Is it worth getting a bank loan to reduce credit card debt?

London64

I need some sensible advice. I want to get rid of my credit card debt once and for all before it overwhelms me and so I'm tempted to apply for a loan, if I can get one, to cover half of my total credit card debt. That way I could pay almost half the interest that I'm paying at the moment and it should leave me with a little more cash to bung at my credit card balances. Does it pay to pay off one debt with another?

lipidicman

If the interest rate is lower (and the period is the same) this could be OK.

Could you get a 0%, or low life of balance card (is your credit rating OK)?

Rafter

Remember with a loan you are paying off the amount as well as the interest.

With a credit card, often the minimum payment only just covers the interest, so you could be taking up to 20 years plus to pay off the underlying debt.

If you are currently paying minimum payments on your cards, say 2.5% you are going to have to find around 5% to pay off a 3 year loan possibly.

Here is a plan:

1. Write down all your card balances and the APR (interest rate) from the statement.

2. Each month, pay off as much as you can from the highest APR card and as much as you can from the others.

3. If you can't get a 0% card then a loan might reduce your interest rate.

4. Whatever you do cut your cards up and try to live off your current account balance alone, perhaps keeping one for absolute emergencies.

Good luck.

R.

London64

Thanks for the advice lipidicman and Rafter.

I'm not sure that I could get a 0% credit card with a balance high enough to clear half my debt, which would help to make a real dent in it. So a flexible loan with a lowish interest rate, from Nationwide might be an option. My credit rating doesn't look too bad because I've been able to keep up with the payments and always try to pay more than the minimum, but it's not a pretty sight with all the credit card debt listed in black and white.

I've learnt my lesson, it will be scissors at dawn for my luttle pile of credit cards.

Magentasue

I keep recommending this site: https://www.whatsthecost.com to look at different ways of reducing your debt. Look at the snowballing section - you pay off your debts in the way that Rafter suggests. The calculator shows how much interest you would pay and gives you a payment schedule - you could put in your imaginary loan and compare.

Nothing to stop you getting two 0% cards if you can, if you have a partner you can apply for one in each name (two different cards) - just make sure you transfer in time. It'll give you 6 months + free credit if you can do it.

stripeyfox

Without going into the exact calculations, I think there may be an advantage in transferring to a bank loan if you can get a good rate. At least it's a fixed amount, so if you're like I was and not very disciplined at paying any more than the minimum on the cc then at least you're paying the debt off.

But, make sure you cancel the cc accounts - they'll try and talk you out of it, saying stuff like "oh you may as well keep it, it won't cost anything if you don't use it" which is great until you're tempted to use it again. I went through this cycle several times before reaching "tipping point" where I could not afford to take any more debt on.

And watch what the bank try to add on for insurance. Don't be brainwashed by them. Work out the insurance cost per month and add it up over the course of the loan and it can run to thousands of pounds. If you need to take out Payment Protection Insurance then I'm sure someone here will point you in the right direction of third party providers.

Hope this helps, and cut those cards up - don't make my mistakes!!!