Consolidation Loan a good idea??

benevs

Hey all

Just wanted to ask your advice on whether i should get a consolidation loan to pay off my credit cards..

Currently I have the following:
Credit card 1: £3200 @ 17.5% APR
Credit card 2: £1300 @ 34.9% APR
Credit card 3: £1000 @ 34.9% APR

Currently I pay off around £200 split between the 3 cards a month.

I've just been approved for a consolidation loan of £5000 @11.3% APR over 3 years. payment of £164.50. I just wanted to know whether this is a good idea, at first i thought it was but now i'm thinking I'm just getting more debt?

I've just got a nice January Pay rise in work as well which I've hoping to be able to use towards paying this debt off.


Thanks for any help...

Ben

andyfromotley

Hi ben,

financially it makes sense. You will pay a LOT less interest and will have the debt paid off quicker. Thats the good news.

Now for the bad news. Lots of people get a consolsidation loan and then keep on spending on the cards. Before they know it the debt is back to where it was before AND they have the loan repayment too!! See the problem? Most people who post an SOA on here because they are in financial meltdown have been down this route.

So you have to ask you self this.

1. Have i stopped the overspending that led to this debt in the first place? If the answer is no - dont consolidate. Work out how to curb your spending.
2. Are you prepared to CLOSE your CC accounts? Not cut up the cards as they can be reordered. CLOSE them permanantly so that you cannot use them again? If not, dont consolidate.

consider these things seriously. Consolidation can work for people who can show determination and discipline. For most people in debt this is not their strong suit so it ends badly.

Hope this helps. Andy

lee111s

What I would suggest, is that if the lender of the loan allows, continue to pay £200 a month (or more if you can afford it) and this will reduce the amount of interest you pay even further.


Make sure once you've paid off the credit cards that you cancel the accounts and DON'T get any further credit.

twiggy86

Agree with Andy. So many people on here have said that they consolidated with all the best intentions but spent again and built up even more debt. Think long and hard about your spending and the reason for your debt, if there is even the smallest chance that you will use the cards again then don't consolidate. You need to be brutally honest with yourself.
An alternative (but again you need to be sure you wont use the cards again) is an interest free balance transfer, which may be cheaper than the loan provided you can pay it off within the interest free period.

twiggy86

Oh and another point - I got a pay rise last year and ever since I have used that as extra to pay off debt and overpay mortgage. If you don't get into the habit of relying on the money, you wont miss it.

HappyMJ

benevs wrote: »

Hey all

Just wanted to ask your advice on whether i should get a consolidation loan to pay off my credit cards..

Currently I have the following:
Credit card 1: £3200 @ 17.5% APR
Credit card 2: £1300 @ 34.9% APR
Credit card 3: £1000 @ 34.9% APR

Currently I pay off around £200 split between the 3 cards a month.

I've just been approved for a consolidation loan of £5000 @11.3% APR over 3 years. payment of £164.50. I just wanted to know whether this is a good idea, at first i thought it was but now i'm thinking I'm just getting more debt?

I've just got a nice January Pay rise in work as well which I've hoping to be able to use towards paying this debt off.


Thanks for any help...

Ben

You are getting more debt yes it's true.

You must..and I mean MUST close the credit card accounts down unless you can 100% trust yourself you will always pay them off in full each month and use them only to get the rewards they offer and the protection they give you for your purchases. There is no need to pay such high rates of interest.

I would close the cards charging 34.9% down in any case. There is no emergency that could arise that will need to you to pay so much in interest.

I would keep one card and set the direct debit to be "paid in full" every month.

January2015

Consolidating was the biggest mistake I ever made. I just ended up with more debt because I either I didn't close card accounts or because I did close some of them but was sent offers for other - very tempting - 0% offers. I had a brilliant plan (lots of plans actually) to make the money work for me.

As you can see from my signature I was pretty useless at sticking to those plans. You have to know yourself and, if applicable, any partner who may have any influences on your financial plans/habits. You have to be very strong and committed if planning to consolidate.

My recommediation is wholeheartedly - don't do it.

rogue999

Consolidating was a major mistake for me too. I consolidated £23,000 6ish years ago. Between then and 18 months ago i ran up £16,000 due to having holidays we hadn't saved for and general overspending when our wages had fallen (due to illness and having kids).

In the last 18 months I've paid off £5,000 by using YNAB and hitting myself over the head with a brick to realise I'd been spending money that wasn't mine all these years, and getting a 2nd job.

Please thing carefully before consolidating - it works for some, but I've read so many stories on here about people that it hasn't worked for - myself included.

Million_Percent

Consolidation worked for me. I had circa £15k split across 5 credit cards which I consolidated into a single loan over 4 years. It worked very well. Saved me interest overall and saved me the hassle of continually moving balances around to get the best rates on the cards.

2 questions you need to ask yourself:

1. Are you disciplined enough to pay off the CCs, close the accounts and not be tempted to open new ones?

2. Is the cause of your debt one off expenses that will not re-occur or is it simply a result of habitually spending more than you have coming in? If the latter, this needs to be sorted before consolidating.

One point I'd make is that if you can, consider adding an extra year onto the loan to reduce your minimum monthly commitment. If you are disciplined, you can still overpay to pay it back over the 3 years as planned but if you suddenly find yourself a bit short one month you can just pay the lower minimum.

benevs

Wow, thanks for all our replies.

I know how I ended up getting into the debt, spening money on stuff i didn't need .... laptop, holidays, just general over spending.

I think in that case I am going to go for the loan, as most of you have stated I will be closing the CC accounts as its part of the loan application. The loan company will be paying off and closing my CC directly. Although they have said I can keep one for emergencies if I wish.

I have just got a pay rise in work, which means an extra £200 in a month for me. I am thinking about setting a standing order up for a set ammount to a savings account and continue to pay the £164.50 loan agreement each month until I have enough in my savings to pay off the loan, I think I should be able to get it all paid off in the next 12 months. Even though the loan is over 3 years. I'm going to set that as my goal. There is no early repayment fees for paying it off early.

Thanks all

Ben

cmc_entertainment

Even with the min 5%, the 200 is currently not enough if my snowball is correct?
CC1 is £160 @5%min
CC2 is £50 @5%min
CC3 is £65 @5%min
=
£275

Unless you have a great deal at the mo?

Using the £200 mark, "It will take you 36 months to pay off these debts if you snowball correctly. During that time, you'll pay £2,038.00 in interest." That's with 12 months underpaying due to the £75 shortfall.

Using £275/m "It will take you 26 months to pay off these debts if you snowball correctly. During that time, you'll pay £1,390.00 in interest."

But when using the loan figures, paying the min of £164.50 and keeping to £200 overpayment "It will take you 29 months to pay off these debts if you snowball correctly. During that time, you'll pay £668.00 in interest."

But going back to the 5% £275 figure assumption, "It will take you 20 months to pay off these debts if you snowball correctly. During that time, you'll pay £453.00 in interest."

Only consolidate if you know it makes sense and I would keep at least 1 CC for emergencies ect

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