Loan to clear Credit Card debt?

JLP1988

Hi everyone, over the last 10 months my wife lost her job and I had to support her and all bills/expenses and ultimately I pilled up my credit card balance to £15,700 (at an average APR of 37.4% - I know it's high). As a result, over the last 18 months my credit score also went down significantly. Even though I'm not at risk of defaulting on any bills/payments, the monthly repayments have been tricky. With our situation I'm only able to pay a maximum of £800/month on my credit card (as we have other commitments/loans I need to repay) and I tried finding balance transfer options but no lender is willing to offer me a deal.

Although I'm not paying the credit balance in full, I've been making an effort to pay a bit more then the minimum at least, which has helped to improve my credit score slightly (I'm still rated as having a "poor/fair" score).

I'm trying to find ways to reduce my monthly payments and interest rate and pay all debt faster. I did some calculations and roughly it would take me 48 months to repay my credit card debt in full (assuming of course I won't use, which is the case).

One offer I got pre-approved for was a loan at a 14.9% APR for the full amount (15,700 over 48 months which would be used to pay the credit card debt in full) and that would reduce my monthly payments down to £409.

I'm usually afraid of loans but wanted to share this with others in the forum to see if you think this would be a good approach or if any other suggestions/ideas.

thank you in advance for any help and support!

JLP1988

JLP1988 said:

Hi everyone, over the last 10 months my wife lost her job and I had to support her and all bills/expenses and ultimately I pilled up my credit card balance to £15,700 (at an average APR of 37.4% - I know it's high). As a result, over the last 18 months my credit score also went down significantly. Even though I'm not at risk of defaulting on any bills/payments, the monthly repayments have been tricky. With our situation I'm only able to pay a maximum of £800/month on my credit card (as we have other commitments/loans I need to repay) and I tried finding balance transfer options but no lender is willing to offer me a deal.

Although I'm not paying the credit balance in full, I've been making an effort to pay a bit more then the minimum at least, which has helped to improve my credit score slightly (I'm still rated as having a "poor/fair" score).

I'm trying to find ways to reduce my monthly payments and interest rate and pay all debt faster. I did some calculations and roughly it would take me 48 months to repay my credit card debt in full (assuming of course I won't use, which is the case).

One offer I got pre-approved for was a loan at a 14.9% APR for the full amount (15,700 over 48 months which would be used to pay the credit card debt in full) and that would reduce my monthly payments down to £409.

I'm usually afraid of loans but wanted to share this with others in the forum to see if you think this would be a good approach or if any other suggestions/ideas.

thank you in advance for any help and support!

Small correction - my average APR is 33.77%, the monthly payment on credit card is £707 (which would take me about 36 months to clear it) and the loan offer is 15,700 over 36 months (same length) for £512 per month.

DullGreyGuy

If you can afford £800 why only pay £409 meaning more interest?

The problem that most people have is after getting a debt consolidation loan they dont stop spending on the credit cards so end up with both credit card debt and a loan. 

JLP1988 said:
I'm only able to pay a maximum of £800/month on my credit card (as we have other commitments/loans I need to repay) 

JLP1988 said:
I'm usually afraid of loans

Appears not that afraid of them. 

molerat

It is generally not considered a good idea to pay off debt with debt but if you are 100% not going to build up that debt again then why not go for it.  But ..... why not take a shorter term loan, you are currently just about able to afford £800 but this loan is £400 so try and go somewhere in the middle or look at a loan where you can easily make overpayments to reduce the term and work out a plan to do just that, will cost you a lot less in the long run - every £100 you pay off early will save you 4p every day for the rest of the term.  And try to build up a safety net fund, there is only one thing guaranteed with unexpected events, you can always expect one to come along !

JLP1988

DullGreyGuy said:

If you can afford £800 why only pay £409 meaning more interest?

The problem that most people have is after getting a debt consolidation loan they dont stop spending on the credit cards so end up with both credit card debt and a loan. 

JLP1988 said:
I'm only able to pay a maximum of £800/month on my credit card (as we have other commitments/loans I need to repay) 

JLP1988 said:
I'm usually afraid of loans

Appears not that afraid of them. 

Commentary such as "appears not afraid of them" when you don't have all the context is not helpful - however your point is noted thank you

MEM62

In most cases, consolidation loans are not recommended.  The reasons for this are well documented on these boards but one of the main ones is that it does not encourage the borrower to address the root cause of the debt.  It is also the case that you cannot borrow your way out of debt. 

In your case perhaps you are happy that you know what led to your current situation and feel that you have this under control.  Is you wife working again now?  Whatever you decide to do with your current situation, there are a couple points that you might want to consider for the future.  Based on your figures, whilst she was unemployed you racked up debt at the rate of £1,500 per month.  Are you finances stretched too far?  Also, what provision do / did you have in respect of an emergency fund to cover this.  Most of what some would consider 'unexpected' is actually very predictable.  

Nasqueron

Just to be clear, the score you see is completely irrelevant, it is not seen by, nor used by, lenders when deciding on credit approval

Emmia

Is your wife back in employment or looking for work? If not, and she is able to work then she should be doing that to enable money to flow into the household to enable you to pay off the debt and avoid accruing more debt long term.

If you go down the consolidation route, I'd look to pay off as soon as possible. I'd also close all cards to prevent racking up any fresh debt on top of your loan payments.