Should I consolidate debt with a loan?

smjjam

Hi Guys,

I have the following debt:

- £4,600 on a credit card (0% interest for 24 months) minimum repayment per month is 3.75% of remaining balance
- £1,500 on an overdraft 
- £700 left on a finance agreement (£61 a month)

In total this is currently costing me around £270 a month and I'm not entirely sure how to tackle it. 

In theory I could get a 5-7 year loan to smoosh the lot together and reduce my monthly payments down to one smaller sum per month - my credit score is pretty decent so I should be in with a fair shot of being accepted. 
But I don't know if this is the best way to deal with it, and wondered if anyone else can share their advice and experiences?

Thanks so much!

sourcrates

If you care to read some of the past posts on this forum with regard to consolidation of debt, you will see a trend indicating that in most cases, its a very bad idea.

A lot of those who do consolidate, tend not to address there past, bad financial behaviour, and end up re-opening the previously consolidated line`s of credit, and start running up there debts again, and before they know where they are, there debt has doubled, and there looking for help......again, and yes, some consolidate more than once, all attracted by the thought of lower monthly payments, when in reality, all it does is keep you in debt longer, costs you more, and makes you more frustrated as your situation is taking longer to be over with.

Then there is the actual acceptance of the loan, creditors have no guarantee you will pay off your existing debts, so you are judged on having the indebtedness of both your current borrowing, and the loan as well, as such not many get approved, it`s becoming much harder to borrow for consolidation purposes.

General advice is to reduce your outgoings, and try and increase your income, if you can, then throw all you can at your debts, if this is not enough, then look at debt management options, its never good practice to try to borrow your way out of debt, as it seldom works out well.

RAS

Basically, no.

I'd suggest you post a Statement of Affairs on here, if only because sitting down with 6 months' statements and working out what you have sent your income on may help you identify where you can make savings. See SOA Calculator (lemonfool.co.uk)

Also look round your stuff, identify anything you don't use and flog it rather than bin it. Even a couple f hundred off your OD would be a start.

Once you've done that you need to budget ruthlessly. Or £7k debt now will be a £7K loan and another £7K in a few years time.

All too often people are back here after the third iteration with serious debt. Looking at DRO or similar and not being able to do anything they want.

fatbelly

Post a soa using RAS's link.

It looks to me like the overdraft is the worst offender here.

This is Martin's guide to tackling that

https://www.moneysavingexpert.com/banking/cut-overdraft-costs/

enthusiasticsaver

smjjam said:

Hi Guys,

I have the following debt:

- £4,600 on a credit card (0% interest for 24 months) minimum repayment per month is 3.75% of remaining balance
- £1,500 on an overdraft 
- £700 left on a finance agreement (£61 a month)

In total this is currently costing me around £270 a month and I'm not entirely sure how to tackle it. 

In theory I could get a 5-7 year loan to smoosh the lot together and reduce my monthly payments down to one smaller sum per month - my credit score is pretty decent so I should be in with a fair shot of being accepted. 
But I don't know if this is the best way to deal with it, and wondered if anyone else can share their advice and experiences?

Thanks so much!

No you definitely should not take this route. It will be more expensive and take longer to clear and the temptation to build up debt again will undoubtedly lead to a higher debt figure in the future as not only will you have a loan around your neck but history has shown in most cases people fool themselves into thinking they have cleared the debt when in reality they have just kicked the can down the road so they then revert to spending on credit again.

I would deal with the overdraft first as that is probably the most urgent and expensive. I would pay just slightly over minimum on the credit card as that is interest free and focus on the overdraft. What interest are you paying on the finance agreement or is that front loaded?