Jumped the gun

TomboBaggins

I currently owe roughly £8528.76 in debt. £4300 to parents (interest free) and roughly £4228.76 to credit cards and accounts. They would've been paid off after roughly 45 months paying the £218 a month that I currently pay.

I really wanted all my debt to come out as one payment (and pay back the parents asap) so I applied for a loan of £10k at £184.88 for 69 months.

I will be saving £33.12 a month (£33.12x69 months = £2285.28) and the remaining money from the loan (£1471.24) will also go into savings so at the end of the 69 months I'll have roughly £3756.52 in savings.

Am I mad for doing it this way?

YorkshireBoy

TomboBaggins wrote: »

Am I mad for doing it this way?

Going through with this plan would be crazy!

20aday

TomboBaggins wrote: »

I currently owe roughly £8528.76 in debt. £4300 to parents (interest free) and roughly £4228.76 to credit cards and accounts. They would've been paid off after roughly 45 months paying the £218 a month that I currently pay.

I really wanted all my debt to come out as one payment (and pay back the parents asap) so I applied for a loan of £10k at £184.88 for 69 months.

I will be saving £33.12 a month (£33.12x69 months = £2285.28) and the remaining money from the loan (£1471.24) will also go into savings so at the end of the 69 months I'll have roughly £3756.52 in savings.

Am I mad for doing it this way?

I concur with the OP. I appreciate you want to repay your parents back ASAP (and problems could arise if relations sour between yourselves i.e. they need the money loaned to you urgently) but you've a "loan" of £4,300 'interest free' and by taking out the loan with the finance company you're now paying interest!

TomboBaggins

Appreciate the replies. Things have gone sour between us unfortunately and is the main reason to pay it back asap. I know it's silly to extend the payback time and add interest to it but I couldn't think of another way. Do you guys have any ideas? Thanks.

[Deleted User]

If this was me I would apply for a 0% credit card and put all my card debt on there, then save hard to pay back my parents before the 0% expires.

redpete

TomboBaggins wrote: »

Appreciate the replies. Things have gone sour between us unfortunately and is the main reason to pay it back asap. I know it's silly to extend the payback time and add interest to it but I couldn't think of another way. Do you guys have any ideas? Thanks.

Take the loan, pay off the debt and then pay the excess as an early payment against the loan - don't put it into savings.

And (in my opinion) desiring a single monthly payment out of your account should never be a reason for consolidating - it's really not that difficult to manage even a handful of payments compared with one.

Mirno

I've never understood the "one manageable monthly payment" schtick. Every month I pay about 7 bills by direct debit, they are spread over a period of just over a week, and never once have I thought "life would be so much easier if there was only one big bill".

It's even worse with a loan if the result is a higher interest rate.

Anyway, to the point in hand:
You're comparing £218 for 45 months against £184.88 for 69 months.
To make things fair, you should compare like with like.
i.e. current situation + £218 * (69-45) = £5232 spare.

If you feel you must take the loan (for what ever reason), then consider as mentioned above paying the spare of straight away, and then making over payments of £33 (or more if you can) each month. This will reduce the amount of interest you incur.

darrens_here

Mirno wrote: »

I've never understood the "one manageable monthly payment" schtick.

Surely (or maybe.. lol) you can get a better interest rate on a higher single loan than several smaller higher rate ones?

Cycrow

darrens_here wrote: »

Surely (or maybe.. lol) you can get a better interest rate on a higher single loan than several smaller higher rate ones?

Not always the case, especially if the smaller ones are on interest free.
And if you have alot of debt already, then the larger loan could be alot higher than the existing ones.

Consolidating is rarely a good idea, and you should only really think about doing it if it saves you interest. Not simply to only have 1 payment.

if you can only manage 1 payment, it'll be better to open a separate current amount, setup direct debit for all the credit payments, then you can just make a single payment each month into this new account

Herzlos

I'd assume a loan (5-15%) is always going to be cheaper than a credit card (20-40%) in terms of interest, but I'd be wary of reducing the payment amount at the expense of length.

Can you get a loan for closer to the 45 months? I'd assume that if it's a good deal, the same outgoings should result in a shorter duration.

Of course, if you need to pay back the money from parents ASAP this is probably the better option.

Just be very careful you don't run up debt on the cards again as that's what lands everyone in so much trouble.

andyfromotley

Mirno wrote: »

I've never understood the "one manageable monthly payment" schtick..

I've never bought it either. Strangely nearly everyone who mentions it coincidentally seems to be borrowing a couple of grand more than they actually owe!