Getting myself debt free - consolidation?

ryanm8655 · 5 June 2019 at 1:29PM

Hi all,

Have managed to get myself into a fair chunk of credit card debt through 0% deals and generally living a plush lifestyle.

Having completed a spreadsheet my total debt is £28000 almost exactly. A number of the 0% deals are ending, at present £8k is charging interest and a further £4.5k will charge interest in July followed by a further £4.5k in August. The rest end next year and the year after.

My total monthly income after tax, pension etc. Is £2930.

Monthly outgoings: £1700

Rent - £950 (inc. bills)
Shopping (food/toothpaste etc.) - £200
Minimum payments on all cards - £550 (some of this will be decreasing balances but not made the spreadsheet complex enough to work this out)
Mobile - £30
Haircuts - £20 (live in London, barber is about £15 but rounded to £20)
Train home to visit family - £50

This leaves me £1230 for clearing down the debt and other miscellaneous expenditures like birthdays etc.

I’m considering budgeting £500 a month for the occasional meal out/pub trip though I appreciate that will probably be frowned upon. But it’s to try and make this plan sustainable.

The interest rates on the cards range from 20% to 27%, so the strategy is to put all my funds into the higher interest rate cards first while paying minimum on others. Though once card does renew the 0% offering every month, so am planning to pay that off and transferring another balance to it to lower the overall interest.

Given the interest rates I am also considering a loan to clear the interest accruing balances if the interest rate is better.

I have been looking at loans but the eligibility test doesn’t look promising with them all showing minimal chance of acceptance. I move a fair amount and am not yet on the electoral roll at my new address, plus my debt level obviously makes me a high risk (I don’t own a house). Having played around on Zopa the best rate I managed to get was 16% on £10500 over two years paying around £550 a month back (one year was a higher rate for some reason). This would allow me to clear the interest accruing debt and get it down to a lower rate (including transferring a chunk onto 0%). I can then save a chunk of money towards clearing the other 0% cards as they fall due (or is it better to just clear them down? I’m thinking as an economist and not considering the potential impact on credit rating etc. Of clearing down the 0%s early).

I’m also planning to move into cheaper accommodation that’ll save an extra £200/month after bills and rent.

Does this strategy sound reasonable? Is there any point in attempting to apply for a loan with my bank or will it be worse than Zopa? Any other way I could go about things better?

Advice much appreciated.

RecentPost · 5 June 2019 at 1:33PM

I do not think the consolidation will help you in the long run as its still an increase of debt.

Have you considered other options I.E IVA/DMP

Socajam · 5 June 2019 at 1:36PM

You are £28000 in debt and you are:

considering budgeting £500 a month for the occasional meal out/pub trip though I appreciate that will probably be frowned upon. But it’s to try and make this plan sustainable.

That's when I stopped reading. Good luck

-taff · 5 June 2019 at 1:45PM

Consolidation rarely works because it never addresses the issue that causes the debts and as you are now finding out, your credit rating is nowhere near as good as you thought it was.
You owe 28,000 pounds. You earn 2900. The ideal thing to do would be to prioritise your debts however you like, [as you have already decided to pay off the higher interest ones first] and decide whether or not you want to be coming back here in 12 months time saying, my debt is now 56,000 pounds, what do I do?
I would be very very worried if I owed anywhere near that amount of debt because your job, unless you are in the armed forces, is not secure, whatever you think. You could lose it tomorrow and then what will you use to pay this debt off?
You are still thinking that spending 500 pounds a month on the odd treat is a reasonable thing to do because you earn a good wage, but you have already made a lot of bad decisions to get inot that amount of debt to start with.
Go through your beudget, see exactly what you're spending money on, save it where you can, post up your SOA if you ned more help with it, and instead of spending 500 on the odd meal [wth?!] put it into an emergency fund.

ryanm8655 · 5 June 2019 at 1:59PM

Without disclosing what my job is, it’s secure. Could get made redundant but highly unlikely and payout would be enough to clear everything.

Why isn’t a loan a good idea if the interest rate is lower? I’d be closing down the cards afterwards so wouldn’t have access to more debt so my debt wouldn’t increase. (Genuine question)

I get the gripe with having £500 spending money but I live in a flatshare and am young so if I don’t go out I’m stuck in my room, which isn’t good for mental wellbeing. I’m trying to make this plan as sustainable as possible, not get debt free as quickly as possible. Otherwise I could eat noodles for a year and not leave my room and it’s be gone in a year. I have lots of weddings and other big events over the next two years that I need to plan for. Though I guess putting the money into an emergency fund could be used for that.

Considered a debt management plan but given my debt repayments are affordable not sure I’d be eligible?! Also concerned about it impacting house buying prospects in 4/5 years time.

Thanks.

Willing2Learn · 5 June 2019 at 2:43PM

ryanm8655 wrote: »

Why isn’t a loan a good idea if the interest rate is lower? I’d be closing down the cards afterwards so wouldn’t have access to more debt so my debt wouldn’t increase. (Genuine question)…

Because you are currently living beyond your income and have said nothing to indicate that you have learnt from this, so that you can address your debts. How do we know that you won't be tempted to keep the cards and double your debt? A lot of people fall for that trap...

ryanm8655 wrote: »

Considered a debt management plan but given my debt repayments are affordable not sure I’d be eligible?! Also concerned about it impacting house buying prospects in 4/5 years time...

A DMP is an informal arrangement to pay back your debts when minimum repayments are unaffordable. You can afford to repay your debts if you were to create a workable monthly budget and plan...

Why not have a go at setting yourself a budget. Complete an SOA (Statement of Affairs) and then post it up here. We can then see your comprehensive plan and advise accordingly. The link for the SOA is below:

http://www.stoozing.com/calculator/soa.php

-taff · 5 June 2019 at 2:52PM

ryanm8655 wrote: »

Without disclosing what my job is, it’s secure. Could get made redundant but highly unlikely and payout would be enough to clear everything.

You can't rely on that, even the police get made redundant now. And redundancy payments are not guaranteed.

ryanm8655 wrote: »

Why isn’t a loan a good idea if the interest rate is lower? I’d be closing down the cards afterwards so wouldn’t have access to more debt so my debt wouldn’t increase. (Genuine question)

You cant get that loan so put it out of your head. It's not a good idea because people don't learn. They keep their credit cards open , 'oh, its only for emergencies' - only emergencies to crop up every month. Unless you address what got you into debt and resolve not to do that anymore, would a consolidation loan work. You know you're in debt, but you think it's ok because you earn a lot and are currently managing monthly payments.

ryanm8655 wrote: »

I get the gripe with having £500 spending money but I live in a flatshare and am young so if I don’t go out I’m stuck in my room, which isn’t good for mental wellbeing. I’m trying to make this plan as sustainable as possible, not get debt free as quickly as possible. Otherwise I could eat noodles for a year and not leave my room and it’s be gone in a year.

Again, there's no need to do that but expecting to keep living the lifestyle that got you into the debt is not going to change your thinking about the debt.

ryanm8655 wrote: »

I have lots of weddings and other big events over the next two years that I need to plan for. Though I guess putting the money into an emergency fund could be used for that..

It could, or you could have a savings account and budget for those events as well as an emergency fund, because you may get thrown out of your flat, you may need to spend a large amount of money on something you haven't budgeted for.

ryanm8655 wrote: »

Considered a debt management plan but given my debt repayments are affordable not sure I’d be eligible?! Also concerned about it impacting house buying prospects in 4/5 years time.

Thanks.

There's no point in a DMP or otherwise because you can service your debts, you don't have the requirements for a DRO and there's no point going bankrupt.

ryanm8655 · 5 June 2019 at 2:56PM

Willing2Learn wrote: »

Because you are currently living beyond your income and have said nothing to indicate that you have learnt from this, so that you can address your debts. How do we know that you won't be tempted to keep the cards and double your debt? A lot of people fall for that trap...

A DMP is an informal arrangement to pay back your debts when minimum repayments are unaffordable. You can afford to repay your debts if you were to create a workable monthly budget and plan...

Why not have a go at setting yourself a budget. Complete an SOA (Statement of Affairs) and then post it up here. We can then see your comprehensive plan and advise accordingly. The link for the SOA is below:

http://www.stoozing.com/calculator/soa.php

Thanks for the reply but I am serious about getting rid of the debt, there are spare funds on all of the cards which I haven’t used. My debt hasn’t increased in the last 6 months, I’ve just not been paying more than the minimum payment. I don’t even know the pins for the cards, they’re all in a box in a cupboard somewhere, don’t even think they’re activated.

Yeah, that’s what I had read but the minimum payments are affordable.

I’ve put together a spreadsheet of my income and expenditure as well as different credit cards and a running total for the debt accruing interest month by month. But will take a look at the SOA too.

GN_TDCI · 5 June 2019 at 3:04PM

Consolodation loans, as mentioned, rarely work.

You say you are young, and you have £28,000 of debt with no home. It's a lot of unsecured debt, which you intend to roll into one larger sum.

The reality is:

Lenders won't want to give you enough money to consolodate all your debt into one. You're a finanical risk on paper by your own admission.
You are unlikely to have the credit capacity to take out the large loan on an unsecured basis to pay off the other debts.
The loan value is very large for an unsecured debt meaning the APR would likely be higher than you expect.

Consolodation loans also, historically, fail to teach the lender anything. You consolodate, then you run into your old ways and spend your left over cash too quickly, then you take out a small card here, or there, or you spend on the cards you have becuase something comes up. Before you know it, you're back to square one.

The real solution is to set your spreadsheet up to either work out the APR showing your payments and interests - or, even easier and better, figure out your minimum payments and pay a set amount.

For example, you can use the BarclayCard Payment Calculator for a rough indication of what setting a fixed amount would do to your card.
Lets assume you have £2,500 on a credit card with an APR of 27%. Paying the minimum payment only would take around 27 years to pay off. The current minimum would be about £75 a month. Set that minimum to £100 and that will take just 3 years to complete.

Since you have the residual £500 a month for "spenders" then I would consider putting that into your debts.

At the very, VERY lest you should be putting £250 a month of that into your debts to fix the repayments into affordable payments that clear the balances.

Also, don't be afraid of paying the smallest debts off first - even if the APR is lower. Sometimes you can clear off debts quicker by killing the little debts first and then ploughing that money into the bigger one.

ryanm8655 · 5 June 2019 at 3:20PM

-taff wrote: »

You can't rely on that, even the police get made redundant now. And redundancy payments are not guaranteed.

You cant get that loan so put it out of your head. It's not a good idea because people don't learn. They keep their credit cards open , 'oh, its only for emergencies' - only emergencies to crop up every month. Unless you address what got you into debt and resolve not to do that anymore, would a consolidation loan work. You know you're in debt, but you think it's ok because you earn a lot and are currently managing monthly payments.

Again, there's no need to do that but expecting to keep living the lifestyle that got you into the debt is not going to change your thinking about the debt.

It could, or you could have a savings account and budget for those events as well as an emergency fund, because you may get thrown out of your flat, you may need to spend a large amount of money on something you haven't budgeted for.

There's no point in a DMP or otherwise because you can service your debts, you don't have the requirements for a DRO and there's no point going bankrupt.

Thanks for the response.

My job is more secure than a job with the police and my pay would be guaranteed in the unlikely event I was made redundant. But I get your point, perhaps I’ll have an accident and be unfit for work for two years or some other shock event...

Get the point re: loans too. But if I do just chop the cards up and close them then it makes financial sense in terms of lowering the interest rate. Not sure why I won’t be able to get the Zopa loan though? The interest rate is high but lower than my cards.

I don’t think my level of debt is ok, it’s ridiculous and means I won’t be buying a property anytime soon. I may come across blas! but I’m not, I wish I’d made alternative choices but the fact is I didn’t so all I can do is fix it now...hence making this thread. But I’m not going to get depressed about it, what is done is done and depression only leads to buying things to make yourself feel better... I appreciate your point re: credit cards...I’ve got myself debt free in the past and fallen back into the trap having not closed down cards and had a couple of lavish holidays...I’m determined that that doesn’t happen again. I’m older and wiser now and most importantly happier...

Definitely won’t be living the same lifestyle, at the moment I pay my minimum payments plus a little bit on a couple of cards. My current lifestyle is just about within my means and £500/month would be a significant compromise lifestyle wise, it really doesn’t go far in London. But I accept and understand your point...long term I want to save and get on the property ladder so will have to compromise on lifestyle for that too. Just want something sustainable to start with, which also allows me to make a good debt in my debts. I’d be happy to knock £10k off this year but ideally would like to do £12k.

Fair point re: emergency fund. The only reason I wouldn’t bother with a savings account is that the interest rates are poor and I’d be better off ploughing the funds into debts as the interest rate is higher. But perhaps it is worth considering to get myself into the habit of saving.

Apologies if I am coming across as a nob, honestly not meaning to be but have thought about things a lot before coming here. I appreciate all advice/opinions.

Willing2Learn · 5 June 2019 at 3:31PM

ryanm8655 wrote: »

… Definitely won’t be living the same lifestyle, at the moment I pay my minimum payments plus a little bit on a couple of cards. My current lifestyle is just about within my means and £500/month would be a significant compromise lifestyle wise, it really doesn’t go far in London. But I accept and understand your point...

I do not agree with your assessment of the situation. How can you say your lifestyle is just about within your means when you are £28,000 in debt?

ryanm8655 wrote: »

… Apologies if I am coming across as a nob, honestly not meaning to be but have thought about things a lot before coming here.

I definitely don't think you are a nob lol...I do think you are being naïve...we are just trying to help make you a bit more savvy...

I think a workable SOA that reduces your level of debt would be a massive step forward for you.

Getting myself debt free - consolidation?

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free