Debt Consolidation Loans??

punka

What are peoples opinions on Debt consolidation loans.

I've posted my SOA last week and I think I've worked out a budget to pay off my debts. I'm currently trying to pay off my credit card by April (now on about £1520) but after that I am left with a HSBC loan of about 7.5k and an egg loan of 3.5k.

I can make overpayments to the egg loan but NOt to HSBC. I was thinking of putting them together into one loan at the best deal I could find with higher monthly payments. Seems like a straightforward thing to do - my debt free date would be brought forward by about 18 months and I would be committed to payments rather than frittering away the extra once I have paid off my egg loan.

I get the impression from this board that it isn't a good idea??

Scarlett.1974

Hi Punka,

You're right - almost always consolidation loans are very much frowned on here due to 2 reasons - 1. they don't actually adress the reason you're in debt and the risk is there to re-spend on your 'empty' CCs/OD and end up in a worst position that you were originally in........ and 2. they're almost always more expensive in the long term.

However, IF you could get a lower APR and shorter term that your loans are on now........ and you've done the sums and you'd be paying less interest then .......... *maybe* it might work for you. I'd still be VERY wary myself, but that's only because I've lost count of the amount of times I've consolidated in the past and the very words "Consolidation Loan" now make me want to run screaming from the room

Fortheloveofmoney

It's generally considered a bad idea because most of us have been there and done that more than once. It took 5 consolidations for me to see the light.

I found consolidation a bit of an easy way out and then continued to spend. What I failed to see was that I was spending more than I was earning and just getting deeper into trouble.

Consolidation can work but you have to be disciplined not to run the debts up again. Also you need to work out if you are going to pay more interest on the consolidation than if you were paying them back individually. Have you checked out the snowball calculator to see what the difference in interest payments are?

http://www.whatsthecost.com/snowball.aspx?country=uk

This will help you decide whether it's the right thing for you or not.

Fortheloveofmoney

Scarlett.1974 wrote: »

*maybe* it might work for you. I'd still be VERY wary myself, but that's only because I've lost count of the amount of times I've consolidated in the past and the very words "Consolidation Loan" now make me want to run screaming from the room

*shudder* I hear you on that one.......

MoneyMagnet

My experience was a positive one, although I only used an unsecured loan, not a secured special 'consolidation loan' (there is more here http://forums.moneysavingexpert.com/showthread.html?t=604644 )

You do need the discipline not to run the debt up again though.

punka

Thanks - think I just needed someone to talk me out of it!

actually, my HSBC loan was my attept to consolidate 4 smaller loans and my credit card in April this year. It has worked as in that I have freed up money to live off rather than my living off my card but i did manage to build my credit card up again - just rying to get out of that cycle now.

I'm planning on shutting them all down once paid off anyway to remove the temptation! I'm doing well at this budgeting lark (granted - its only been 2 weeks) and I don't want to stop now.

I might look around to see what amazing deals are out there when I'm ready but the way interest rates are going, I might just be better saving something to pay off my HSBC loan in one bulk payment.

chevalier

have a look at the snowball calculator on www.whatsthecost.com. This will give you a debt free date for if you go as you are now. It will also tell you how much interest you will pay. Then try putting it in as if you got the consolidation loan. Have a look at the interest you will pay this way. Only if it is less is it really a good idea.

The other reason people are against consolidation is that for the loans you will almost certainly have paid the interest already (most loads are front loaded), so if you take out a consolidation loan to pay these off, then you are in effect paying interest twice for the same money.
chev

CLAPTON

As I understand it, punka isn't looking to consolidate to reducing outgoings but the exact opposite. In fact looking to pay extra each month so I feel the comments against consolidation make no sense in this specific situation.

The question is really whats the best, cheapest and fastest way of paying off the loans.

I would suggest you treat each loan separately and look whats best for each in turn.
What is the current APR of the currrent loans
what is the interest penalty for early repayment (find out the settlement figures)

What APR can you get on a new loan?

Need that information before is possible to say whether its better of not.

If the numbers work out then do it if not then concentrate on overpaying the Egg loan until its paid off then saving as much as possible in a savings account until you have enough to make an early settlement on the HSBC loan.

punka

My Egg loan stands at 3,625 at an APR of 7.9% of which I am currently paying £150 per month (end date Feb 2010)

My HSBC loan stands at approx 6,800 (if I paid off now) or somewhere between 7.5 and 8k if I add interest and carry on with the loan (end date March 2012) and I pay £150 a month. 2 month interest penalty.

I'm currently throwing everything I have at my credit card and have moved back home for a few months. My parents are thinking of downsizing next year and I do want to move back in with the fella. So the £300 ish plus flogging everything I have on ebay can't really be sustained long term. Once I have paid the card off and at least 1.5k of my egg loan I'm looking at payments totalling £350 a month give or take. I can then work to a sensible budget to live off. This is why I thought about consolidation - there doesn't seem to be much difference in interest payments from the snowballing calculator so probably won't bother.

I might if egg reduce their APR to match HSBC and then move my loan over to egg - at least I know I can pay extra when I can. At the moment, watching my debts go down quickly is my motivation for not going out and buying something silly!

thanks for your help guys - I think i really need to sit down at the time and work out what is the fastest way of doing it.