Increasing overall debt to reduce monthly debt

JacobusV

Hi all

I'm new here so please bear with me. 

Due to a variety of reasons I've gotten into a fair bit of debt. I've had a bank loan which I jumped into in a panicked state when I saw a credit card bill that had accumulated through the pandemic. I ended up having to pay out £412.00 per month. I've been doing so for the past 2 years, however,  I have other credit card debt I'd like to clear, but it's a struggle.

In everyone's honest opinion, if I were to accept a renegotiated bank loan, which would increase over all debt, but reduce monthly outgoings to help clear other card debt which is on 0% interest for a period of time, which would bring overall debt back down. Would this be a good idea? I'm struggling to clear the credit card debt with such a large chunk going out to the current bank loan repayments. It would mean my current loan due to be paid off in 2028 would be superceded by a new one which would not clear until 2030.

J

CliveOfIndia

The general advice is never to consolidate card debt into a loan.  Even more so if some of your card debt is currently at 0%.

If you can refinance the existing loan to a cheaper one, that makes sense.  But as regards tackling the various debts in their entirety, your best bet is to start with an SOA: https://www.lemonfool.co.uk/financecalculators/soa.php

Fill it out as honestly as you can, select the "Format for MSE" option and paste the results into this thread.  We can then get a reasonably accurate picture of your finances, and offer some constructive advice.

Exodi

Sorry, why would the loan increase overall debt? I suspect we'll need to know the exact numbers, rates, etc to give an answer to what is effectively a Maths problem.

Generally the best course of action is to service the highest interest rate debt first. If you can reduce the interest rate on debt that's great (though oftentimes the breathing room consolidation loans like this give can relax  debtors into re-spending on the now empty credit cards).

Addressing the root cause first is key (overspending or underearning, depending on how you look at it).

JacobusV

OK, so here goes:

£13,152 left on original loan at payments of £412 p.m (final payment 2028)
One credit card with £3700 on 0% interest until Nov 26

Another with £3000 at 0% until July 26
And one more with £2900 at 0% until Jan, 26

If I was to renegotiate the loan the debt including interest would go up to around £18k (final payment 2030).

However, the new loan would reduce monthly payments from £412 p.m to £315.00 p.m, leaving me with £97.00 to py into credit card debt.

I work in sales so depending on commission I can pay more int othe cards but the additional £97.00 would be guarunteed.

J

JacobusV

I'm looking to target the credit card with £2900 with 0% due to expire Jan 26 first.

J

TheSpectator

What are you basing the potential new loan payments of £315 on? There is no guarantee you will get any 'typical' advertised APR especially when you currently owe the best part of £25k.

And if you went ahead there is a fair chance those credit card balances would increase again. Rarely is consolidation the answer.

JacobusV

The £315.00 per month is based on a loan offer I've had from my bank but haven't signed as yet.

TheSpectator

JacobusV said:

The £315.00 per month is based on a loan offer I've had from my bank but haven't signed as yet.

Personally I wouldn't. You are just looking at the short term and not looking at the bigger picture, i.e. you are extending your debt to 2030 so how much in total will you now pay. Focus on clearing the credit card on which the 0% is up first, then move onto the next one and so on.

CliveOfIndia

JacobusV said:

If I was to renegotiate the loan the debt including interest would go up to around £18k (final payment 2030).

However, the new loan would reduce monthly payments from £412 p.m to £315.00 p.m, leaving me with £97.00 to py into credit card debt.

So essentially you're thinking of refinancing the loan, and using what you save every month on loan repayments to repay the credit cards before their respective 0% deals expire?  I can see where you're coming from - and definitely it's the right thing to do to pay down the 0% cards in order of their offer expiry date.

But looking at the loan in isolation, you're going to end up paying approx. £5k more overall, for the sake of paying approx. £100 per month less.  Is there any wiggle room in your budget to make a £100 (or more) saving per month in your expenditure?  This would achieve the same result without paying more to the loan in total.  It would be well worth doing an SOA so that you can see what's what.

Exodi

JacobusV said:

OK, so here goes:

£13,152 left on original loan at payments of £412 p.m (final payment 2028)
One credit card with £3700 on 0% interest until Nov 26

Another with £3000 at 0% until July 26
And one more with £2900 at 0% until Jan, 26

If I was to renegotiate the loan the debt including interest would go up to around £18k (final payment 2030).

However, the new loan would reduce monthly payments from £412 p.m to £315.00 p.m, leaving me with £97.00 to py into credit card debt.

I work in sales so depending on commission I can pay more int othe cards but the additional £97.00 would be guarunteed.

J

What is the interest rate on the original loan? Guessing somewhere around 10%?

What is the interest rate on the 'renegotiated' loan? As an example, increasing the term but reducing the rate does reduce the monthly payment, but it also includes the total amount of interest paid as it's over a longer period. I'm still not clear on why the loan is increasing by £5k as credit balances do not include future interest, so it looks like quite a sizable fee.

The notion of converting 0% debt into possibly 10% debt is difficult to green light, at the least you could wait until the deals are closer to finishing (and presumably would convert to 30% interest).

Just a little bit more detail needed to give any sort of informed opinion.

In my uninformed opinion, it sounds like madness and the 'renegotiated loan' sounds like a bad deal.

JacobusV

The renogotiated loan is with my original provider as unfortunately, based on the loan options who would give me a loan on the tool offered by this website, only my original provider would offer me a loan. So it's my original provider or bust really. Alternatively I stick with how things are and hope commission from my job bails me out eventually. But with that and general living cost and kids, it's becoming an uphill climb.