Consolidation of debts, what next?

Graham1982 · 3 December 2019 at 9:43AM

Dear all:

I have been writing on here on various boards for about a year (this is not in any way a gloating post, I am not proud of having got into this situation in any event)

This time last year roughly I had the following debts (no CCJs or defaults):

1k Likely Loan I owed about £400
£800 agreed overdraft that I was in an out of
£7300 credit card at pretty much the limit (Barclaycard)
£350 store card that again was maxed on an interest free agreement.

During last year I paid off the overdraft, the Likely Loan and the store card.

Managed to reduce credit cart to £6200

During this time I had an unexpected bill but to my surprise Barclays (my bank) offered me a loan, I took out 1k and am paying this back as per agreement.
Balance was £500 as of today.

Anyway kept doing all of the above and managed my finances i.e. not missing payments etc, the biggest millstone around my neck was my credit card.

I was offered another loan by Barclays of up to 20k, I took out a total of 7k to pay off remaining loan amount and to clear my credit card, leaving me with a small amount left over that I have put in savings as an emergency fund. Please note I DID NOT take out a 20k loan, that would be stupid.

So now other than this new loan my debts are at zero and I have one easy payment to make per month.

I think I have learnt my lesson with credit cards but my question is:

Having done this and providing I keep up my payments and don't use my credit card irresponsibly, should my lendability (for mortgages) etc naturally increase?
What steps should I now take to safeguard my financial future?

Thanks
Graham

[Deleted User] · 3 December 2019 at 9:51AM

Your 'lendability', or likelihood of acceptance, will depend on your circumstances, credit history and lender criteria.

Shifting debts between credit products will, in itself, have little impact, but as you reduce the debt, you'll lower the risk that you represent to lenders.

At the moment, your debts are a long way from zero, so overpay as much as you can.

Graham1982 · 3 December 2019 at 10:02AM

Hi zx81:

Many thanks for your reply, can you please therefore confirm or debunk a few myths for me (I am not trying to refute what you are saying or paint a rosy picture, however:

1. I have heard credit card debt is viewed badly as if you are not clearing the balance and are racking up huge amounts of interest (as I was) it shows to lenders (who care) that you are not managing credit responsibly.

2. My credit file in a few months/a year will look better as my credit utilisation ratio will be better i.e. yes I have a new loan but I have the pre-existing credit facilities that I am not using - credit card/store card combined of £7400 so ultimately now I have credit available that I am NOT using rather than being maxed out.

And yes, I will be overpaying for this very reason.

Thanks

Graham

[Deleted User] · 3 December 2019 at 10:07AM

1. It's viewed as debt - the same as any other. Managed well, it can look worse or better than a loan. What matters is the amount you owe and the direction the debt is going in.

2. Utilisation isn't much of a factor when it comes to loans, as it's a set amount. It's more of a factor with cards.

enthusiasticsaver · 3 December 2019 at 10:09AM

You did not pay off your debts. You still have a loan and this is the mentality we try and discourage on here. By moving your credit card to a lo an you have tricked yourself into thinking you have no debt because you just have the one payment. In most cases people build up credit card debt again making the debt situation worse. I get a shiver every time someone mentions consolidation because it almost always makes things worse and it takes longer to clear the loan and costs more 8n interest because it takes longer. You could have that loan round your neck for years and that will not help if you want a mortgage as existing debts decrease the amount lenders will loan you.

To get yourself in better shape financially.

Save an emergency fund then you would not have needed a Barclays loan for your unexpected bill and you would not have had to pay interest.

Spending diary and budget. One of the reasons consolidation does not help clear debt is that spending behaviour needs to change to get out of debt. If you take the head in the sand approach which consolidation is that behaviour is never addressed.

Minimal interest so that means 0% cards if possible or paying the debt down aggressively. Lots of good DFW diaries where people have done exactly this.

yksi · 3 December 2019 at 10:15AM

Graham1982 wrote: »

Having done this and providing I keep up my payments and don't use my credit card irresponsibly, should my lendability (for mortgages) etc naturally increase?

Yes, over time. You have your emergency fund to deal with the unforseeable and to stop you resorting to credit again in future. Of all the things to avoid dipping into, the overdraft is the big one.

1. Yes this is correct. People who've got their financial stuff together do not need to use credit and leave it unpaid, so the theory goes. It is good to be using a few hundred of the credit every month so long as it's paid out in full when you get the statement, it shows you can manage money.

2. What's the question here? Put every spare cent into the loan (so long as there's no penalty for early repayment). The loan repayment will be considered when applying for a mortgage, so if you can knock it out first, you'd have more borrowing power, but it won't necessarily stop you getting a mortgage.

enthusiasticsaver · 3 December 2019 at 10:24AM

I agree that overpaying the loan is a good move both to minimise interest and to increase affordability. A year ago you had £8850 debt and now you have £7000.

To get your finances in better shape you obviously have to change your spending behaviour and start saving. You will need a deposit so my concern is if you have just reduced the debt by £1850 you will need to save a lot more than that to buy a house. Have you addressed the reason for the debt and are you cutting back? Doing an soa on the DFW pages is a good start in getting advice and support.

Graham1982 · 3 December 2019 at 10:28AM

Dear all:

Yes I have addressed the underlying behaviour that was causing this, there is an old post that I wrote on this somewhere but the credit card debt was basically an accumulation of stupid spending when younger.

I had my epiphany moment last year and started getting rid of all of the other debts. I agree I now have the opportunity to get into more debt with my credit card but (famous last words) I won't, I don't need to use it and won't be using it for "emergencies" or otherwise, as of today it is disassociated from my online banking.

Thanks

Graham

[Deleted User] · 3 December 2019 at 10:33AM

To build some good history, rather than just debt reduction, you would be best to use at least one card regularly and clear in full each month.

However, obviously this is only recommended if you trust yourself not to overspend.

phillw · 3 December 2019 at 2:29PM

enthusiasticsaver wrote: »

Save an emergency fund then you would not have needed a Barclays loan for your unexpected bill and you would not have had to pay interest.

If you have debts then you really only want a small emergency fund because you're effectively borrowing your emergency fund now to avoid borrowing in case of an emergency.

Shifting debts only makes sense if you're reducing interest on debts or maximizing interest for credits.

Graham1982 · 3 December 2019 at 4:38PM

Hi ZX81:

I literally have no appetite or need to use the credit card so could you literally buy small items such as crisps or things worth pennies and pay it off?

I understand (now more than ever) that it is about playing the game, would that be playing the game enough?

Thanks

Graham

Consolidation of debts, what next?

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