To get a loan or not to get a loan??

price83

Right we owe £3500 on a credit card and we have around £400 a month to pay off BUT the balance on the card it just not going down! for 6 months now we have been monitoring the card and no change regardless of the money we pay onto it. (life gets in the way too many 'emergencies') This is starting to get us very down and the weekly arguments about money are becoming very draining.

So I was thinking about getting a loan for £3500 over as long a period as possible (around 8 years) My thinking is the repayment is going to be low (£50) and the rest of the money we usually put on car can be put into a savings account so we can pay off the rest of the loan as soon as we can. I think this may releave the stress a bit as any emergencies will come from the saving fund rather than back on the credit card.

So do you think this is a good idea? I am looking at northern rock at the moment.

angelavdavis

Hi and welcome to DFW,

A few questions in response:

1) Do you have savings? If so, what is the interest rate? If it is lower than your credit card rate - you are crazy saving and should pay off the debts with your savings first - see http://www.moneysavingexpert.com/loans/debt-help-plan#checklist Once you have paid off your debts, you will have an additional £400 to save. If you don't have savings, what is the rate you are likely to get in interest? If it is less than you would be paying for the loan - its better to pay off the debt first before saving.

2) What is the rate of the credit card? If it is anything above 5% fixed you need to see if you can switch to a 0% or a lower life of balance deal. Look at http://www.moneysavingexpert.com/cards/balance-transfer-credit-cards

3) Have you worked out how much more your credit card debt is likely to cost if you extend the payment period over 8 years? It would be worth looking at the payment calculator to compare your current payment schedule with an equivalent loan schedule: http://www.whatsthecost.com/snowball.aspx

4) Are you sure £400 is the maximum you can afford to pay off the credit card every month? I would suggest that you review your incomings and outgoings and see if there are any areas where you can reduce fuel or shopping costs to realise more income. You can post up your statement of affairs of here for the good folk to offer their advice if you wish. Include the word SOA in the heading of your post.

Lastly,

5) Are you 100% sure that if you transfer your debt to a loan you are not likely to build up the credit card again? The reason I ask is that many people on here are suffering due to failed attempts at consolidating their debts (including me originally). They switch to a lower rate loan and then, after a while, they might get a payrise and are tempted to start spending again on the credit card.

I would personally never recommend consolidating as very often, although payments are lower, you end up paying more interest and are tied into the debt for longer.

price83

Thanks
1) we dont have a penny to our names. not even for emergencies which is why we get into trouble as every month there seems to be 'something'.
2) credit card is at 18.9% I had not though about an interest free credit card any ideas what the minimum payment would be?
3) I think I would kill myself if the credit card would go on for 8 years! I am only looking at 8 years to get the basic repayment as low as possible so I can save faster to lump sum it asap.
4) the £400 is everything we have at the end of the month there is nothing we can scrap further on - we have no life as it is!
5) If I got the loan then the credit card can be destroyed and cancelled. I am hating this more than anything I want to be in credit not in the red! I am paying the price for being a stupid child at university with no concept of money and too much freedom.

One thing that scares me about a 0% balance transfer is what if I cannot afford to pay it all back in the time allowed then I would be in the same situation just with another bank.

price83

One more thing about balance transfers. The original credit account was set up in my fiances name but I am a second card holder on the account. Would my fiance have to transfer the credit into another account in his name or can I do it in my name? ( I possibly have better credit than him - was planning to take the loan in my name)

Fortheloveofmoney

price83 wrote: »

Right we owe £3500 on a credit card and we have around £400 a month to pay off BUT the balance on the card it just not going down! for 6 months now we have been monitoring the card and no change regardless of the money we pay onto it. (life gets in the way too many 'emergencies') This is starting to get us very down and the weekly arguments about money are becoming very draining.

So I was thinking about getting a loan for £3500 over as long a period as possible (around 8 years) My thinking is the repayment is going to be low (£50) and the rest of the money we usually put on car can be put into a savings account so we can pay off the rest of the loan as soon as we can. I think this may releave the stress a bit as any emergencies will come from the saving fund rather than back on the credit card.

So do you think this is a good idea? I am looking at northern rock at the moment.

Hi There!

I think the first thing you need to do is an SOA. I would imagine that the £400 'emergencies' each month are not really emergencies but things like car insurance one month, car tax another, someone's birthday etc that need to be budgeted each month.

If you draw up an SOA with all of your expenditure on you will be able to see where cut backs can be made. If you choose to, you can post it on here and the kind folks will take a look and come up with some really good suggestions at getting rid of the debt within a reasonable length of time saving you money and interest payments. You will not find many fans of consolidation on here. Most have been there and done that. I myself consolidated about 5 times before I learnt my lesson. Take a look at my signature to see where I was and where I am now.

Good luck

tigerfeet2006

If you transfer to a 0% then even with transfer fees if you pay £400 a month you will easily pay it off in the year, probably around 10 months.

price83

Seen virgin transfer for 15 months. Do you know any other cards with a lower transfer fee? Virgin is 2.98% charge. do you have to pay the charge in advance?

angelavdavis

price83 wrote: »

One thing that scares me about a 0% balance transfer is what if I cannot afford to pay it all back in the time allowed then I would be in the same situation just with another bank.

Yes, but if you are paying off £400 per month as a minimum, the debt will be cleared far sooner. The minimum repayments on credit cards are typically 2%, if you are paying 18% interest, then most will be going on the interest. By lowering the interest rate to 0% more of your payments will be going off the balance.

skint_spice

Hi price83, even if you balance transfer at 3% (which is about standard) then pay £350 per month and save £50 for tax, insurance, pressies you'll still be clear in less than a year. if "things" come up - as they often do for all of us - then even if you miss a month or two and just pay minimum you'll be close to finished after a year by which point paying interest on a small amount will still be less interest than a longterm loan would be. Just check you get the best deal on a card that suits you (check martin's guide on the home page) then go see if you can apply through quidco and get some cashback too.

Good luck!

thesmiddy

gibsonp wrote: »

We will work with your creditors to lower your monthly payments and to reduce your interest charges. Our Financial Fitness Center is available to help guide you in all aspects of personal money management and help you improve your financial literacy.


Regards,
Gibson Petry
http://www.ezconsolidation.com/

Get the spam out of here, please ignore this. If you can't transfer to a lower APR card it is sometimes worth phoning up and asking if they will lower the APR (threaten to transfer), it worked in the past for me albeit only the once!

In_Search_Of_Me

gibson post reported - see board rules!
As for OP I would suggest that you firstly NOT do anything immediately. Do your SOA and people will help you cut down. Its amazing what you can manage when you set your mind to it, honest.
Consolodation is not the answer & I know that from painful experience. I wish that I had stopped spending when I was where you were but instead I colsolodated, felt happy, spent mre, consolodated and away you go until I HAD to stop because I couldt get more credit but now had an almost 38000 unmanageable debt and thats not including the mortgage. One of my loans (front loaded and still with almost a decade to go) cost me £8000 (yes that does say eight thousand) pounds in interest alone! I could buy a new car with that! So my advice would be do your SOA, start a spending diary & be amazed at how many things you can ebay, do without & how you can find joy inthe simple things in life! Not having to go shopping all the time is now something of a relief, I'm great at finding a bargain and get extra dosh by doing surveys, getting cashback from quidco and babysitting...You can dothis quite quickly if you set your mind to it but you need to take time to sort & organise rather than going with the "oh SH**" knee jerk , panic that you are feeling now, which I can totally understand BTW but please dont learn the hard way as so many of us have! Have a look at the interest that you will pay on the loan & that should scare you into action! Hugs for you!