Consolidating Debts & Buying a New/Used Car

Nebulous2

Unsecured debt becomes more difficult to get as the percentage of your income you are asking for increases. Anything over 50% of your salary is a big ask. The loan you applied for was almost 100% of your partner's salary. That's without us knowing how much of the 12k debt is in her name. 

While the interest rates on your credit cards and overdrafts are likely to be higher than a prime loan, moving from short-term credit to a loan often doesn't work, because spreading it out over a much longer period means you are paying a lot of interest over the piece. 8 years is a horrendously long-time to be paying a car and assorted debt for things like a boiler. 

I'd look closely at the loans, pick the highest interest one and pay that off as soon as possible. If you cut out the holiday fund, cut out the emergency fund and reduce your leisure spends to £100 each you could pay off half your debt in 6 months. By that point you are saving £160 a month in interest. That's without even looking at whether you need all the streaming services etc.... 

Tough I know, having worked hard to get where you are you want to enjoy it, but that £320 a month in interest is a huge anchor holding you back, and it could be put to much better use. 

To highlight what it could be doing for you, I've a £30k car on a lease at £211 a month...... 

Grumpy_chap

Ignore the credit score - it is the credit history that is important.  Check all the three major CRAs and so long as there are no errors, all is well.

Multiple applications for credit in a short timeframe will make you look less appealing to lenders, so try to avoid that.

In your list of expenses:

• You seem to be paying for 2 TV licenses - do you live together with your partner?
• Netflix, Prime, Disney+, Spotify seems like some duplication of same services.
• Phone contracts at £80 (total for two?) seems high.  Can you go SIM-only?

The car is 16yo, 100k miles and full year MOT.  So, it works, it is nothing fancy, and the 3-door design is less than ideal now but could be managed.  Can your partner's Uncle sit in the front and your partner in the rear?  The 1yo niece won't mind what care they are in and plenty of people manage with car seats in the rear of a two-door car.  I don't understand the comment about not wanting to drive it on the motorway - until last month I was driving a 26yo Fiesta and it was more than capable.  I also, until November, had a 16yo Focus with >146k miles (broken mileometer at that point) that I gave to my Nephew - that, too, was more than capable on the motorway.

Rather than more debt and a newer (whether £18k or £7k) car now, the focus should be on paying down the debts you already have.  It's £12k of debt.  You might be able to get that moved to lower interest rates than you are currently paying.  You could reduce some capital lump by diverting some holiday fund - the £250 per month is £3k per year.  I just looked and an online site has one-week in Spain in May for <£500 each, so £1k.  Compromise like that and you get another £2k to dent that debt.

You have a good income between you and, it sounds, none of the costs of children etc.  You really need to get to excellently managed finances quickly before you decide to start a family and (possibly) reduce your combined income.  It may seem harsh this year, but that £12k could be gone by Christmas if you really set your mind to it.  Your future self will really appreciate it.

The best suggestion, as @sourcrates said, is to visit the DFW board and share a full SoA prepared using one of the templates and the people over there will be able to give you some excellent advice to bring your budget into a good and manageable place with that debt gone and set for the future.

MalMonroe

Hi, just another echo - visit the DFW board. 

But you say "we put £250 a month in a holiday fund, and a further £250 in an emergency fund and give ourselves an allowance of £300 each to spend on what we like i.e. out with friends, golf, PT classes, drinks etc leaving £400". 

That's a lot of money to play with. I'd want to clear the debts and so I'd put less in the holiday fund and the emergency fund and start paying off the debts, especially as you have £300 each to socialise and also another £400 left over.

From what you have said, there is plenty to pay off your debts in no time at all between you.

I'd also say that Prime, Disney+ and Spotify could go. Not for ever, just until you're debt free.

With so much spare cash, it'd be absolutely crazy to even consider taking out a loan of any kind. Use all the leftover money you have per month to get rid of the debt. While you are paying interest it will be a struggle to clear it. I know that from personal experience. I was once £15k+ in debt and ended up having to get a debt relief order. You won't be eligible for that but you do both need to learn how to budget. That was my saving grace, learning how to budget and spend within my means. You have a lot of means - just need to prioritise. 

I don't think your debt is large, between you - but if you can get your heads around putting as much as you can afford per month into the debts, you'll soon clear them. 

Is your car roadworthy? Serviced properly? If it is roadworthy then it should be quite safe on the road, I'd have thought. My neighbour has a 15 year old car that's perfectly roadworthy, even on motorways. 

My 5-door Toyota Aygo cost £6,000 three years ago. It was 4 years old with 24k miles on the clock. I still have it and it's perfect for my daughter and myself. It's small, it's nippy and it even has cruise control for the motorway as well as lots of other helpful things. You don't need to spend £18k on any car. You just need to get a good one and ensure that it's serviced annually and looked after properly. I'd really recommend an Aygo, it's been reliable and starts first time, every time.

The thing is that if you do put your fun money into paying off your debts, in fact put as much as you can into paying them off, you will soon be in a position to start again, with no debt. It's only in the short term until you've got rid of the £12k millstone. 

A loan of £30k over 8 years would really make me feel very ill. And in your case,looking at your finances, it's not necessary. 

This is what it says on this very board "Remember MSE's stance on loans: 'borrow as little as possible, repay as quickly as possible'."

Plus, what others have said, your credit score means nothing. It's the history they're looking at. 

I hope this helps. I speak from experience, as I said - I've been in debt and I've had to cut my cloth accordingly and now I'm out  the other side.  

sourcrates

Everyone who overspends on their credit cards always looks to consolidation as a first choice, the old, pay longer for less a month option, its a well worn path.

The problem with consolidation loans, if you get accepted for one, it crops up time and time again on these boards, is that you don`t change your past financial bad management, you suddenly find yourself with a larger degree of disposable income, and the temptation to spend that income becomes unbearable, it starts off small, just adding the odd thing onto the old credit card again, you tell yourself it won`t matter, and you`ll pay it all off on payday.

Except you don`t, and then one card reaches its limit, so you start spending again on another, all the time telling yourself the same old story, you`ll get a bonus next month, or some holiday pay, and that will pay the cards off, but it doesn't, and before long all the consolidated credit cards are maxed out again, plus you have a massive loan to service, and you find you are back at square one, but now with twice the debt.

Some of our posters have found themselves in that position several times, and repeated the same old mistakes again and again, until the credit lines run out, and no one will lend to them, then they have to turn to a suitable debt solution, which is what they should have done 3 consolidation loans ago.

In extreme cases that solution was bankruptcy, more often than not it would be debt management or an IVA, but we recommend you look at these options, if suitable for you, before borrowing any further funds, yet a lot of the time such advice falls on deaf ears and leads to a monumental failure further down the line.

This post isn`t meant to sound contrite or anything of that nature, but we see the results of consolidation loans so many times, the failure rate of such loans is very high, for the exact reason`s I have stated.

Herzlos

I can totally get the idea of needing a bigger car because your use of it has changed, I'd certainly go down that route and try to borrow something like £7.5k for it (because you get much better rates at 7.5k for some reason).

However, given you've got £400 in spare cash, plus about 1300 in accounted for luxuries, how have you managed to run up £12k in credit card debt?

Drop the savings funds, 3 TV packages, spotify, phone contracts and you can have the credit cards cleared in 10 months. Maybe see if you can get a balance transfer card to save some interest whilst you're doing it.

With £300 each for activities, etc, how much TV and streaming radio are you actually using?

Taking on £400/month for 8 years is a pretty crippling commitment Vs living modestly for a year.

I'm sure you think your £30k loan plan will work, but listen to the many of us who've successfully managed to consolidate ourselves into much worse debt. If you're running a deficit now, then you'll still be running one when the last of your money is going to loan repayments, and you'll resent the loan after a couple of years with 6 more to go.

martinbainbridge1975

phone contracts seem a bit steep to me, I came to the end of an IPhone contract and went sim only and bought the handset this time, £48 a month down to 16

some monthly subs could be duplicated, I got netflix thrown in for free with broadband/tv package which was heavily discounted.

if you sacrificed a holiday for 1 year that could put quite a dent into the debt if you nudged up payments

not trying to preach or anything, I was in a similar position with cards a few years back

FreeFallerSaver

I don't wish to labour the point but I really cannot recommend highly enough taking heed of the sage advice you've been given by some of the knowledgeable and supportive regulars on here about not consolidating your debt. And I say this from the perspective of being exactly one of the serial consolidators that Sourcrates refers to above.

Believe me, you're in a far better position than we were for each of the three or four (or even five, I've lost count) times that we consolidated by either adding to our mortgage or taking out loans (one for £18K, and then another for £25K four years later, straight after the other "that's the last time we'll do this" loan was paid off). It was only being at rock bottom with £36K worth of debt - including a crippling £5.5K overdraft - and being faced with going down the DMP route and six years' worth of future trashed creditworthiness that we totally woke up and smelt the coffee. We'd never defaulted on a single payment, ever, but were simply just servicing more and more interest, all as a result of consolidation.

Two and a half years ago we started to tackle it, and we started with virtually no means to do so. That meant no holidays, no new clothes, no eating out (not that we ever really did), and trying to generate income to slowly pay down our interest-bearing debt. And it's hard when you have a family, and watching everybody else doing things you can't afford - but you have to recognise that you simply can't afford things like holidays if you're thousands in debt and struggling. We will be debt-free at the end of this year and, honestly, seeing those numbers go down each month with the small things you do really focuses your efforts.

So to my point: with the amount of disposable income you have, you can clear your debt in virtually no time, and that's what you should do. Yes, it's hard, but to instead be even contemplating the option of committing yourself to eight long, more difficult, and frankly depressing years of consolidation is madness. You also have to realise that you might not get a loan anyway - prospective lenders don't know (or care) that you'll consolidate - they have to assume that you want another £30K on top of the £12K you already owe, and will base their decision on that.

Please don't consolidate. As above, head to the Debt-free Wannabe board where you'll find some great folk who will help you instead. Good luck.

_Penny_Dreadful

SamT93 said:

Hi, 

So over the past few years, my partner and I have accrued almost £12k in debt across overdrafts and credit cards due to life circumstances, buying a house and the unforeseen problems that come with that. I have never missed a payment, however due to the mortgage being relatively new and an issue with the electoral roll my Credit Score dropped from 980 to 672 in the space of a month. I queried this with Experian as it seemed an enormous drop but they assured me that the algorithm was working fine. Having resolved the electoral register issue, my score is now 771, not great but not terrible. My partner's score is still approx 950.  

We both have a stable income earning a combined £64.5k a year, (me £33k, her £31.5k). Our monthly outgoing budget is as follows:

Mortgage (fixed for 5 years)	-£1,067.64
Gas & Electricity	-£225.00
Water	-£40.68
Council Tax	-£164.77
Building & Contents Insurance	-£36.30
Life & Critical Illness Insurance	-£49.85
Wifi	-£30.00
TV License	-£31.80
Netflix	-£10.99
Prime	-£8.99
Disney+	-£7.99
Spotify	-£9.99
Phone Contracts	-£80.00
Post-Grad Student Loan/Other DD's	-£180.00
Gym	-£35.00
Food & Essentials	-£300.00
Car Insurance	-£30.59
Car Tax	-£11.81
Petrol	-£100.00

Total £2,421.40

This leaves us with approx £1,500. - we put £250 a month in a holiday fund, and a further £250 in an emergency fund and give ourselves an allowance of £300 each to spend on what we like i.e. out with friends, golf, PT classes, drinks etc leaving £400. 

I have worked out we are paying approximately £320 p/m in interest and try to pay slightly over minimum payments at around £450 a month but we are not making a dent in the debt. 

My car has just ticked over 100k miles and is on its last legs, just about scraping a pass in its MOT last month. It clangs, rattles and has a minor engine oil leak and basically needs to be sent to the scrapyard asap. 

We decided that the best option would be for my partner to apply for a loan of £30k with our bank with an APR of 5.4% over 8 years resulting in a monthly payment of around £380. This would pay off all the debts and leave us with £18k to spend on a used car. She was rejected for this based on affordability.  

We are now assessing our options, and looking for advice. We are thinking of submitting a joint application for a loan of the same amount, however, we are worried that my credit score will affect either the decision or the APR rate. We are even more worried that if we were to suffer another rejection, then getting any type of loan would be even less likely. 

We have thought about applying for a £12k loan just to consolidate the debt, and then get a car on a PCP finance deal, however, again my credit score means that I will likely not be offered the representative APR rate, and we cannot do it through my partner as she does not have a driving license (this appears to be a standard stipulation across the board that the person taking out the finance has to be the registered keeper and primary driver). Also, this option would mean that we would likely be paying more per month for two types of credit which is obviously something we would want to avoid. 

Any advice or assistance would be greatly appreciated. 

Thanks 

I'm going to echo what others have said, you're on a slippery slope to a debt death spiral.  You cannot borrow your way out of debt.  There are lots of things missing for your budget and if I were in that much debt and in need of a car I'd use the holiday money to clear debt or buy a new (to me not brand new) 5-door car.  You're at the stage where you can tackle this debt, not by borrowing more, before you end up with no choice but to enter into a debt management plan.

The statement of affairs template from Lemon Fool is a good starting place for getting to grips with your budget.

https://www.lemonfool.co.uk/financecalculators/soa.php

And their snowball calculator shows you how quickly you can pay off your debts if you focus on paying them off instead of spending so much "fun" money. 

https://www.lemonfool.co.uk/financecalculators/snowball-calculator.php

Remember the words of Wilkins Micawber...

Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery

fatbelly

Debt-free wannabe is a good thing to aspire to.

Your car has just passed its mot and you have the ability to pay off your non-priority debt in 8 months. 

I'd do that, then look at your options.

Everything will look better then, and 8 months is no time really

savergrant

I think one issue is that the loan isn't specifically to clear debt, so it looks like you want to borrow to spend and add to your debt. I would suggest you cut your spending for a few months to pay down some of the debt before applying for any new borrowing.