Credit Card vs Loan (Debt Consolidation) & Credit Score Impact

Harry12D

Hello all. I have 3 credit cards totaling 17k approx, only one, the smallest amount, is on zero interest. As I struggle (i.e. it gets me into more debt), to pay the monthly minimum of £400+, I'm wondering if it is more beneficial to take out a long term loan and pay back £200+ per month. I am in the process of selling a house and transferring a mortgage and don't want my credit score to be negatively affected, as the mortgage company will surely run checks on my financial situation, even if I'm down sizing to a more affordable property. There is likely to be capital to pay off the loan in the not too distant future, although I appreciate that the interest will be added to the loan as soon as taken out, so loan amount + interest will be repayable should I be able to clear loan. But I need the situation resolved and stop sliding into more debt to cover the debt.

Any thoughts much appreciated. Thanks, Darren.

sourcrates

Wait until your house purchase/mortgage transfer has completed.

See how your finances are then, as a rule of thumb, borrowing more money does not get you out of debt, it keeps you in it for longer, costs you more, and if you don`t change your financial bad habits that got you into trouble in the first place, it can be the straw that breaks the camels back.

If your debt is unaffordable, try and reduce your outgoings, at the same time see if your income can be increased, if neither of those are viable options, look at debt management, look at options that actually reduce your debts rather than digging that hole even deeper.

Debt advice can be sought free of charge from the debt charities in my signature.

Ebe_Scrooge

As above, it's never a good idea to take out any new line of credit in the run-up to a mortgage application anyway.  Consolidation loans are rarely a good idea either - quite apart from anything else, your chances of being accepted are reduced because the lender cannot guarantee you'll use the loan to repay existing debt.  So they have to base their affordability checks on the assumption that the new lending will be in addition to, not instead of, existing debts.  And unless you're super-dooper disciplined and address the underlying root cause of the problem, you're just setting yourself up for having double the debt you started with.

Ignore your score, it's not a factor in lending decisions, and is seen by no-one except you.  The underlying data in your credit file is what's important.

Harry12D said:

There is likely to be capital to pay off the loan in the not too distant future, although I appreciate that the interest will be added to the loan as soon as taken out, so loan amount + interest will be repayable should I be able to clear loan.

Actually, "front-loading" of interest has not been allowed now for a long time.  So for any loan, the quicker you repay it the less interest you'll pay (though there is often an early-repayment fee imposed).  But that's really a non-issue in this case - really, follow the advice of Sourcrates, tackle the debt rather than fruitlessly attempting to borrow your way out of it.

Harry12D

Thank you for your comments. Both of course make total sense. I have reduced my outgoings, but the repayments are now regularly taking me beyond my current account overdraft and as I hit the very end of the month, a few DD's etc are getting rejected. I then clear them as soon as paid. But little by little each month it's going in the wrong direction, if that makes sense and I'm not sure that selling the house and using the equity is going to come soon enough. However, your advice has made me realise that re-borrowing isn't the answer. Although i don't know what is.... Thanks again.