What do you think?

rusty369

Hi guys,
A first-time poster so please take it easy on me.

I have been in credit card debt for over 3 years now, making more than the minimum payments each month but due to the eye-watering interest, my balance never goes down!
I decided to get a loan to pay off my credit cards and I am saving well over £200 a month compared to the credit card repayments and it's a fixed interest % which means I will be able to pay it off. Hurray!

The credit limit on card 1 is £9,000 with a monthly payment of £350
The credit limit on card 2 is £6,000 with a monthly payment of £225
The loan will pay off both cards and my monthly payment will be £350 each month which is easily affordable now I have a fantastic new job. (I will probably pay this off early as there are no fees)

Question:
Should I keep the credit cards "open" but not use them?
Should I close both the credit cards and reapply for a 0% card?
Should I close both cards?

What would be best for my credit rating?
It's currently on 536/710
Is there anything else you would recommend for me to improve my credit rating?

Thanks in advance.

[Deleted User]

Your credit rating doesn't matter. What does is how lenders view you.

The sensible thing to so would be to keep both cards open and use them regularly, clearing in full.

The only reason to get a 0% card would be if you're planning to run up more debt - I'd advise against it.

Overpay the loan as much as possible.

Don't worry when your rating drops, as long as you are managing your credit responsibly.

sambaird

If this is the first time that you have consolidated your credit card debt into a loan, I would tread very cautiously for a period of time.

As zx81 mentions, don't worry about the score at all.

For the purposes of credit history, it would probably be better if you kept the cards open.

However, there are so many people that fall into the 'consolidation trap' (including myself) of using the cards that have been paid off...and before you know it - they have been maxed out again... essentially doubling your initial debt!

You know your own financial habits better than me, but my suggestion is to keep the accounts open, but cut up the cards so you cant use them - perhaps for an initial period of 6 months or so. In this time, perhaps you can use the £200 per month you are currently saving, and either make a dent in the loan via overpayments, or stick it in an emergency fund.

Whatever you choose to do... good luck!

Malkytheheed

Deleted_User wrote: »

The sensible thing to so would be to keep both cards open and use them regularly, clearing in full.

Is that really the "sensible" thing to do with someone who has shown very poor mangment of credit avalible to them? A bit like telling an alcoholic to "just have a couple of drinks when you feel the need". For Joe Bloggs sure its good advice but for someone in significant debt from credit cards I wouldn't recommend keeping them. Not now anyway.

I wouldn't recommend having credit cards for a good few years. Forget your credit history right now. Stop getting into debt and close credit lines avalible to you.

PennyPops

I would suggest as above to cut them up for about 6 months and stick the extra money into a savings account. It is so easy to spiral back into debt.

sambaird

Malkytheheed wrote: »

Is that really the "sensible" thing to do with someone who has shown very poor mangment of credit avalible to them?

Malky, the OP asked the question in the context of improving their credit score / history.
With this in mind, the advice given by zx81 is perfectly correct, and the sensible thing to do.

eskbanker

rusty369 wrote: »

I have been in credit card debt for over 3 years now, making more than the minimum payments each month but due to the eye-watering interest, my balance never goes down!

Just to be clear, by regulation, minimum repayments must include all interest and will typically include a small percentage of the outstanding balance as well, so if your balance isn't decreasing then this must be because you keep spending on the cards rather than because of the interest as such....

yksi

Have you addressed the reason that (1) you got into debt, and (2) that for years, you have only been VERY slowly tackling that debt? I suspect the answer is no. Even if you aren't making silly purchases, the fact that the debt is years old tells me that you don't have a lot of left over cash each month. It's not a crime But it seems like your income probably isn't miles ahead of your spending.

For building your credit history, zx81 is 100% correct. I'm going to quantify it a bit and say: pick ONE regular bill for each card, and use each card for ONLY that bill. For example one might pay your water bill and the other might pay your fuel.

If you can trust yourself to never use those cards for anything else and to always pay them off in full every single month without fail, this is the path you should take.

If you can't - and you need to be 100% open and honest with yourself - then close both accounts and get a "credit builder" card like Capital One, with a low balance of say £200 and never accept increases, and only use this card.

We don't usually grill people who ask about credit history building as you have, but you've gone and done something we usually recommend against. It is almost guaranteed that people who consolidate credit card debt into a personal loan will continue to spend on their credit cards (for emergencies, just this once, and for takeaways, and for whatever excuse applies here) and before long they blow out the debt again, except this time they can't consolidate and they get into real trouble. Lenders are so sure this will happen that they offer high interest rates to people in this situation as they're such a significant risk. So, go forward, but be careful.

rusty369

Hi all,

Thank you for your advice!
Just a bit more information,
I don't think I have used the credit cards in over a year but I saw something I was sent that making a payment of £350 on one of my cards would only pay off approx £75 of the actual debt!!!

yes, I had very little money left after paying off the credit cards each month,
Thankfully my business has now taken off and my earnings are roughly 3 to 4 times all my expenses however instead of using all the leftover money to pay off the loan, I still would like to go on holidays and live a little (responsibly!), I am also putting money away for savings, people have said it's better to pay off the loan with this money but I would feel more comfortable having a pot of money for emergencies (just in case)

I have decided to keep the credit cards open but cut the cards up so that I don't use them (not that I have anyway)
I will repay my loan back probably £400 a month rather than the £350 a month agreed.

My plan is in 12 months, to apply for another reconsolidation loan with a lower rate of interest. Currently, the rate of interest is extremely high (close to 20%) due to my credit score, whereas I have seen certain loans as low as 3%!

P.S.
Monzo Bank has been absolutely amazing for me to better manage my money

eskbanker

rusty369 wrote: »

I am also putting money away for savings, people have said it's better to pay off the loan with this money but I would feel more comfortable having a pot of money for emergencies (just in case)

Those people are right!

Building up an emergency fund is generally a good idea but somewhat less so if you're saddled with substantial debt that you're paying 20% interest on, which is many times more than what that money will earn in a savings account.

It's obviously your prerogative to 'live a little', take holidays, try to save, etc, but don't be surprised that your finances recover more slowly as a result of this, in the way that it seems to be news that minimal repayments don't make significant inroads into debt.

If repaying a 20% £15K loan at £350/month, paying £400 will only reduce the term from about six years to about five years, so hopefully you're not in a hurry to repair your credit files. At the very least, if you were paying £575/month on your credit cards, you should be able to pay the same to your loan to get it paid off in less than three years....