Options for consolidation...

Polish72

Please could I have some advice on my options in my financial situation. I have a car loan and 4 credit cards at standard APR all of which amounts to around 22k. My credit rating is medium and my bank refused to offer me a loan. Would I better off paying one card off at a time, applying for a 0% balance transfer card (assuming I would be accepted) or applying for a smaller loan (I assume I was refused due to the size of the loan)? I can't quite work out which options would be best. Kindest regards. 

[Deleted User]

Throw as much as you can at the highest rate debt, while making minimum payments on everything else.

If you can BT any of the debt, then do that, but you're carrying a lot of debt already.

Head to the DFW boards for advice on cutting costs and repaying faster.

MaryLongstaff

Agreed, a 0% balance transfer card is your best option to firstly reduce the interest across all your debts but also to make them more manageable (good for mental state). Having a 'hard inquiry' into your credit report when applying for a BT may affect your credit score but not as badly as missing a payment or going into default on any of your debts. I don't know your credit score of course but you can always find this for free and there are also ways several to improve your credit score.

But if you aren't accepted or you can manage your debts as you are, set a budget first and foremost, prioritise your debts (amount order or interest rate) and start paying everything left into the highest one (or worst interest rate). This is called the snowball method and can be really effective. 

[Deleted User]

MaryLongstaff said:

Agreed, a 0% balance transfer card is your best option to firstly reduce the interest across all your debts but also to make them more manageable (good for mental state). Having a 'hard inquiry' into your credit report when applying for a BT may affect your credit score but not as badly as missing a payment or going into default on any of your debts. I don't know your credit score of course but you can always find this for free and there are also ways several to improve your credit score.

But if you aren't accepted or you can manage your debts as you are, set a budget first and foremost, prioritise your debts (amount order or interest rate) and start paying everything left into the highest one (or worst interest rate). This is called the snowball method and can be really effective. 

The snowball method is actually the other way around, paying off the smallest balance first and moving up - it's aimed at people who would quit their debt management if they didn't see a "win" after 2 minutes

Ebe_Scrooge

MaryLongstaff said:

Agreed, a 0% balance transfer card is your best option to firstly reduce the interest across all your debts but also to make them more manageable (good for mental state). Having a 'hard inquiry' into your credit report when applying for a BT may affect your credit score but not as badly as missing a payment or going into default on any of your debts. I don't know your credit score of course but you can always find this for free and there are also ways several to improve your credit score.

But if you aren't accepted or you can manage your debts as you are, set a budget first and foremost, prioritise your debts (amount order or interest rate) and start paying everything left into the highest one (or worst interest rate). This is called the snowball method and can be really effective. 

Your advice is basically sound, but please don't perpetuate the myth that your credit score has any bearing whatsoever on anything.  ZX81 has, as usual, given very succinct and accurate advice - aim for the highest-rate debt first, then work down from there, get a 0% card if your able and shift what you can onto that.

OP, the reason you're unable to get a consolidation loan is likely down to affordability.  Leaving aside the fact that consolidation is very often a bad idea anyway, the bank has no guarantee that you'll use a loan to pay off your debts.  They have to assume a worst-case scenario whereby you get the loan, blow it on a new car or whatever, and are now in twice the debt you were.  Rightly or wrongly, that's the view they will take.

Polish72

So thsnk you for your input. Just to clarify, if I was to apply for a smaller loan instead of the whole debt amount, would this not be a viable option, against a 0% card? Not that I don't think I'd have a problem being accepted for a 0%BT card, I just don't know without slot of working out which option would work better. My credit score was at the top end of 'medium'. Im happy to share more information if it gives any more clarity as to my situation. Regards. 

[Deleted User]

Polish72 said:

So thsnk you for your input. Just to clarify, if I was to apply for a smaller loan instead of the whole debt amount, would this not be a viable option, against a 0% card? Not that I don't think I'd have a problem being accepted for a 0%BT card, I just don't know without slot of working out which option would work better. My credit score was at the top end of 'medium'. Im happy to share more information if it gives any more clarity as to my situation. Regards. 

Score is irrelevant, no lender ever sees it

In terms of consolidation, lenders always add up your debt to a total, rather than consider the loan as a credit against the debts because there is no guarantee you will use the loan to pay off the cards. You see 22k debts - 22k loan = 22k loan only. They see 22k debts + 22k loan = 44k debts hence why they won't lend to you.

The best advice in my view is to hit the biggest interest debt first, pay minimum on everything else and clear that first = more payment to it = more capital cleared, less interest going on top, debt is cleared faster. Then the next highest interest debt can be hit harder using the money you have free now debt 1 is gone, then third debt cleared with money freed up by debt 1 and 2 being cleared and you end up with the final debt with the lowest interest (and thus the least added to it during this time) with your payments coming from the 4 cleared debts meaning it's gone quickly. This only works though if you have the discipline to keep using money on your debts and not start splashing it again when you free some up when clearing a debt.

msallen

Deleted_User said:

Polish72 said:

So thsnk you for your input. Just to clarify, if I was to apply for a smaller loan instead of the whole debt amount, would this not be a viable option, against a 0% card? Not that I don't think I'd have a problem being accepted for a 0%BT card, I just don't know without slot of working out which option would work better. My credit score was at the top end of 'medium'. Im happy to share more information if it gives any more clarity as to my situation. Regards. 

Score is irrelevant, no lender ever sees it

In terms of consolidation, lenders always add up your debt to a total, rather than consider the loan as a credit against the debts because there is no guarantee you will use the loan to pay off the cards. You see 22k debts - 22k loan = 22k loan only. They see 22k debts + 22k loan = 44k debts hence why they won't lend to you.

The best advice in my view is to hit the biggest interest debt first, pay minimum on everything else and clear that first = more payment to it = more capital cleared, less interest going on top, debt is cleared faster. Then the next highest interest debt can be hit harder using the money you have free now debt 1 is gone, then third debt cleared with money freed up by debt 1 and 2 being cleared and you end up with the final debt with the lowest interest (and thus the least added to it during this time) with your payments coming from the 4 cleared debts meaning it's gone quickly. This only works though if you have the discipline to keep using money on your debts and not start splashing it again when you free some up when clearing a debt.

This is definitely the way to go, and another point to add is that as the first card (and then the second etc) is cleared, there is a good chance they will offer you a balance transfer deal (albeit usually shorter than would be on a new card).

Polish72

Thanks again guys. With only a few grand left to pay on one of the cards and a 'pre-approved' 0% BT card being offered I think I'll accept this and pay this debt off and then, as suggested use the feed up cash to pay off each other card subsequently.