Debt Consolidation Loan - Good Idea? + Should I pay off soon to be paid off loan?

Saladin95

Hi,

I'm considering a debt consolidation loan to pay off all my debts and end up debt free for the first time in my adult life. See below for my debts and relevant details:

Debt Type	Amount Owed	Monthly Repayment	Final Payment Due
Loan 1	£1624	£232	February 2025
Loan 2	£6000	£219	July 2027
Credit Card 1	£4400	£110
Credit Card 2	£1000	£35
Credit Card 3	£1000	£30
Catalogue	£2000	£90
Total	£16,000	£716

I've been pre-approved for a £16,000 loan at 13.8% APR (high, I know but considering all my debt I guess fair), paying back a total of £19,407. I've opted for a 3 year term at a monthly payment of £540 a month. This would have two obvious benefits: 

1. The capital is actually repaid and I'm completely debt free by 2028.
2. Monthly payments drop from £716 to £540, giving me breathing space of an extra £176 a month

Now this all makes sense to me. But my slight hesitation is Loan 1, which ends in February 2025 - it feels daft to include it in this? I could alternatively go for a £14,400 loan at 13.3% APR, bringing down the monthly payments to £482. So what this would mean is:

1. Until February 2025 my monthly payments will be £714
2. From March 2025 my monthly payments will be £482

This option would leave me £234 a month better off. 

Thoughts on what I should do? Or is this a no brainer and I should go for Option 2?

RAS

This is an amazing bit of double think.

Are you really suggesting that a loan is not a debt? 

Moving debt from credit cards to loans means you have just as much debt as previously, which you might pay off at a level rate for longer.

Were either of the loans already listed amongst your debts used for consolidation?

Just don't do it.

Put together a proper SOA including the rates and end dates of deals and loans and we can help you sort out a payment schedule.

Brie

Debt consolidation loans are rarely considered a good idea.  It just moves the debt (albeit to one more affordable) and still leaves the lines of credit open and waiting to be used again.  

Might I suggest that you fill out the SOA (statement of accounts) which is on one of the top stickies and then either have a look at that to see where you might trim something or post it back here on the debt board for others to help you find a way to make things work in your current budget.  

All that said you do seem to have considered things somewhat sensibly.  Option 2 does look to be a better way forward.  If you did that and then flung that full £234 onto the catalogue (I'm guessing that's the highest interest) it would be gone in 10 months.  And then take all the excess and put it against the card with the highest interest and so on.  

But best if you don't take out a new loan and find a way to put excess funds that are lurking somewhere in your budget against the highest interest item and hang on til Feb when there's more space and you can revamp your payments to get rid of this all asap.  

btw - have you asked any of the cards/loan to stop charging you interest?  That would make things move much more quickly.  

[Deleted User]

It’s a ‘don’t do it’ from me too!

But if you are hell bent on doing it anyway, surely it would be better to take a 3 year smaller loan to clear the credit cards and everything would be paid by July 2027? That is assuming that all credit cards are never used again which is a big assumption - so big that I can only repeat my first comment - don’t!

fatbelly

13.8% apr doesn't sound very attractive to me.

You've got 3 credit cards. Can you not balance transfer them to 0%?

sourcrates

Another massive NO from me, you get out of debt by using debt solutions, not by borrowing more money, however much cheaper your monthly payment "would" be, its going to cost more in the long run, and the temptation to re-use lines of consolidated credit will always be biting at your heels.

These type of loans have a very high failure rate, most end up consolidating more than once, some do it twice, three times or more, until they finally realise, you can`t borrow your way out of debt.

It always makes sense until the wheels fall off.

Saladin95

RAS said:

This is an amazing bit of double think.

Are you really suggesting that a loan is not a debt? 

Moving debt from credit cards to loans means you have just as much debt as previously, which you might pay off at a level rate for longer.

Were either of the loans already listed amongst your debts used for consolidation?

Just don't do it.

Put together a proper SOA including the rates and end dates of deals and loans and we can help you sort out a payment schedule.

Hi RAS. Thanks for responding. No, apologies I wasn’t suggesting that the new loan isn’t debt. I’m not sure where that intention came across! 

No, neither of the loans were for consolidation and the cards have been a poor choice. I’ll have a look at the SOA you mention. 

Saladin95

Brie said:

Debt consolidation loans are rarely considered a good idea.  It just moves the debt (albeit to one more affordable) and still leaves the lines of credit open and waiting to be used again.  

Might I suggest that you fill out the SOA (statement of accounts) which is on one of the top stickies and then either have a look at that to see where you might trim something or post it back here on the debt board for others to help you find a way to make things work in your current budget.  

All that said you do seem to have considered things somewhat sensibly.  Option 2 does look to be a better way forward.  If you did that and then flung that full £234 onto the catalogue (I'm guessing that's the highest interest) it would be gone in 10 months.  And then take all the excess and put it against the card with the highest interest and so on.  

btw - have you asked any of the cards/loan to stop charging you interest?  That would make things move much more quickly.  

You make some good suggestions, Brie. I'll look into the SOA as you mention too. I'll be closing down the credit cards bar one of them with a £1000 limit. And I'll also be closing my Very account. I want to be done with debt!! Your point about reallocating the £234 to other debts in February makes a lot sense. I'll have a little think about this. 

Re the interest stop - that'll have a negative impact on my credit history, no?

Saladin95

[Deleted User] said:

It’s a ‘don’t do it’ from me too!

But if you are hell bent on doing it anyway, surely it would be better to take a 3 year smaller loan to clear the credit cards and everything would be paid by July 2027? That is assuming that all credit cards are never used again which is a big assumption - so big that I can only repeat my first comment - don’t!

I'm not hell bent on it - if I was I wouldn't have posted here for advice lol. Great shout about a smaller loan just for the credit cards and catalogue! As I mention above to another poster - I'll be cutting up and closing all the credit cards and just keeping the lowest limit one. And the Very account will be closed! I want to be done with debt. I hate it. It's a constant thought in my brain all the time.

Saladin95

sourcrates said:

Another massive NO from me, you get out of debt by using debt solutions, not by borrowing more money, however much cheaper your monthly payment "would" be, its going to cost more in the long run, and the temptation to re-use lines of consolidated credit will always be biting at your heels.

These type of loans have a very high failure rate, most end up consolidating more than once, some do it twice, three times or more, until they finally realise, you can`t borrow your way out of debt.

It always makes sense until the wheels fall off.

I like the way you put that - 'you get out of debt by using debt solutions, not by borrowing more money'! I'm going to go back to the drawing board, look at the SOA option, and perhaps take Brie's suggestion to reallocating the monthly amount from Loan 1 once it's up to the most expensive credit line, and so on. Thank you for taking the time to comment and give sage words I need to hear

RAS

SOA, look at www.lemonfool.co.uk.

You really don't need to consolidate if you want to clear this debt. That Very account is probably c40%, but you can clear it in a few months in 2025. Any stuff you bought that you could sell? Car boot etc.