Consolidating loans

gibbs1984

Hi,

My girlfriend has multiple loans to multiple different lenders and pays back a certain amount each month via Direct Debit.

Twice within the last 6 months the lender has taken out more than the regular monthly agreed Direct Debit amount. This month one of the lenders took over £600 instead of roughly £50. Every time this happens it leaves my girlfriend with no money for the month (DD's are paid a few days after pay day) and more importantly it means that the other lenders don't get paid for that month.

She's not very good with her finances, not that she overspends or doesn't pay her loans on time, she is good with that but she doesn't keep a spreadsheet of her finances or know them indepthly, I work in Finance so I know my finances down to the penny and I'm trying to help her with hers, she can afford the loans with plenty of money left over.

What would be the best course of action, would be consolidating her loans the best option?

She doesn't have a very good credit rating and has just been turned down for a consolidation loan.

I was thinking of getting a separate bank account and transferring the loan money to that every day but that wouldn't stop one of the lenders taking more than the agreed monthly payment.

Any advice appreciated.

Regards,

Steve

JCS1

Consolidation loans rarely work.


Best thing would be to post a statement of affairs and then people can give advice.

fatbelly

gibbs1984 wrote: »

What would be the best course of action, would be consolidating her loans the best option?

She doesn't have a very good credit rating and has just been turned down for a consolidation loan.

I think you answered your own question there.

If the problem is being caused by the direct debit, change it to a standing order. It's the same sort code/account number/reference. She could probably overpay the highest-apr loan. See

http://www.stoozing.com/calculator/snowball-calculator.php

Why does she have a poor credit rating if she can afford the loans with plenty of money left over? Has she missed payments in the past?

gibbs1984

OK thanks, I'm going to go through her finances together and put together a spreadsheet of her finances, how much she earns, how much she owes out in bills and loans etc and she where she's at.

How come consolidation loans don't work? Is it because they'll then feel tempted to get another loan or the interest is more so she'll pay back more?

She can repay the loans now with no problem (unless they take more than owed), she doesn't mind paying that amount out so if she could get a consolidated loan to cover all of them and make one payment, even at the same value as all the other loan combined wouldn't that be the best option?

Excuse my ignorance in these matters, I know sometimes it can sound easier on paper than in reality but I just don't know what the drawbacks are from a consolidated loan.

gibbs1984

fatbelly wrote: »

I think you answered your own question there.

If the problem is being caused by the direct debit, change it to a standing order. It's the same sort code/account number/reference. She could probably overpay the highest-apr loan. See

http://www.stoozing.com/calculator/snowball-calculator.php

Why does she have a poor credit rating if she can afford the loans with plenty of money left over? Has she missed payments in the past?

Not entirely sure as we've only been together a couple of years and these loans date but far longer than we've been together, she's never really spoken about them until recently when the issues with more being taken started to happen.

OK, so if she changed them to a standing order then they couldn't take more than agreed per month?

That sounds like a good way to go, is it easy to change from a Direct Debit to a standing order? Would the lender need to agree to it or can she just change it online on her banking website?

System

Although there is quite a lot of advice re: not consolidating, I personally find it useful for a number of reasons. It makes it clearer to understand and therefore remain on top on IMO. It also means that you can possibly get a some of your poor interest rates onto a loan that typically has better interest rates. Just be sure that you don't then rack up more debts on top.

Willing2Learn

gibbs1984 wrote: »

How come consolidation loans don't work? Is it because they'll then feel tempted to get another loan or the interest is more so she'll pay back more?

Because the reason the borrower is in debt needs to be addressed. If the fundamental flaws in the borrower's monthly budget are not addressed, then a consolidation loan can quickly develop into a doubling of debt. The credit accounts that are cleared are borrowed from once more, to make ends meet, then the spiral begins. We have seen it so many times on this board, when the good intentions lead to increased money problems.

gibbs1984 wrote: »

… is it easy to change from a Direct Debit to a standing order? Would the lender need to agree to it or can she just change it online on her banking website?

Yes, you can just cancel the DD online and then set up the SO. It is courtesy to inform the creditor in writing too, and it gives you a paper trail.


Are you sure it is a Direct Debit and not a Continuous Payment Authority (CPA) on her debit card?

Sncjw

They don’t work because you are doubling your debt. There’s no garuntee the person would use the loan to pay off the debt they have. Also the rate maybe higher. And she may not have a high enough income to support double the debt for affordability.

MEM62

gibbs1984 wrote: »

How come consolidation loans don't work?

Often a lack of discipline. The individual will view their debt as cleared when, in fact, it has just been moved. The feeling of relief that this brings causes them to spend freely once again. In addition, the route cause of the debt building up in the first place is rarely explored or understood leading to a continuation of bad habits - generally, living beyond one's means.

MallyGirl

plus, consolidation loans often extend the period over which the debt is being paid back which means there is more interest to pay.

I would be looking at which lender is messing up the DDs and trying to pay them off asap.

sourcrates

Direct debt’s are initiated by the lender, standing orders by the debtor, so you are in control.
Also are you not aware of the DD guarantee ?

Contact the bank and get the money returned.