Debt consolidation loan for high credit card usage

in Debt-free wannabe
12 replies 1.3K views
Hi all,

I'm looking for a way to reduce my monthly payments on my credit cards and I was wondering if a debt consolidation loan would be appropriate for this.
I've got around £4700 in debt, with Aqua, Barclaycard, Capital One, Vanquis, Zopa and Tesco. I also have a £500 overdraft with Monzo which is rarely used. Most of this debt (around £2500) is with Aqua at 59.9%. Vanquis and Zopa are at the same interest rate with around £700 with Vanquis and £100 with Zopa. The rest of my cards have a 39.9% APR interest rate.

I've been offered a 3 year loan with Natwest at 30% APR which works out to about £190 per month, and I pay roughly £290 per month with my current direct debits.

I have always paid at least the minimum payment due on time and I've never gone over limit with any of my cards. My combined credit limit for all cards is £6350.

I'm 19, living at home with parents after recently moving back in (most of this debt was incurred when I was living by myself on minimum wage & SSP) and I don't pay for housekeeping etc at the moment. I make roughly £1100 per month working full time.

Once these are paid off I would like to continue using my Tesco and Barclaycard cards because of the Clubcard points and cashback, and potentially my Capital One card as that's the card I've had longest. The credit limit on these cards isn't massive so I won't overspend on them (will never go above 25% utilisation and would have a combined £1600 limit). I would like to know how my credit score will improve/get worse (roughly 600 on Clearscore at the moment). I'd also like to know if it'd be worth completely shutting down my Aqua, Vanquis and Zopa accounts once I've paid them off with the loan.

Any advice or pointers would be much appreciated.

Cheers,
Steven
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Replies

  • edited 18 March 2022 at 10:24AM
    EmmiaEmmia Forumite
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    edited 18 March 2022 at 10:24AM
    The standard advice on consolidation loans is don't do it. 

    The reason for that, (and especially with your intention to keep things open and in use), is that you get the loan - pay the cards off, and start making payments...

    But the cards etc. are still there tempting you to spend, to get the clubcard points or cashback or whatever... You then end up back where you are, but with a larger debt across the loan and the cards. Rather than £5k of debt, you end up with £10k of debt. 

    The points and cashback you've "earned" have actually cost you much more than their value in "real money" - have a look at the value of the cashback you've received in the last 12 months...Now look at how much you've paid in interest over that same period on the card that earns the cashback. Points and cashback are only worth it, if you don't pay any interest by clearing your cards on time, and in full every month.

    If you must go down the consolidation route, then you must also shut every one of your cards etc. and live on the income you have.

    Edit: your credit score is a made up fairy number that has no bearing on anything - lenders don't see it, they look at the info on your file.
  • GreenCat80GreenCat80 Forumite
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    The rule is never borrow your way out of debt, it just doesn’t work. It looks like you should have enough extra money each month to pay extra off the debts and get those cards gone? Have a read through some of the debt free diaries, it’s so inspiring to see how people are paying it down :) 
    Debt was £15,903 😬 Now £2718.14 £0 😲🥳



  • edited 18 March 2022 at 7:26AM
    SusieTSusieT Forumite
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    edited 18 March 2022 at 7:26AM
    You are lucky to be living with your parents, so you should be able to hit this hard and get it cleared relatively quickly.. 
    I would stop spending on pretty much everything that is a want and not a need, so no buying coffee or lunches at work (take sandwiches or meals from home), walk insted of getting a bus or driving to places now the weather is better, drastically reduce any evenings out or takeaways etc. Hit the horrendous 59.9% rate first, and throw everything possible at that so if you save £1 from not having a coffee one day, pay it straight to a card instead, and when the cards are clear close the accounts. 
    You have done well to stay out of your overdraft, as that is an expensive way to borrow money. To let people help you find ways to cut back, it is worth filling in the SOA from https://www.lemonfool.co.uk/financecalculators/soa.php and you will get a lot of help as to how best to clear them. I found it useful to list them with the highest interest rate first, and if cards have the same rate to clear the lowest balance first as that gives a morale boost to see a card going from the list. When cards are clear, close the accounts so that you are not tempted to use them again. If you keeo 1 card for spending on everyday things and clear it in full every month, it will help you to improve your credit history (ignore the score, only you see that) and get a chance of lower rates later. 

    Credit card debt - NIL
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  • fatbellyfatbelly Forumite
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    You say that you want to reduce the monthly minimum payments. If that is the case you will need a debt management plan. We recommend companies who do not charge a fee, so Stepchange or Payplan.

    However, you say that you have never missed a payment and quote some (admittedly high) aprs

    If your aim is to reduce interest and make inroads into your debt then 0% deals and overpayments is the way forward.

    A 30% apr consolidation loan is not the answer to either case

    We need to know what you're trying to achieve
  • Rob5342Rob5342 Forumite
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    I agree that borrowing more is not the answer for the reasons Emmia mentions, I learnt that the hard way and things just got worse and worse for me.

    You say you are making minimum payments, are the balances going down or are you spending on them again?
  • sourcratessourcrates Forumite
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    Very tempting isn`t it, that consolidation loan, all your troubles gone with the click of a button, much more affordable, lowers your monthly repayments, great eh, problem solved.........well, actually no, you may find your problems are just beginning.

    Consolidating existing debt by taking out another loan is nearly always the first choice people opt for on discovering there debts are getting out of hand, because they perceive it to be the simplest solution, when in reality it can be the catalyst that keeps you in a cycle of debt for life.

    Nearly everyone considers this option first, but what they don`t do is close down the existing credit facilities they have, and they start spending again, so they never address the bad financial behaviour that got them into this pickle in the first place, so they rinse and repeat it, in some cases many times over, its just a really bad idea.

    Much better to use debt management or other non borrowing solutions, so you actually reduce the debt and your dependency on it.


    Ex MSE Board Guide.

    More than a third of IVA`s fail....fact.
    Could A Debt Relief Order help you ?
    Never pay a fee for a Debt Management Plan.
    For free non-judgemental debt advice, contact either : Stepchange, National Debtline, or CitizensAdviceBureaux.
  • kimwpkimwp Forumite
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    You saying you don't pay for housekeeping etc, what are your essential expenses? If you threw your income of £1100 at the debt, you could clear your entire debt in just over four months. Assuming you do have essential expenses like transport, it would take a bit longer, but we could help you form a palatable plan.
    Statement of Affairs (SOA) link: https://www.lemonfool.co.uk/financecalculators/soa.php

    For free, non-judgemental debt advice, try: Stepchange or National Debtline. Beware fee charging companies with similar names.
  • MEM62MEM62 Forumite
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    I'm looking for a way to reduce my monthly payments on my credit cards and I was wondering if a debt consolidation loan would be appropriate for this.
    No, it isn't.  You cannot borrow your way out of debt and consolidation loans rarely lead to a good outcome.   

    I pay roughly £290 per month with my current direct debits.
    I'm 19, living at home with parents after recently moving back in (most of this debt was incurred when I was living by myself on minimum wage & SSP) and I don't pay for housekeeping etc at the moment. I make roughly £1100 per month working full time.
    Then you have plenty of spare cash to throw at your debt and can clear it relatively quickly.  The added bonus is that, by clearing debt this way, you will be far more wary about borrowing in the future.  It's a win-win.  
  • EmmiaEmmia Forumite
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    The op doesn't seem to have engaged in this thread since opening it...
  • kimwpkimwp Forumite
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    It's only been a day.
    Statement of Affairs (SOA) link: https://www.lemonfool.co.uk/financecalculators/soa.php

    For free, non-judgemental debt advice, try: Stepchange or National Debtline. Beware fee charging companies with similar names.
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