soa.php and get some forum advice?

I didn't make it very clear but I'm looking for advice for a friend of mine not me, so I've passed on the link to the SOA calculator, thanks. They've gone through and done a money makeover of some things already but hopefully the calculator will highlight some other areas that could be tackled.

Candyapple wrote: »

If you have £22k debt and were looking to take on further debt of £22k in the form of a loan, you would need to be earning circa £85k.

I would go with option A, continue paying as is until your debt is lower and the possibly look at re-jigging it to a lower rate when it is sub £15k

Yeah, I figured it would be very hard to secure that kind of money again, even if the double amount would only be temporary to pay off the previous one. Just out of interest, is there a rough rule of thumb income multiplier you've used to get to the £85k figure?

sourcrates wrote: »

Unless your friend can address the issues of overspending, that got them into debt in the first place, then they may just end up re-using those lines of credit, and ending up with twice the debt, it happens a lot !!!!

I think they have already hit there first obstacle with this, been turned down by the bank, you said yourself, affordability was an issue, the bank would of seen this, hence the loan was rejected.

Affordability is as important as credit score these days, if not more so, perhaps your friend needs to look at other ways of tackling the debt, its difficult to advise without knowing more detail, but obviously the current monthly payments are too high, and they are looking to reduce them.

Makes sense, thanks. He is a lot more disciplined with his finances these days, it's just unfortunate that he was able to rack up the debt when he was younger and is still paying the price today. They can actually afford all the repayments as it stands today as they have cut back on things they don't need, but with little remaining. This has been the case for a couple of years (since the loan was refinanced), so at the rate they're going they will be able to manage it and pay it off (assuming no unforeseen circumstances), it will just take a long time.

DebtFree2012 wrote: »

I was supposed to be DF in 2012 then I refinaanced, got offered more money (debt) and ended up in a shed load more. Simply do not do it.

Yeah, unfortunately I think this is what happened originally . (The original loan was *only* £15k)

Pixie5740 wrote: »

STOP BORROWING MONEY

That would be my advice to your friend. If your friend makes overpayments to the loan that will decrease the term and therefore mean paying less interest.

Thanks, yeah that's probably the safest way to tackle it. He was only looking to borrow for an identical loan to get a cheaper rate, to effectively transfer it if it was possible. He has no interest in borrowing any additional finance and it seems to me is paying it off sensibly. Together they have already paid off his od and o/h's credit card.


Seems the best option as I had imagined is for him to just keep paying off the original loan now and wait till it's much reduced, hopefully with some overpayments every now and then.

andyfromotley

I think he should,

1. Maximise his earnings, new job, promotion, second job. All of this income can go to debt repayment.
2. Sell anything of value.
3. become a super frugal person. View this debt as a challenge to be attacked. HE needs to live on these forums. (not you) Every penny he saves like this can be thrown at the debt.
4. I do agree with the others on here about not swapping debt. But there are a few exceptions. If he has a 0% facility he should use. if he is offered 0% or very low rates he should take them PROVIDED it is ONLY used for debt payment. Not allowed to rack up another penny in new debt.
5. He needs to budget every penny.

Some of the people who have really thrown themselves at their debt (and were lucky enough to have a reasonable wage, supportive partner etc) have reduced their debt with impressive speed. Others prefer the slower road but each to their own.

Either way, paying this off is going to involve an element of pain, hard work and commitment.

KiKi

tsb88 wrote: »

Just out of interest, is there a rough rule of thumb income multiplier you've used to get to the £85k figure?

Generally, as a rule of thumb, no lender will let you borrow money that takes your total debt to over more than half your annual income.

If you have £22k debt, and ask to borrow another £22k, the lender has NO guarantee you're borrowing to pay the original debt off. So as far as they're concerned, you're taking an additional £22k. Which means that's £44k debt you have in total. So an £88k (ish) salary needed.

HTH
KiKi