Getting a loan to clear debt

macman

Beynonz wrote: »

Would you then suggest that setting up a standing order for say £50 into each of the accounts, and not to touch them- would be a better idea than to wipe it all out in one?

Please explain how a consolidation loan 'wipes out' the debt? It just increases your debt and locks you in for five years.
Pay off whatever sum you can afford per month on an SO (you said £120, now it's £150?), and make lump sum payments on top if your finances permit. The sooner you clear it, the less you will pay in interest.

mwddrwg

macman wrote: »

Please explain how a consolidation loan 'wipes out' the debt? It just increases your debt and locks you in for five years.
Pay off whatever sum you can afford per month on an SO (you said £120, now it's £150?), and make lump sum payments on top if your finances permit. The sooner you clear it, the less you will pay in interest.

Doesn't the merits of getting a loan to cover debts depend to some extent on what the original debt is?


Say you have 4 credit cards for example with balances of over £2000 each and you can only afford the minimum repayments. Wouldn't it be cheaper to get a loan for £8000 over say 5 years and pay that (+ interest) rather than plod along for literally decades paying back the cards at a minimum rate?

Pixie5740

mwddrwg wrote: »

Doesn't the merits of getting a loan to cover debts depend to some extent on what the original debt is?


Say you have 4 credit cards for example with balances of over £2000 each and you can only afford the minimum repayments. Wouldn't it be cheaper to get a loan for £8000 over say 5 years and pay that (+ interest) rather than plod along for literally decades paying back the cards at a minimum rate?

Depends on what the interest rates are for the credit cards and loans. Some people have been known to use a loan to consolidate debts including 0% CC. :eek:

The OP doesn't just want to shift the £4,500 they owe but they also want to borrow an extra £500.

The Debt Free Wannabe board is full of people who consolidated, spent on the CCs again, consolidated again, spent on the CCs again, consolidated again, until eventually no lender would touch them with a 10' barge pole and they couldn't keep up with repayments.

andyfromotley

Hi Beyonz,

post an SOA on the debt free wannabe board and i suspect we will be able to find the savings in your current budget to pay this debt of quicker than a loan!

Heres the link to fill one in
http://www.stoozing.com/calculator/soa.php

If there is literally no wriggle room on your budget it may be that you will benefit from moving your debt, but not necessarily a loan (and definitely not by slipping yourselves another £500!! in the process.) But most SOA can produce a remarkable amount of savings from the experiences of others.

katejo

mwddrwg wrote: »

Doesn't the merits of getting a loan to cover debts depend to some extent on what the original debt is?


Say you have 4 credit cards for example with balances of over £2000 each and you can only afford the minimum repayments. Wouldn't it be cheaper to get a loan for £8000 over say 5 years and pay that (+ interest) rather than plod along for literally decades paying back the cards at a minimum rate?

And then be tempted to use the CC cards again until you are back to square one with even more debt.....

redux

I'm going to disagree a bit with some of the replies.

If the interest rate on the new loan is less than the effective rate on the overdrafts and credit card, and then if the same monthly payment is made as before, the debt will be decreasing faster.

But I also think you need to find cheaper than 12%. Some loans have a cheaper rate for slightly larger amounts. If you can find one of those you might consider taking out a larger loan and then repay 30 or 40% of it straight away.

But I agree with the cautions about not letting the debt roll up higher.

paddyrg

If you do this, destroy the credit cards on the same day, and cancel all overdraft facilities (because aside from the £5k debt, you're 'debt-free' at that point, right?). If you don't, you'll find yourself in the same position a pound at a time, a tenner this month, twenty the next, etc...

mwddrwg

katejo wrote: »

And then be tempted to use the CC cards again until you are back to square one with even more debt.....

Indeed... been there, done that. From bitter experience I would be cancelling all cards and overdraft facilities on the day they get paid off by the new loan instead of the other... still regretting keeping the cards 'just in case'

enthusiasticsaver

No, I do not think it is a good idea. You will be paying £120 per month for 5 years and pay a total of £2200 in interest to the bank for the privilege. If you are both up to the top of your overdraft limits and have a credit card your problem is that you are overspending. You may think you have £120 spare to pay each month to a consolidation loan but I am guessing if you record every penny you spend over the month there is not that much leeway and before long you will be resorting to overdrafts and credit cards again to supplement your wages and have a bank loan also.