Getting myself debt free - consolidation?

ryanm8655

GN_TDCI wrote: »

Consolodation loans, as mentioned, rarely work.

You say you are young, and you have £28,000 of debt with no home. It's a lot of unsecured debt, which you intend to roll into one larger sum.

The reality is:

Lenders won't want to give you enough money to consolodate all your debt into one. You're a finanical risk on paper by your own admission.
You are unlikely to have the credit capacity to take out the large loan on an unsecured basis to pay off the other debts.
The loan value is very large for an unsecured debt meaning the APR would likely be higher than you expect.

Consolodation loans also, historically, fail to teach the lender anything. You consolodate, then you run into your old ways and spend your left over cash too quickly, then you take out a small card here, or there, or you spend on the cards you have becuase something comes up. Before you know it, you're back to square one.

The real solution is to set your spreadsheet up to either work out the APR showing your payments and interests - or, even easier and better, figure out your minimum payments and pay a set amount.

For example, you can use the BarclayCard Payment Calculator for a rough indication of what setting a fixed amount would do to your card.
Lets assume you have £2,500 on a credit card with an APR of 27%. Paying the minimum payment only would take around 27 years to pay off. The current minimum would be about £75 a month. Set that minimum to £100 and that will take just 3 years to complete.

Since you have the residual £500 a month for "spenders" then I would consider putting that into your debts.

At the very, VERY lest you should be putting £250 a month of that into your debts to fix the repayments into affordable payments that clear the balances.

Also, don't be afraid of paying the smallest debts off first - even if the APR is lower. Sometimes you can clear off debts quicker by killing the little debts first and then ploughing that money into the bigger one.

The title is probably a bit misleading. My thinking was to consolidate the cards that aren’t interest free to reduce interest payments so that I can clear the debt more quickly/efficiently but get the point re: filling the cards up again.

My current minimum payments are £550, some of which are clearing balances down rather than paying interest. On top of that I’d be paying off an additional £730 a month assuming I did include a £500 budget for other expenses. I’m also moving to a cheaper flat which will save a further £200, meaning I can clear £930 of debt a month on top of the £550 in minimum payments. So the balance would be reducing, or is your point that I should put in some of the £500 in addition to the above?

A good point re: cards and minimum payments. Though my thinking is clear the higher interest ones first by setting a payment of (as per the above) £930 per month, then move onto the next one once cleared. (Assuming I don’t get a loan).

Thanks!

stripeyfox

my own (non expert) contribution.

"Consolidation rarely works" they say - this is true. but, ergo, that means consolidation can (occasionally) work.

It did for me (although not the first few times!). But you need to be super disciplined and completely change your attitude to spending. If you don't you'll be back to piles of debt plus the consolidation loan in a year or two. Trust me, I've been there (more than once).

You do a budget right? You get paid x and your bills are y and that leaves you with z? You got plenty of dough left on paper at least. Keep a log of everything you spend and categorise it. You might be surprised where it goes.

The problem with a clean overdraft and 0.00 on you card is that as soon as you run a bit low one month, the odd £100 here or there makes no big difference initially, but that's how the cycle begins.

If you are determined that it won't happen again then it could work for you. You need to account for everything you spend AND try and save a bit every month. Build a pile. Get protective of it. Avoid temptation to spend. It's hard. Really hard. especially if you earn decent money and there are lots of credit streams available. Even if it isn't "classic" credit cards and overdrafts there are plenty of other traps.

Good luck with it though

ryanm8655

Willing2Learn wrote: »

I do not agree with your assessment of the situation. How can you say your lifestyle is just about within your means when you are £28,000 in debt?



I definitely don't think you are a nob lol...I do think you are being naïve...we are just trying to help make you a bit more savvy... I think a workable SOA that reduces your level of debt would be a massive step forward for you.

I mean, it depends on the definition I guess. I mean I could continue my present lifestyle and pay minimum payment forever and not accumulate any more debt...but I’d be living in a flatshare until I get a promotion and be renting forever...plus if an emergency did come up I’d be screwed...so perhaps that’s not living within my means on reflection ha. But this time last year my rent was £300 more and I was going out a lot more, so I have made lifestyle changes (just nowhere near enough).

I’ll work on an SOA this evening using the link posted earlier in the thread.

Thanks.

MEM62

ryanm8655 wrote: »

Apologies if I am coming across as a nob, honestly not meaning to be but have thought about things a lot before coming here. I appreciate all advice/opinions.

Its not a case of being a knob. It is a case of what you want and what you are prepared to do to achieve it. You claim that you want to be debt free but many respondents will, based on the plan that you have proposed, consider that you are not really committed to it. The things to consider are;

1) Consolidation does not work. It does not relieve debt, it just shifts it. The sense of relief experienced by many after consolidating leads them to feel free to spend again thereby worsening the downward spiral. Either way that point is probably moot as I doubt that you will be offered further borrowing in your circumstances. DO NOT get sucked in by high interest loans just because they look attractive now.

2) Every day you live like a hermit shortens the time that you will spend in debt and brings closer that day when you can spend your money on living instead of interest charges / servicing debts. The balance between clearing your debts and living more now is for you to decide but consider that any money you spend now is borrowed from your future self and he won't thank you for it.

3) Your credit card commitments are going to increase significantly as the interest free deals come to an end. You need to get rid of a much debt as you can before that time. Even small amounts cleared now will have a massive impact later on. I get that you do not want to live like a hermit for years but doing so for the next year will be the biggest favour you can do yourself. It may take years off your debt free journey.

4) Being debt-free is, for most of us, a lifestyle choice. Buy into it! Nobody but you will be disadvantaged or rewarded by the decisions you make now.

Halfie

Socajam wrote: »

You are £28000 in debt and you are:

considering budgeting £500 a month for the occasional meal out/pub trip though I appreciate that will probably be frowned upon. But it’s to try and make this plan sustainable.

That's when I stopped reading. Good luck

Have to agree! OP, well done on acknowledging the situation but if you're planning on clearing your debts so you can have a better life going forward you need to pull your belt in now to get this lot shifted. It will feel painful at the time but it will be worthwhile when it's all done. You are in a very fortunate position that you can even consider budgeting £500 for the pub and meals out as there's many who are trying to service larger debts with lesser disposable income.

If you are serious about getting this cleared, then you're going to need to throw everything you can at it. Remember that you're paying back what you've already had whilst you were "living a plush lifestyle". I actually bring home a very similar amount to you (£2980) and wouldn't dream of spending £500 a month on nights out because I can't afford it... and I'm debt free and pay £1250 a month in bills and car payments. But I've been in a LOT worse situations and have 5 defaults on my credit file so maybe that makes me realise how very easy situations can change and you're up the proverbial creek. Once bitten...

There's some good advice around clearing the debt off and you've got the right idea about clearing the highest interest cards first. For the others pay the minimum +£1 as this reflects better on your credit file than paying just the minimum payment. You cant borrow your way out of debt so avoid the idea of a consolidation loan even if you could get the full amount. Good luck! I'm sure others will be along with advice once you post your SOA.

badgerhead

I'd use the SOA format thing here. The way you initially said you want to keep £500 spending budget kind of made it sound like it's a !!!! it up the wall fund. It may be so, but if you use the SOA you may find that actually part of that 500 is for actual categories like clothing, holiday, entertainment etc.

JayRitchie

Hi Ryan

As people have suggested above could you split out your debts to show amount owed, minimum payments, interest rates and the dates when any interest rate deals end? This would make it easier to see how different routes might work.

Also:

- no travel costs apart from visiting family? You don't pay for the tubes or buses?
- any chance of moving somewhere cheaper since you are sharing anyway?

theoretica

ryanm8655 wrote: »

I’m considering budgeting £500 a month for the occasional meal out/pub trip though I appreciate that will probably be frowned upon. But it’s to try and make this plan sustainable.

The thing that bothers me is not that you are thinking of budgeting some money for luxuries - I agree you want a sustainable plan. If you prefer staying in debt and spending £6000 a year on luxuries it's your call - not the call I would make though. What really bothers me is the disjoint between the sum of £500 and what you say it is for - 'an occasional meal or pub trip'. £500 would buy you more than 3 pints in the pub every single day of the month or several perfectly nice meals out every single week. Be honest with yourself about your budgeting and how much luxury you are planning for and make the figures match.

JCS1

ryanm8655 wrote: »

Thanks for the response.

My job is more secure than a job with the police and my pay would be guaranteed in the unlikely event I was made redundant. But I get your point, perhaps I’ll have an accident and be unfit for work for two years or some other shock event...
.

Most of the people I interviewed when they had gone bankrupt had a similar story. Took out credit which they could afford. Then something (life) happens, so ill health, redundancy, relationship breakdown - leading to a reduction of household income and could no longer afford the repayments.

I believe it is considered advisable to have 3-6 months salary saved as a minimum.

ryanm8655

Thanks for the further replies.

I get free tube and train travel within London.

I am planning to move somewhere cheaper and further out, which will save me a further £200 a month. Planned move date is early July, just waiting on contract (viewed yesterday). Also going through my things to see what I can sell.

The £500 would include things like clothes/holidays etc. So the idea is that if I want to go on holiday with mates I have to save the money from that fund, or if I need some new jeans then it’ll also come from that budget.

Not yet had a chance to do the SOA as have been running errands but will give it a crack shortly.