Loan vs Debt

MJ101

Hi,

Just looking for some advice please.

For various reasons of which I wont go into the detail on, I have needed to use an overdraft and build up some credit card debt most when my wife was unable to work.

I am now paying interest on both.

The overdraft is £3k and the CC is £2k so totals £5k give or take. The interest across both is about £75-£80 per month and i am making payments on the CC as well of around £75 per month. I pay more if the money is available and I have cleared some money off.

My question is, do I get a £5k loan to clear both in one go and pay less than the £150 per month I am paying at the moment?

Only consideration I have is that I will need to fix my mortgage towards the end of the year as my current fixed expires. We will probably refix with our current provider as that is the best deal around.

If getting the loan is the right option, is it best to wait until my mortgage is refixed and then take it out?

Thanks in advance

[Deleted User]

Getting a loan doesn't clear the debt. It just shifts it around.

You need to find out the rates you're paying on your current debt to know what sort of consolidation rate may be worth it.

You will also need to consider whether your income will support an extra 5k of debt in the lenders eyes.

MJ101

I know that it moves it around, surely 1 debt is better than 2?

In terms of % the overdraft and CC are over 18% each and the loan will be circa 4% or so.

So would be a large drop in terms of interest rate

[Deleted User]

MJ101 wrote: »

I know that it moves it around, surely 1 debt is better than 2?

No. That's the old Ocean Fiance spiel. The number of debts is irrelevant. Only the value and cost matter.

If you can get a loan at a lower rate, then you can save on interest (as long as you don't extend the term significantly). But place your application carefully, as your options will be limited if lenders see you as already being stretched.

glentoran99

MJ101 wrote: »

I know that it moves it around, surely 1 debt is better than 2?

In terms of % the overdraft and CC are over 18% each and the loan will be circa 4% or so.

So would be a large drop in terms of interest rate

Ask most on the Debt free wannabe forum and they will tell you the same, They started getting into trouble with consolidating debt,


Unless you identify why your over spending then you will end up with double the debt

MJ101

The debt arose when my wife unexpectantly was unable to work. The debt racked up to make ends meet after the savings ran out.

Now she is back at work the catalyst for the debt has gone, it is just about paying off what I have now.

In terms if applying, I will be shopping around and using the checkers on MSE to find something.

Will a £5k loan cause an issue with my mortgage refixing? For the sake of a few months is it worth waiting?

Nebulous2

I don't think anyone can answer that for you. A loan shouldn't be any worse than a credit card and overdraft, provided you don't build the two of them up again, but additional searches could be seen as a negative.

Getting a loan at 4% will save you in monthly interest, but pushing it out further to reduce your payment is just deferring the issue and costing you more. I'd be aiming to pay as much as possible every month, with as little of that as possible being interest.

Have you looked at eligibility for a 0% credit card deal?

glentoran99

MJ101 wrote: »

The debt arose when my wife unexpectantly was unable to work. The debt racked up to make ends meet after the savings ran out.

Now she is back at work the catalyst for the debt has gone, it is just about paying off what I have now.

In terms if applying, I will be shopping around and using the checkers on MSE to find something.

Will a £5k loan cause an issue with my mortgage refixing? For the sake of a few months is it worth waiting?

If you staying with the same lender its likely they wont do a credit check, I know mine didn't and they didn't ask for any financial info

Dobbibill

I agree with PPs, debt consolidation rarely works as life throws another curve ball and you are back to square one with more existing debt baggage.

What I would add is, consider what would happen if you OH was unable to work again for a period of time. Would this happen again? If so, you may need to post a SOA on the DFW board to see how you can reduce your monthly costs, then throw every penny you can at the existing debt.

If you do get a loan then you need to consider, how a lender would view you doubling your debt. They do not factor in that you would pay off the existing debt, they just look at an application for £5k with £5k already held.

enthusiasticsaver

There are only two reasons why you should consolidate debt.

If the interest rate is significantly lower than the exisiting rate and the term the same or less.

The reason why you accrued debt in the first place, - unemployment, lack of overtime, overspending is addressed.

Your debt is relatively small. Can you not move to a 0% balance transfer credit card? If you pay £150 per month it would be cleared in less than 3 years. Obviously there would be a balance transfer fee to pay but you can do the maths or put the sums up here to see which is the best deal.

enthusiasticsaver

MJ101 wrote: »

I know that it moves it around, surely 1 debt is better than 2?

In terms of % the overdraft and CC are over 18% each and the loan will be circa 4% or so.

So would be a large drop in terms of interest rate

I debt is not better than 2. The only figure that counts is the overall indebtedness.

How long would the loan be repaid over? What is the overall cost? Can you get any 0% credit card offers?

Now your wife is back at work are you able to meet your monthly expenditure without resorting to overdrafts or credit cards?