Is Now A Good Time To Take Out A Loan?

Black_Eyeliner

I have a few credit card debts currently
on special balance transfer 0% rates that will expire early 2023. Normally I would just apply for other 0% credit cards to transfer them to, but the offers and suitable credit limits available to me seem to be dwindling, so I’m thinking of taking out a loan to pay them all off. 

My question is should I do it now or wait till next year, when interest rates seem to be increasing?

MalMonroe

Here is some information from this very forum about consolidation loans, which is what you're talking about -

https://www.moneysavingexpert.com/loans/debt-consolidation-loans/

Also some information from StepChange, one of the free debt help agencies -

https://www.stepchange.org/debt-info/debt-consolidation.aspx

There are a good three months left before the beginning of 2023, do you think you may be able to make larger payments on the cards you already have while you still have the 0% interest rates? Taking out a loan, if you are eligible to do so, will just extend the period of time you are in debt. And doing it now, while the zero percent balances are still open seems a little impulsive.

This is what this forum says about loans - "Remember MSE's stance on loans: 'borrow as little as possible, repay as quickly as possible'."

I've taken out consolidation loans in the past and have not found them to be of any help at all. The problem was that I consolidated my credit card loans and then of course those credit cards had available credit. It can become a vicious circle. 

I wouldn't do it (again) myself. But if you look at the info in the links supplied above, you may find a better solution for you. 

Black_Eyeliner

Thanks, that’s all very helpful advice. 

My worry is that come next year I won’t be able to find other 0% cards to transfer to, nor will I be able to find an affordable loan, so I’ll be stuck with credit card repayments I can’t afford. On the other hand, I could take out an affordable loan right now and have all my debts repaid within four years. It’s just so hard knowing what to do!

Ebe_Scrooge

Mal makes some excellent points pertaining to why consolidation loans are generally not the best idea.  I'm not saying they never work - just that we see numerous cases where they just lead to a vicious circle of debt.

The other problem is often that you struggle to get a loan at a decent rate of interest.  A lender has to take the view that any loan will be in addition to, not instead of, your existing debt.  Yes, of course you fully intend to use the loan to repay the debt - but there's nothing to stop you getting the loan then buying a car, a holiday, or putting the whole lot on "Limping Larry" in the 3:30 at Chepstow.  For that reason, when the lender does their affordability calculations, they have to assume you'll be doubling your debt - and will price the loan accordingly.

MEM62

I expect that there are many who are considering this very topic.  There is always the temptation to borrow when interest rates are cheap - and they have been exceptionally so for a long time.  The issue is that you can, all too quickly, find yourself in problems when interest rates rise.  Basically, for the moment at least, the low interest rate party has ended.  

OP - I would not make any decision just yet.  0% offers may still be out there in future but the fees will be higher and the limits lower.  You need to make an effort to pay off as much as you can before your current 0% expires.  Shortly before they do look to see what you can get in terms of another offer.  You may have to put what you can against a new offer and take a loan for the balance.  At least in that case you will be paying interest on the smallest balance possible.       

Retireby40

Black_Eyeliner said:

Thanks, that’s all very helpful advice. 

My worry is that come next year I won’t be able to find other 0% cards to transfer to, nor will I be able to find an affordable loan, so I’ll be stuck with credit card repayments I can’t afford. On the other hand, I could take out an affordable loan right now and have all my debts repaid within four years. It’s just so hard knowing what to do!

Taking a loan to clear credit debt is not the solution. Spending less and earning more is. See if you can do overtime in work or pick up a weekend job.

You've clearly lived beyond your means and now is the time to sit tight for maybe a year or two and get the debt cleared. People think a loan solves their problem and makes the credit card debt nice and tidy but often its not the best thing to do.

Black_Eyeliner

Thanks for your advice everyone. I should say that I have accrued credit card debt for a particular reason, I’m not just frittering away cash on luxuries. But having weighed everything up, I think it’s best for me to try and pay something more towards my cards prior to The 0% expiring, and then trying to move the remaining balances. If I can’t move it all, then I’ll take out a loan for the rest, and hopefully interest rates won’t have increased too much by then. 

[Deleted User]

Black_Eyeliner said:

Thanks for your advice everyone. I should say that I have accrued credit card debt for a particular reason, I’m not just frittering away cash on luxuries. But having weighed everything up, I think it’s best for me to try and pay something more towards my cards prior to The 0% expiring, and then trying to move the remaining balances. If I can’t move it all, then I’ll take out a loan for the rest, and hopefully interest rates won’t have increased too much by then. 

Don't assume you will get a loan for this, banks know consolidation rarely works as 1) they have no guarantee you won't just spend the loan elsewhere and 2) even if you do pay off the cards, you could just run the debt up again. Thus they consider your ability to service card and loan not just the loan and given you appear to be struggling to pay them off in time (what was your plan to service the debt if you couldn't get a card or one with a low limit?) then you may well find it hard to get another card or loan.

It might be worth now trying for a BT card with a long period / low fee and move what you can to that, pay the minimum and clear what you cannot transfer as quickly as possible.

zippygeorgeandben

Hello - You might want to read my sticky post about 'Unsure whether to consolidate' as I was in this boat a few years back.  Don't spend more than you can afford and you know, paying off your debts can be kinda fun!  There, I said it!