Best Personal Loan Route for Paying Credit Card Debt?

Gloafish

First post in forums. Sure traffic has increased significantly recently!

I need some advice on my best route to a personal loan.

I have just finished* an extension and complete renovation of my home and moved back in after nearly 3 years of building work (mostly thanks to COVID delays).To get the extension finished* I needed extra money, tried to extend our mortgage, but the bank said we would have to renegotiate our existing mortgage, which is fixed at a very low rate (by today's standards) until 2026, this would have cost me £25,000 to borrow £50,000!    *Extension is finished enough to move into, but still missing some work.

I have resorted to doing all the work myself, to finish the extension for the last few months and here on in, however to meet the legal requirements and have a decent finish, I had to have a Gas Safe plumber, electrician and plasterers in to get us over the line. This has resulted in me having to use up all our savings and use credit cards, leaving about £14,000 in credit card debt. This debt would have been manageable had inflation not kicked in, but now my monthly payments are becoming an issue and I am not really paying off much of the debt.

I have taken out a 0% 18 month balance transfer card and shifted £5500 to that. This still leaves me with £8500 on 33% Credit Cards which is costing me £350 a month in minimum payments (and not clearing the debt!)

I have been looking into personal loans and have a few questions:

1. Am I best to clear all of the debt, including the £5500 in one go? I can get lower payments now if I borrow less, however if i struggle to clear that £5500 in 18 months (£300/m), which I can already see I will, I am back at 33% again.

If yes - which is my current thinking... I want to borrow £18000 , to clear the debt and get the last essential items done on the house, like internal doors, including between our kitchen and toilet.

2. Who am i best to go to for a loan?

 My bank (a high street big name) will offer me 6.4% on their app, with a 70% chance of approval.

Gloafish

My credit rating is Excellent with Experian and Equifax and Good with TransUnion (affected by me taking out 0% interest credit card!)

MorningcoffeeIV

Ignore your credit ratings. They're not real, aren't of any help in getting credit in the UK and don't reflect reality.  And the reality is that you're a higher risk customer.

Focus your efforts on the interest bearing debt.

Look for 0% BTs if you can get them. Loans would be a last resort as lenders will assume you're doubling up on your debt.

Stop borrowing until you've at least got your current debt under control.

CliveOfIndia

As above, consolidation loans are rarely a good idea.  Since a lender cannot guarantee you'll use a loan to clear the cards, they have to assume that any new loan would be in addition to, not instead of, your current debt.  So when they run their affordability checks, you may find you struggle to get accepted for a loan at anything approaching a decent rate.

Gloafish said:

This debt would have been manageable had inflation not kicked in, but now my monthly payments are becoming an issue and I am not really paying off much of the debt.

If you're struggling to make more than the minimum payments already, this will be another red flag for any lender.

Gloafish said:

I have taken out a 0% 18 month balance transfer card and shifted £5500 to that.

1. Am I best to clear all of the debt, including the £5500 in one go?

Even if you did manage to get a loan, it would not make financial sense to turn an interest-free debt into an interest-bearing debt.

As MorningCoffee says, see if you can get any more 0% BT deals.  But a loan is not a good idea - even if you got accepted.  You cannot borrow your way out of debt.  Focus on paying down the debt as fast as you can.

Gloafish said:

If yes - which is my current thinking... I want to borrow £18000 , to clear the debt and get the last essential items done on the house, like internal doors, including between our kitchen and toilet.

Unless you can afford to pay for them outright, these things can wait - you absolutely do not want to add to your debt further.  Internal doors are not absolutely essential if you can't afford them (old curtains from a charity shop hung in the doorway will do the job as a stop-gap measure).  The door between the kitchen and toilet potentially may be the only "essential" item, if it's the only toilet available.  If that's the case, a cheap door from B&Q will do the job.

Gloafish

Thanks for the advice, managed to get approval for a 28 month 0% balance transfer card for the remaining credit card debt. So I will try to clear the 18 month £5500, then the £8500 on the 28 month card...

The maths works better, £310/month will clear the £5500 in 18 months then get the other debt down to £5800 (I added £400 for the BT fees) by the end of the 28 months.

Then I can try to defer on another 0% card (another £175 in fees), pay the card off over time at the new card rate which is better than before (22% vs 33%), or get a loan then from a much better financial position.

The loan would have cost me £2500 at £350/month over 6 years vs. £575 over 3-4 years with the 0% BT cards. Interestingly the new BT credit card was offering me balance transfers to my current account too at 0% with a £12500 credit limit! I resisted, the doors can wait a few months as I save for them, then the skirting boards in the extension, flooring, panelling and decorating the lounge... the list goes on.

I have gone through and cancelled a bunch of subscriptions I was paying, got better phone deals for me and the kids and new broadband supplier, all saving me £120/month. So that will help, maybe I could even start saving for a holiday...in 2027!

Martico

Gloafish said:

If yes - which is my current thinking... I want to borrow £18000 , to clear the debt 

Good luck, and I agree with others above. But just to get your mindset right - borrowing £18,000 would not clear the debt, it would just move the debt

Ryan_Holden

Gloafish said:

I resisted, the doors can wait a few months as I save for them, then the skirting boards in the extension, flooring, panelling and decorating the lounge... the list goes on.

But with respect, and I promise this isn't to sound condescending, but this money could be redirected in smashing some more of the debt off. 

You came to this thread asking how to borrow money to pay off money you owe. Now you've managed to find a way to shift the debt without borrowing money but it looks like instead of seeking to pay off that debt with the money you have, you're just making a list of more ways to spend more money.

Which I guess will be added to the debt pile.

Be careful man, it's a slippery slope and no signs of the cost of borrowing coming down anytime soon.