Debt consolidation is it worth it?

katie4

Im looking at getting a debt consolidation loan for my aqua credit card which is 41.2% apr with a balance of approx £3500
loan offered is over 12 months £297 a month at 17.4% apr


it looks good, but i just want to check whether its a good idea as i know i will have to pay that set amount each month which i can afford as i have just become full time, i think im just scared of that commitment as i know the minium repayment on CC is only £150 a month


any advice? am i just being scared

Mrskjg14

If you pay your credit card back at the minimum payment, assuming it's around 4% of your balance is the min based on what you've said, it will take you over 43 years to pay it off...
And will cost around £8000 in interest.
I would 100% take the loan!

Pixie5740

Debt consolidation can work IF you have addressed the underlying reason for your overspending.

Your loan over 12 months will cost you £314.36 in interest. If you continue only making the minimum payment of £150 on your credit card it will take 41 months to pay off and will cost you £2,801.64 in interest. However, if you can increase your credit card payments to £297 a month then you're credit card will be repaid in 14 months and cost you £894.82 in interest.

January2015

From someone who has gone down the debt consolidation route twice and still come out with massive debts - then no, it is not worth it.

Biggest financial mistakes I ever made. I only wish the loan company had explained to me that I should seek debt advice first. If they had, then I would have known that there were alternative routes to clear our debts which were manageable - and better still did not secure those debts against our home. Also, had I gone down a DMP route earlier I would not have been able to rack up more credit and just continue the borrowing cycle - which was clearly obvious from our credit files.

sourcrates

katie4 wrote: »

Im looking at getting a debt consolidation loan for my aqua credit card which is 41.2% apr with a balance of approx £3500
loan offered is over 12 months £297 a month at 17.4% apr


it looks good, but i just want to check whether its a good idea as i know i will have to pay that set amount each month which i can afford as i have just become full time, i think im just scared of that commitment as i know the minium repayment on CC is only £150 a month


any advice? am i just being scared

Take good notice of post #4#.

That should tell you all you need to know in answer to your question.

zippygeorgeandben

I was just going to post the same sourcrates. Post 4 is your friend.

System

I’m the same as January, before I got all the wonderful advice on here and started to understand more about debts/interest, talking to my creditors and discussing options I would have no way ‘consolidated’ my debt on another loan. 2ish years ago i did that, and I could have saved myself £1,000 in the interest I’ve paid, plus the money I ended up putting back on my credit card through just living in too much credit. Had I sorted my debts out then like I am now I’d be in a much better position now. Have a good look at all your options.

Mahsroh

There are others clearly more experienced than me and post 4 seems like very sensible advice.


But ultimately, I would only consider a loan to consolidate debt IF you've addressed the reason why you are in debt AND (this bit is crucial) you cancel the credit card!!


If you haven't done / don't intend to do those two things, you will take out a loan, and still continue to use your credit card thus increasing your debt further, particularly more likely if the loan increases your monthly outgoings!

katie4

January2015 wrote: »

From someone who has gone down the debt consolidation route twice and still come out with massive debts - then no, it is not worth it.

Biggest financial mistakes I ever made. I only wish the loan company had explained to me that I should seek debt advice first. If they had, then I would have known that there were alternative routes to clear our debts which were manageable - and better still did not secure those debts against our home. Also, had I gone down a DMP route earlier I would not have been able to rack up more credit and just continue the borrowing cycle - which was clearly obvious from our credit files.

Hi it wouldnt be a secured loan, i have just started working full time (in a job that i have been in for ten years part time) so i have the extra money to pay for it
can i ask why it wasnt good for you?
this loan is with my local credit union

StokieBecks

If you clear the credit card with a loan the temptation will be there to spend again on the card.

Instead stop spending on the credit card and put the extra money you would be paying on loan repayments to the credit card. If you only pay the minimum each month most of it is going on interest and not reducing the debt. If you feel you can afford loan repayments that are almost double your credit card minimum payments then you can afford to pay more off your credit card instead.

Make a budget for your monthly wage and stick to it. Keep a spending diary to see where your money is going.

Consolidation rarely works for most in here unless they have addressed all the reasons they are in debt initially.

Do you have bad markers on your credit file? Your card interest is massive. Have you checked the eligibility checkers on here for other cards?

[Deleted User]

Firstly, your loan figures don't add up.

£297 per month over 12 months, is only £3,564, meaning you would pay just £64 in interest, whereas £3,500 over 12 months, at 17.4%, would mean paying £313.67, interest.

To actually pay off the loan over 12 months, you would need to be paying around £316 per month.

Going now to the Credit Card, at your current rate of £150 per month, it will take 44 months to pay it off, and cost you £3,099 in interest.

However, paying the same £316 per month, as you would to clear the loan in 12 months, you would clear the Credit Card in 14 months, and pay £783 in interest.

Still more interest, but only £467, instead of the current £3,099.

Now for my opinion on debt consolidation, garnered from personal/painful experience.

Even if you manage to avoid running up the Credit Card debt again, there's still the "we can reduce your payments" trap.

You are a few months into repaying the loan, and it's a bit tight financially (maybe you've had a week off sick), when your bank manager says he/she can offer you a loan with lower repayments.

"Great" you think, "a few quid extra in my wallet very month".

Trouble is, you've just reset the loan to 12 months, or even more.

In your shoes, I'd stick with paying off the Credit Card, and throw every available penny at it.