Debt Consolidation Loan to clear credit card balances - Advice needed please

freeofdebt1977

Hi,
I have 3 credit cards with their outstanding balances in total approx. £4500. I am looking for some advice on the best way to clear the balances  in full this year. I can obtain a loan for £5000 over a 3 year period or would it be more favourable to my credit file and potential mortgage lenders to just over pay the repayments on each card until they are cleared in full? 
I plan to apply for a mortgage in approx. 2 years, if I took the loan out now potentially I would have approx. 1 year left of the loan to pay off then. 
Would mortgage companies (banks) look unfavourably at me as I obtained a loan to pay off my credit card debts?
Any advice I would really appreciate it. 
Thank you

MorningcoffeeIV

The debt would be the same so no difference. 

What matters is the speed and cost of repaying it. 3 years is a very long time to pay off such a small amount. And you'll then need to save for your deposit.

Ebe_Scrooge

Consolidation loans are often not a good idea, and can be difficult to obtain - any lender has to make the assumption that a loan will be in addition to, not instead of, your existing debt, so affordability calculations may mean you're declined or offered a high rate of interest.

The best way, if you can do it, is just to overpay and clear the debt ASAP.  If you'd be able to clear the cards by the time you apply for a mortgage, that would put you in a better position in the eyes of a lender.

You could look at transferring the balances to a 0% card, assuming you'd be accepted for one with a high enough limit (though even if you can transfer part of the debt to 0%, that would save you some interest).  The usual caveat though - you must make sure you clear the BT card before the promotional rate expires, don't assume you'll be able to do another BT.

sourcrates

General advice is never to consolidate debt, it`s usually the reason why £4500 of credit card debts turns into £10,000 or more.

You have to ask yourself how you accrued the £4500 debt in the first place, because unless you change your bad financial habits, you risk repeating the same old mistakes, and no amount of consolidation loans will fix that.

Martico

And I'd caution against a consolidation loan if at all possible: there are so many people that have taken out such a loan, continued with their old spending habits, and a few months down the line find that they now have twice the level of debt that they started with.

Work out your budget, cut spending a bit more, and hammer down at the debts as best you can. If you can get a 0% balance transfer on some of the debt, then great, go for it. Otherwise, pay just over minimum amounts on two of your cards, and hammer at the car you want to clear first. That may be the one with the highest interest rate, it may be the one that is closest to the end of an interest free period, it may be the one with the lowest outstanding balance, your choice. Personally I'd target the one that has the highest interest rate.

And consider posting for advice in the debt-free wannabe subforum. Good luck

TadleyBaggie

Are you still in a DMP, according to this post you would still be in it until 2023?

https://forums.moneysavingexpert.com/discussion/6046616/dmp-default-and-late-payment-records-on-credit-file#latest

Taking on further debt whilst on a DMP is a no-no.

grumbler

MorningcoffeeIV said:

The debt would be the same so no difference. 

What matters is the speed and cost of repaying it.

And this cost depends a lot on the interest rate that is likely to be much lower for a loan.

freeofdebt1977 said:

I am looking for some advice on the best way to clear the balances  in full this year. I can obtain a loan for £5000 over a 3 year period

Why 3 years then, not 1 year?

captnoglos

If you can consolidate using a promotional rate, do that and overpay.  The capital will reduce quickly and the interest cost a lot less than your current rates.  The important bit will be to not borrow again on the original cards.   For routine spending a Credit Card is a good money transmission tool.   Get the monthly DD set to repay the full balance each month.   Depending on your total income and expenditure being balanced, or resulting in surplus income when ALL costs are taken into account you will clear the debt,