Credit Cards vs Consolidation Loan

SuperE20199

Hi all, first time poster!

I'm in a bit of a pickle, and have 3 sizeable credit card debts that have stacked up, that I am paying a horrible amount of interest on. I have been offered a loan via my Bank to repay these, and consolidate into one (with no penalties to pay back sooner)

I will be receiving a large amount that will be able to pay these off in Feb/March next year, so my pickle is whether I just continue paying what I am to the credit cards right now and wait for the lump sum to come, or whether I take out that loan now and pay it off.

The loan would enable me to save nearly £200 per month on what I am paying seperately to the creditors right now.

The other pickle (sorry!) is that our Mortgage is due for renewal in Sep 2024 - is it better to consolidate debt via a loan before then? Which looks better, credit card debt or a loan that has consolidated them?

CliveOfIndia

The usual advice is that consolidation loans are rarely a good option - remember, consolidating doesn't pay off the debt, it just moves it from one place to another.  However, is some circumstances they can help.  If you've already been offered a loan (which is often difficult to get since you're effectively doubling your debt, a lender can't guarantee you'd actually use the loan to repay your cards), then that's a good first step.  I'm assuming the APR on the loan is quite a bit less than the credit cards?

On the face of it, this may possibly be one of the few cases where consolidating may be a viable option.

However, two major caveats.  Firstly, you must absolutely NOT spend on the cards again once you've cleared them.  Close the accounts if you don't feel disciplined enough to not use them.  If you start spending on the cards (without clearing them in full every month) then you'll very soon be in twice the debt you're in now.

Secondly, you MUST address the cause of the debt in the first place, otherwise you'll just start accumulating further debt.

Also, how certain is this large sum that you'll be receiving?  If it doesn't materialise then you'll need a Plan B.

newey7 said:

The other pickle (sorry!) is that our Mortgage is due for renewal in Sep 2024 - is it better to consolidate debt via a loan before then? Which looks better, credit card debt or a loan that has consolidated them?

Neither option looks better or worse than the other, they're both just a debt that needs repaying.  A lender will see that you have a loan, but they won't know its purpose.

It's usually best not to take out any new lines of credit in the run-up to a mortgage application, but if yours is a year away then it won't be an issue.  The main thing, obviously, is to make absolutely sure that you make all repayments on time every month without fail - any defaults or late payments would seriously hamper any mortgage application.

SuperE20199

Thanks @CliveOfIndia - yes, the APR is significantly better. (between 19.9-24.9% on credit cards vs 10.9% on the loan) I would look to close the credit cards down once paid off, to stop any temptation.

The large sum I will be getting will definitely happen. 

On-the-coast

You said “ I will be receiving a large amount that will be able to pay these off in Feb/March next year”, 
So presumably you’d be paying off either the loan or the credit cards as appropriate - in which case you’d have no debt when you ask for re-mortgage options in summer of 2024 (for Sept 2024). 

Feb is not far away…. so prob best to keep temptations as low as possible by not getting into new lending.  

enthusiasticsaver

Consolidation loans are rarely a good idea. They kick the can down the road and often people end up with even higher debt. Post an soa on DFW forum. Have you been paying more than minimums on the cards? 

sourcrates

You don`t have to pay any interest at all on your credit card debts.

If you enter debt management (DMP) with one of the debt charities, all interest and charges usually stop.

Yes your credit file may suffer for a while, but your debt will be easier to repay, you will have more disposable income each month, and you will not need expensive consolidation loans.

Re-mortgaging with an existing lender does not normally require a new credit check.

This is usually the option debtors (finally) choose, once they have consolidated a number of times previously, if only someone had told them about debt management prior to them wasting £1000`s of pounds on those loans.....

ebodman1985

If you choose a consolidation loan through a reputable lender, it's a great option for paying off debt. I've been there myself and I'm glad I chose to do it. However, I signed up for a consolidation loan through my bank, not through a loan shark. That's the difference. In all honesty, I had a lot of debt. It just became too much to juggle. Having it consolidated into one loan with one repayment plan was what I needed to clear it all.