Taking out loan to pay off debt

pw007

My girlfriend has around 5k of debt through a variety of things, cards, PayPal credit, very,next etc. By the time all the monthly bills have come out she is left with hardly anything which means I’m now having to pay for more which is affecting my finance. We are both low earners but never miss a payment. Would it be a good idea to take out a 5k loan and pay it off over five years at £107 a month (according to Barclays)? This would give us a lot more freedom and lesson learnt. To me this seems sensible but would like to know your thoughts. She would be taking out the loan not met

Brie

It's rarely considered a good idea to take on more debt to pay off debts.  Normally this just leads to the debts doubling.  It would be better to find a way to pay down what is already owed - perhaps by filling out a statement of accounts and posting it back here to get some budgeting ideas.

There's also the issue that if she has debts and a low income it's unlikely that she would be able to get another line of credit.  Just because she says the loan will be used to clear the cards etc the bank has no guarantee that will happen so will need to consider if she can afford to service double the amount of debt.  Hope that makes sense.

RAS

No.

She will not be paying off the debt. She will be moving the debt from multiple pots to one pot. That's all. 

If she has lots of small debts, some may get lost, some will not be considered chasing and others may offer a discount to settle in a few years. Whereas her new bigger debt is more likely to be pursued.

It would help if she could do a Statement of Affairs, individually and jointly with you. 

Do you have any joint financial accounts?

pw007

RAS said:

No.

She will not be paying off the debt. She will be moving the debt from multiple pots to one pot. That's all. 

If she has lots of small debts, some may get lost, some will not be considered chasing and others may offer a discount to settle in a few years. Whereas her new bigger debt is more likely to be pursued.

It would help if she could do a Statement of Affairs, individually and jointly with you. 

Do you have any joint financial accounts?

No we don’t have any joint accounts. Yes I understand she’s not really paying off the debt but just making one. I just thought it would be better to get the monthly bills down to just one which is manageable over a 5 year period

Emmia

pw007 said:

RAS said:

No.

She will not be paying off the debt. She will be moving the debt from multiple pots to one pot. That's all. 

If she has lots of small debts, some may get lost, some will not be considered chasing and others may offer a discount to settle in a few years. Whereas her new bigger debt is more likely to be pursued.

It would help if she could do a Statement of Affairs, individually and jointly with you. 

Do you have any joint financial accounts?

No we don’t have any joint accounts. Yes I understand she’s not really paying off the debt but just making one. I just thought it would be better to get the monthly bills down to just one which is manageable over a 5 year period

A consolidating loan only works if all other lines of credit e.g. cards, overdrafts, PayPal, Klarna, etc. are closed and never reopened, and effort is made to live within ones means. Otherwise what happens is a rapid doubling of the debt as spending goes on the cards, whilst the loan is being repaid. 

Consolidation is not usually recommended.

QrizB

pw007 said:

 Yes I understand she’s not really paying off the debt but just making one. I just thought it would be better to get the monthly bills down to just one which is manageable over a 5 year period

Whatever she chooses (and it's her choice) she's going to have to start living within her means and spending less.

Is she 100% onboard with this? If so, ask her to post a SoA (as suggested by Brie above) and we can help her to balance her budget.

elsien

She needs to properly understand where the debt has come from, and that she cannot carry on spending at the same levels If she wants to get on top of things.
If she overspent to run up the debt in the first place, then as above there will be a temptation  to just carry on spending on more credit.
I appreciate it you are both struggling now because of the repayments, but where did the money go initially? 

Dobbibill

No! This rarely works!

Post a SOA, the great experience on this forum will advise you/your partner on the best way to tackle the debt and change your mindset on preventing the same thing happening again.

You cannot borrow your way out of debt!

sourcrates

pw007 said:

My girlfriend has around 5k of debt through a variety of things, cards, PayPal credit, very,next etc. By the time all the monthly bills have come out she is left with hardly anything which means I’m now having to pay for more which is affecting my finance. We are both low earners but never miss a payment. Would it be a good idea to take out a 5k loan and pay it off over five years at £107 a month (according to Barclays)? This would give us a lot more freedom and lesson learnt. To me this seems sensible but would like to know your thoughts. She would be taking out the loan not met

No, it would be a terrible idea that would likely see her join the ranks of serial debtors who are then thrown into a twilight world of borrowing/consolidation, taking loans and credit cards for the next 25 years, robbing peter to pay Paul, and forever being in debt to some bank.

I know it "sounds" like a sensible suggestion, lower payments over a longer time span, unfortunately its that longer time span that`s the killer, she`ll get to a point where money is an issue again, and its taking forever to pay off this loan, so I`ll just take out this credit card to help me this month, I`ll pay it off in full, but she doesn't, and this process gets repeated as more bills come in.

The loan gets paid off and is immediately taken out again, this cycle of borrow/consolidate/spend goes on and on until you stop the cycle by realising you have a problem, and stop taking out any further credit.

OK, maybe an extreme example, but this is what can happen when you start on this slippery slope, consolidation may seen an attractive proposition, obviously the banks want you to see it that way, but its really not attractive at all, and can lead to serious debt problems.

If payments are becoming unaffordable, its much better to ask the lender to stop or suspend interest, and go on an arrangement, or even default on the debt if you have to, letting your credit file take the hit, instead of you, rather than resort to more borrowing.

FluffyBabyPenguin

Those types of debt sound like a shopping problem, and a consolidation loan will not solve it at all. The shopping needs to stop until she has paid for the things she has already. A lot of my debt was just online shopping, and those "nice things" quickly became shackles because I hadn't yet paid for them. 

It may be hard but it's better that she learns these hard lessons now,  before you become serious about a future together. If you are not her husband you're not responsible for her share of the bills, and you'd be enabling her by making up the shortfall every time.

The good news is that 5k is not a scary amount, it can be paid off in a couple of years or much less with some willpower, and making changes around how money is spent. After that,  itll be easier to save for your furure shared goals. It's better if she posts here herself for advice and support.