Is it wise to accept this loan to become DF ?

Legacy_user

Hi everyone.

I came clean with my parents over my depressing level of debt and I think they are more than willing to take out a loan for me of £12,000. Due to their exceptional credit rating, no mortage etc they have been offered a rate of 6.2%

This would mean that
a) All my credit cards (about 6Ks worth) would be rolled into the loan.

b) paying off one of my loans & 1 Easyplan agreement

c) It would give me a lot more cash because the CC interest rates (21 percent on one of them

The maths is pretty good too because all my cards monthly payment (£150), plus loan payment (£79), plus the easyplan agreement (£55) = £284 per month.

The loan over 5 years works out at £250 per month. The early repayment penalty is 2 months money.

It would leave me with 1 long term loan and my overdraught but that would be it. I could even get rid of my overdraught within a month or two with a bit of concerted effort.

Question is, would you borrow such a large money from your family and would you do it to get the interest rates cut by 2/3rds in some cases ?

sammy115

It depends how good you are going to be in the future! It wouldn't be wise to swap one debt for another if you think you may be tempted to run the CC debts up again. On the other hand if you think you have learned your lesson (not meaning to sound harsh there) and you won't let your family down you could save some money. BUT before you do have you tried the snowball caluclator.

Sy1

Hi 13000,

I was in exactly the same situation a few years ago! I'm 23 now and when I was about 20 I owed approx 16k on CCs and loans etc, and when I finally couldn't hide it any more and couldn't cope financially making all the repayments, I told my parents who were really supportive and took out a £12,000 on my behalf with similar interest rate and repayments to yours.

I don't mean to patronise you, but speaking from experience, be really careful! Of course the loan and lower monthly repayments was a huge relief but I still hadn't really had my Light Bulb Moment and once I had paid everything off with the loan I had available credit on CCs which I ended up spending over the next couple of years to the tune of around 5k which I then had to get a second loan for myself to cut the interest being paid. Even then I continued to run up more debt on my overdraft and CC and at the worst point I think I owed approx £20k in total a year or two after consolidating with the 12k!

Thankfully now, my earnings have increased significantly, I've had my light Bulb Moment and become totally focused on becoming debt-free, which I am on target to achieve by the end of this year (2 years ahead of the original 5 year loan settlement date).

My point is, it sounds like a good idea to simplify your finances, cut interest and lower monthly repayments, but if you decide on this option, it's useless unless you are focused on becoming debt free and will not continue spending beyond your means - make sure you close all the accounts after you have paid them off!

Depending on what you earn, the £250/month on the 12k loan is a big chunk of salary each month if you still have other repayments too, but I've got used to paying it now and after a bit of hard work it will gone forever in a few months!

Also, make sure you set up a standing order to your parents account each month prior to the loan coming out! I know this sounds terrible but 3 years into my loan I still haven't done this and transfer money/cash to my parents each month and not always on time, which can cause arguments!

If they're going to help you out on this, don't make them live to regret it - a standing order means you don't have to remember to make a transfer or draw the cash out and means you won't fall out!

Hope that this helps - please don't make the same mistakes I did - and hang in there! 12k does seem like a lot of money to owe, and 5 years does sound like a long time, but you will get through it, 5 years will go quickly in the long run and you can get this date earlier as I have if you really focus on it - just make sure you've had your Light Bulb Moment!

Good luck,

Sy

tyllwyd

I think your parents are putting a huge amount of trust in you if they are willing to lend you this much money. The question you have to ask yourself is are they right to trust you that much? You are the only person who can answer that question - and if you dont 100% trust yourself to pay them back I'd say don't do it. And bear in mind that if things did go wrong, and you looked at dmps, ivas etc, you should be treating all your creditors equally so you will have to let your parents down.

Personally, I've borrowed and repayed money from my parents in the past, and I've found it a burden knowing that I owed them money - at least with a bank it is their business to lend you money, so if things go wrong, or if you need to rearrange the payment schedule etc, you don't have that feeling of a personal obligation.

Kevicho

I think the best thing to do is get work out an SOA, that way you will be able to find out where the money is going every month and savings you can make.

Once you have done this you will then have an amount a month which you can set up as a standing order to your parents, you could use this to work out the length of the loan (as it will cost more than 12000 because of interest, the longer the loan, he more interest you pay) so it pays to pay off the loan as quickly as possible.

I would then cancel and cut up all the credit you have, that way you are not tempted to spend on them, also you should not need credit as your revised SOA should cover all your expenses

Crown

I agree with the above comments.

If you really have had a full blown lightbulb Moment and you are going to cancel ALL the cards and clear the Overdraft to a sensible level then all well and good. If you are in the mindset of you will keep it "just for emergencies" then you should avoid this loan even though the mathematics are right.

Debt changes relationships and as at the moment your parents are giving you support and you can go and talk to them about it the moment they become your creditor the situation changes. Is the risk of upsetting your family and not being able to talk openly with them worth it?

Good luck with whatever you decide

rayday2

I personally would not do it, its really nice of your family but you are not learning any lessons.

The level of debt you have is not too bad and you could with a true lightbulb moment get that down over a period of time without a loan.

As much as I love my family I don't like feeling I owe them something. Also you are only saving £34 a month that is not a lot. Paying your cards off will actually improve your credit rating on your own back and mean further down the line if you need credit it will at a rate you earned yourself much more honurable!

I also 200% agree with everyone else on paper its a good deal but could actually give you some financial bad habits and things could snowball on to be much worse!

Dr_Hook

I also wouldn't do it - purely for the reason that if something went horribly wrong in the next couple of years (like I unexpectedly lost my job or something) it would affect my parents as well as me and I just wouldn't want the guilt of knowing I'd done that.

That makes me sound really pessimistic, but you can never tell what's just around the corner and I wouldn't want to take the chance.

rayday2

I am really pessimisitic what if you don't want to go to Christmas dinner one year or a family wedding and you get the "we helped you out" line or you find a partner they hate...

That is pessismsmmsmsmsmms for ya! Can't spell it!

Dr_Hook

:rotfl: Hadn't thought of that - £12k's a lot of leverage!

System

Well how things have changed. I didn't get the money off the parents but I did get an interest free loan from work, although nowhere near 10K, it was enough to allow me to pay off the expensive loans and tweak 0% cc offers to get all but two of my debts at 0% and the other two at 7.7 and 9.9% but it has made life a lot easier, and a lot more comfortable if you get what im saying