Snowball effect

PRINCESSKERRY

Hello

I have just read on the loan thread about something called the snowball effect. I am currently looking for a loan to consilidate our credit cards we would need £8,000 to pay everything off. Only one of the credit cards is causing us any problems as the 0% interest has come to an end so interest is starting next month whereas the other two are 3.9% and 5.9% for life of the balance but I would still like to pay off both the high interest one and the 5.9% therefore £8,000 leaving just the 3.9% left. Before I start applying around I wanted to see what this term meant and to see if this is a way of helping us.

Thankyou

Kerry

cat4772

Kerry

snowballing info is explained at http://www.whatsthecost.com/

Cat.x

CLAPTON

I'ld be very surprised if you got a loan at a lower rate than 5.9% and so I would not recommend that you refinance either the 3.9% or the 5.9% CCs.

Kevicho

Hi

Snowballing is useful when you have a number of debts with varying APRS
In your case you have one debt that is 5.9%, one at 3% and another one which you havent disclosed.

The idea of snowballing is to overpay the highest interest debt while paying minimum amounts on the other debts.
Then when the highest debt is cleared, we pay off the 2nd debt, but we now have the first repayment amount as "free" cash so we add that figure to the minimum amount for the 2nd debt.
Thus increasing the amount paid to card 2, creating in effect a repayment snowball, then we do this to the 3rd debt and so on.

May i suggest instead of going for a loan (will be 8%+ interest rate minumum) you contact your other 2 cards and see if they will shift the debt to their card, that way they make more money, but you save in the longrun

PRINCESSKERRY

Thankyou all for your responses, I agree about not getting a loan cheaper then what we are paying. My husband is very uncomfortable with having debt though and I know would be more comfortable with one single loan, though I would be inclined to keep both these credit cards and just pay off the third. I am not positive about the apr on the third but I would think it would be the standard apr of 19.9% or thereabouts.
I was wondering about getting oh to call them and negotiate a cheaper deal as I would be more inclined to do that then take out a loan as we do not have a problem paying this debt we just dont want to pay this interest but saying that I would prefer to pay one or two payments instead of three across different cards.

CLAPTON

Seems mad to me to move debt from a low APR to a high APR just for the convenience of 'one easy payment permonth';
however if it really is a difficulty for you to pay three bills rather than one then : set up two DDs for the lower APR cards paying the minimum monthly payment and that leaves on one monthly payment you need to make.. on that pay as much as possible.
To reduce the rate you can indeed try phoning them and asking for a lower rate and/or try other low LOB or 0% cards or try a loan just for that card balance.

Fortheloveofmoney

Hi there!

You won't find many fans of consolidation on this board. Mainly because we have all been there, done that and run the debt back up again.

I personally consolidated about 5 times before I learnt my lesson.

Not everyone who is in debt has been excessively living beyond their means but some (myself included) have. You need to find out that reason behind the debt before you take the consolidation route. If you have been spending more than you earn then you will end up further in debt if the overspending continues.

When I first started to accumulate my debt it was very manageable. As such, I never considered myself to be in debt. After the 4th consolidation it started to become very difficult. After the 5th consolidation I realised that I was in danger of loosing my house.

Check out the snowball calculator that cat posted to see how much difference consolidation makes to the overall amount you pay back. It's an eye opener!

Good luck