Consolidation Loan - yes or no?

VioletNewStart

Hi - I've been plodding along trying to start clearing my CC debt this year. At the year start it was £50k. By year end it should be around £46k. I had a good first four months, then had unexpected payments, but got back on track this month.

My monthly payments are now around £1600. And around £700 of this is interest each month. I'm overpaying on one card (with the highest interest) and paying just above minimum payments on the others. I'm not eligible for 0% cards except for one with a limit of £1k which I will transfer from one of my other cards.

I've had a consolidation loan quote from Shawbrook for £30k over 5 years at 10%.
If I took this, I would clear all my debt for certain in five years. The 20k NOT on the loan, I would clear within the next three years.

So overall I'd be paying less each month and certanly less interest. Three of my cards are around 34% and it will take so long to pay off. 

I know general advice is not to take one but I've addressed my debt behaviour much more this year and am into much better habits. 

Has anyone had success with a consolidation loan?

sourcrates

Oh, this gets asked a lot on these boards, and the short answer is that if you need a consolidation loan, you tend to be a serial debtor who will continue to accrue further debt during and after the term of this particular loan, those who consolidate nearly always do so more than once, until they finally realise you cannot borrow your way out of debt.

Only once you stop living on, and using credit unnecessarily, will you get a real debt solution in place that actually tackles the debt, that can be as simple as sticking to a budget, debt management, or if the debt is particularly large, a debt relief order, IVA if a homeowner with massive debts, or bankruptcy in extreme cases.

Our reluctance to admit we need a debt solution ensures the cycle of borrowing continues until you either reach the end of the road where borrowing is concerned or put bluntly, you simply wise up.

RAS

We are aware of a small number of people who have consolidated debts into loans and not reported back.

And of many many more who have come here with multiple loans as a result of consolidation, repeatedly, and whose finances are at the end of their tether.

If you keep plugging away at clearing your current debt at your current rate, it'll be cleared in less than 10 years.

Much more likely 7years as you close the most expensive cards and get an increasing number of decent balance transfers.

In many ways, psychologically you need to clear those accounts with awful rates so that you don't get tempted by credit with awful rates (even if only after the initial rate ends).

I'm also confused. You are chipping away at a card with a very high rate? And intend using the new balance transfer against another card? Unless you've got two cards at the same rate, it make little sense?

VioletNewStart

RAS said:

We are aware of a small number of people who have consolidated debts into loans and not reported back.

And of many many more who have come here with multiple loans as a result of consolidation, repeatedly, and whose finances are at the end of their tether.

If you keep plugging away at clearing your current debt at your current rate, it'll be cleared in less than 10 years.

Much more likely 7years as you close the most expensive cards and get an increasing number of decent balance transfers.

In many ways, psychologically you need to clear those accounts with awful rates so that you don't get tempted by credit with awful rates (even if only after the initial rate ends).

I'm also confused. You are chipping away at a card with a very high rate? And intend using the new balance transfer against another card? Unless you've got two cards at the same rate, it make little sense?

Thanks for your comments. Sorry my message probably wasn’t clear. I have a few cards and I am overpaying the one with the highest rate (34%). I pay just over the minimum on the rest. When I have cleared that balance, I will switch to overpaying the balance with fhe next highest interest rate (33%).

Meanwhile, where possible and as well as this, I always try to transfer any from cards with the highest interest rate onto 0%. I have just been approved for another 0% card - limit of £900. And so I’ll transfer 900 from the 34% card onto this card. And I will set direct debits for this balance to be clear too within the 0% period. 

My reason for considering the consolidation loan is that I am paying just so much in interest at the moment. And my monthly payment would be reduced. But I hear the point too that consolidation usually leads to just more debt. I’m also put off by the fact that most of the early payments are towards the interest meaning the capital doesn’t actually reduce by much at all until towards the end of the loan.

I will think about it some more. Thank you!

VioletNewStart

sourcrates said:

Oh, this gets asked a lot on these boards, and the short answer is that if you need a consolidation loan, you tend to be a serial debtor who will continue to accrue further debt during and after the term of this particular loan, those who consolidate nearly always do so more than once, until they finally realise you cannot borrow your way out of debt.

Only once you stop living on, and using credit unnecessarily, will you get a real debt solution in place that actually tackles the debt, that can be as simple as sticking to a budget, debt management, or if the debt is particularly large, a debt relief order, IVA if a homeowner with massive debts, or bankruptcy in extreme cases.

Our reluctance to admit we need a debt solution ensures the cycle of borrowing continues until you either reach the end of the road where borrowing is concerned or put bluntly, you simply wise up.

Thanks sourcrates. Yes, I do see this point. I had my lightbulb moment last January (2024) and  have been much better with sticking to a budget this year (apart from vet emergencies). Checking in on the forum regularly has really helped. I am also earning more now than when I got into much of the debt. This will be the first year in many where my debt has not increased. 

So, I suppose I was thinking that a consolidation loan would just make things more manageable by reducing my monthly payment and the amount of interest I’m paying. And allow me to start saving. 

But I get the point you’re making. Maybe I’m just feeling emotionally drained from the debt and looking for a quicker solution. 😞 But as you say, it may not be a quicker solution. It would possibly (probably) lead to even more debt.

RAS

You do need to be putting funds away each month towards vet's bills and an emergency fund. If the vet's fund gets enough in to cover at least one emergency, add a bit more to the emergency fund. Unless one month's salary can cover both a vet emergency and another issue like a boiler breakdown and a bust cooker?

Brie

Do you have one card that you could manage to clear each month?  If you use that for your day to day expenses and pay in full there would be no interest on it.  That in itself would be a win.

Then continue snowballing down on the others.  Maybe reduce the credit that's available on them as well to make your credit record a bit more sound.  

Unless you want to make a big break with things and do something more radical?  Maybe post an SOA and let us see what you're dealing with and where we might be able to assist.  

VioletNewStart

Brie said:

Do you have one card that you could manage to clear each month?  If you use that for your day to day expenses and pay in full there would be no interest on it.  That in itself would be a win.

Then continue snowballing down on the others.  Maybe reduce the credit that's available on them as well to make your credit record a bit more sound.  

Unless you want to make a big break with things and do something more radical?  Maybe post an SOA and let us see what you're dealing with and where we might be able to assist.  

Thanks, Brie. I’m trying not to spend on cards at all any more. So I think it’s better for me not to put any expenses on them. 

 I have not done so for most of the year apart from a summer blip. And yes I know you’re right about the savings and I made a start on that at the start of the year and then ended up using it (for vets)! But I’ve started again this month. I’m keeping track in my debt free diary on the diary board!

But that’s interesting what you say re clearing a card in total meaning better credit rating. I have almost cleared one card (MBNA) and that one has a limit of £10,000. When it’s cleared I wasn’t planning to close it in the hope of being offered a 0% transfer deal. But also because I thought that it’s better to show you are using less than 50% of available credit and so if I close it then my overall percentage usage will go up (on cards as a whole). But do you think it’s better to have a smaller amount of available credit to improve credit rating? 

VioletNewStart

RAS said:

You do need to be putting funds away each month towards vet's bills and an emergency fund. If the vet's fund gets enough in to cover at least one emergency, add a bit more to the emergency fund. Unless one month's salary can cover both a vet emergency and another issue like a boiler breakdown and a bust cooker?

Sorry, I realised I replied to your point about saving in the wrong reply! Yes, I know that I really need to get savings in place. I managed to build some up earlier in the year but then used them for the vet bills. I’ve started building savings again this month but still a very very small amount (£8 so far this month). I want to build up to having at least a months worth of salary. I never used to think it was worth doing as long as I had debt but I realised when I had my lightbulb moment in January that without savings the debt cycle would just persist. 

theoretica

VioletNewStart said:

So overall I'd be paying less each month ...

This is a somewhat concerning argument to make, because of the implications that you expect to only pay what you have to towards the debt.  What would you plan to do with the money you are not forced to pay towards the debt - just get used to higher spending?

VioletNewStart

theoretica said:

VioletNewStart said:

So overall I'd be paying less each month ...

This is a somewhat concerning argument to make, because of the implications that you expect to only pay what you have to towards the debt.  What would you plan to do with the money you are not forced to pay towards the debt - just get used to higher spending?

At the moment about 60% of my salary is spent on debt each month meaning that it’s difficult to save and my partner is paying more than his share of bills. 

The loan would mean I’d be paying about £1300 in total towards debt each month rather than £1700. And so it would make things more manageable.