Consolidation Loan - yes or no?

FluffyBabyPenguin

My approach was to move what I could to 0%, and pay a small amount towards that card, like £10 a month just so it was going down a bit before the offer ended. But I would pay much more towards the high percentage cards and get one of those paid off. When the 0% offer ended I could usually balance transfer what was left and carry on that way.  This only really works if you're confident you can keep getting new 0% offers. So long as you're paying above the minimums and keeping your credit in good standing, you may be okay. On the other hand, once you've paid transfer fees a few times, you may be negating any savings. It may help to sit with a calculator and see what will work best. 

Consolidation loans can be tricky because it's often hard for people to *only* pay off their debts and not spend an extra penny on other things.  They think since they've got that huge amount of money anyway they may as well improve the house or treat their family,  and suddenly you're more in debt than you were before. And if you don't cut up the cards and you keep overspending, you've very quickly dug a very deep hole. 

hoverFrog1

If your circumstances have changed, or even if they haven't, it is worth writing to all your credit card companies and asking them to suspend interest while you sort your finances out. Ask for a 3 month (or longer) grace period and use the interest you're saving to pay off the highest interest card.

I don't know how much interest you pay each month but if it's £100, you'd be better off using that interest to pay off the debt.

The downside is that you won't be able to use the credits cards while you do this. That's not really a downside though as you should only use credit cards that you pay off completely every month. The worst that can happen is that they say no and you're in the same situation you are now.

If you're not too bothered about your credit rating, ask them to suspend all payments completely for 3 months and interest for a year. Use that 3 months to save up and try to pay off a big amount in one go. After a year, ask for another year of zero interest. Don't spent it on anything else. It is the interest that is hurting you so getting them to stop charging interest saves you a lot. Pay off those who say no first.

From the credit card company's point of view, they can accept your request and get some of their money back, or reject it and somewhere down the line you'll run out of money and they get nothing.

RAS

hoverFrog1 said:

If your circumstances have changed, or even if they haven't, it is worth writing to all your credit card companies and asking them to suspend interest while you sort your finances out. Ask for a 3 month (or longer) grace period and use the interest you're saving to pay off the highest interest card.

I don't know how much interest you pay each month but if it's £100, you'd be better off using that interest to pay off the debt.

The downside is that you won't be able to use the credits cards while you do this. That's not really a downside though as you should only use credit cards that you pay off completely every month. The worst that can happen is that they say no and you're in the same situation you are now.

This would almost certainly garner the OP a slew of Arrangement to Pay markers, which is almost as bad as defaults and which would damage her credit record for 6 years after the last debt was paid off.

At least defaults would all clear 6 years after they were issued, even if she still owed money.

sourcrates

Combenew said:

I've often wondered why consolidation loans are frowned upon but doing a balance transfer isn't. Surely the danger of running up the empty card again is just as possible either way

I dislike both those options in equal measure as your just trying to avoid having to take more serious steps, which with most serial debtors is going to be inevitable anyway.

VioletNewStart

EssexHebridean said:

Usually with a balance transfer the advice is likely to be to also close the card you have transferred from if the entire balance is being transferred. Psychologically there also seems to be a difference between a (usually) single debt moved from one place to another (so 1 debt = 1 debt) rather than  many debts being transferred to a single place. We have often heard of people who have said that having the many debts apparently gone felt like a relief, and as though they had "cleared most of their debt" which of course simply isn't the case.  Think about it like your kitchen cupboards - over time, you have stocked up on masses of packets and tins, and now there is no more room and each time you make dinner, you have to didge being hit by beans, tomatoes and pasta. You decide to move just the tomatoes to another cupboard - so now things aren't falling out of the cupboards at you, but you can still see them each time you open a door0 This acts as a reminder to you to not buy more beans, pasta etc until you have cleared out what you have. Your friend next door meanwhile has cleared HER cupboards out into the garage - wow, it's like she has a whole new kitchen, so much SPACE! However, in the space of just a few months, she's refilled the cupboards again and the stuff in the garage is still there, just slightly reduced, as because it is out of sight, she tends to forget its there and buy more stuff when she goes to the shops. 

This is such a great analogy. I totally get this.

VioletNewStart

RAS said:

hoverFrog1 said:

If your circumstances have changed, or even if they haven't, it is worth writing to all your credit card companies and asking them to suspend interest while you sort your finances out. Ask for a 3 month (or longer) grace period and use the interest you're saving to pay off the highest interest card.

I don't know how much interest you pay each month but if it's £100, you'd be better off using that interest to pay off the debt.

The downside is that you won't be able to use the credits cards while you do this. That's not really a downside though as you should only use credit cards that you pay off completely every month. The worst that can happen is that they say no and you're in the same situation you are now.

This would almost certainly garner the OP a slew of Arrangement to Pay markers, which is almost as bad as defaults and which would damage her credit record for 6 years after the last debt was paid off.

At least defaults would all clear 6 years after they were issued, even if she still owed money.

Thanks for this. As it stands I’m managing the monthly payments just about and so I’m hoping that within a year or so when I’ve significantly got the balances down and cleared at least one of my cards, that I’ll start getting more 0% offers and I can transfer higher interest debts over.  

My debt at the end of this year will be less than it was a year ago so I’m moving slowly in the right direction.

enthusiasticsaver

Consolidating debt rarely works and if you are comfortably managing repayments and getting the debts reduced then continuing with that sounds like the best option.  If you are not comfortably making the repayments then it may be time for a debt solution like a DMP.  

VioletNewStart

FluffyBabyPenguin said:

My approach was to move what I could to 0%, and pay a small amount towards that card, like £10 a month just so it was going down a bit before the offer ended. But I would pay much more towards the high percentage cards and get one of those paid off. When the 0% offer ended I could usually balance transfer what was left and carry on that way.  This only really works if you're confident you can keep getting new 0% offers. So long as you're paying above the minimums and keeping your credit in good standing, you may be okay. On the other hand, once you've paid transfer fees a few times, you may be negating any savings. It may help to sit with a calculator and see what will work best. 

Consolidation loans can be tricky because it's often hard for people to *only* pay off their debts and not spend an extra penny on other things.  They think since they've got that huge amount of money anyway they may as well improve the house or treat their family,  and suddenly you're more in debt than you were before. And if you don't cut up the cards and you keep overspending, you've very quickly dug a very deep hole. 

Thank you. Yes, I think I’ve decided not to take the consolidation loan and to continue my approach of monthly payments and overpaying the card with the highest interest rate to try and clear that first.