Should I take out this loan?

soutermon · 24 April 2019 at 4:29PM

Hi,

I have approximately £14k on a number of cards, as well as £2.5k remaining on a loan and about £7k of Hire Purchase. Credit cards account for about £500 a month, the loan is £250 and HP is £175, so roughly paying out £925 a month.

I have pursued a number of options to try and consolidate the debt (including a Debt Arrangement Scheme which is my last option), but extra borrowing on my mortgage is not viable, and we cannot get more balance transfer cards. I have tried to get a loan at a low rate, but these have been fruitless attempts also.

Today I spoke with Evolution money, and they are offering £20k, but at an APR of 27.16% and a monthly payment of £440 over 10 years. The one thing that bothers me is the higher interest, but it gives me an end date to this nightmare, and with the extra money (estimated I could be at least £350 a month better off), I can pay in extra if I want, reducing the interest paid on the loan. The other positive is that if I come in to extra money (elderly family member is 96 and seriously ill), the money is my own, and not instantly payable to a DAS.

I realise I have pretty much talked myself into it there, but I'd still appreciate any advice people may have, as there is more than likely something I have missed out. I have a tendency to only see the positives in things and overlook everything else.

fatbelly · 24 April 2019 at 4:53PM

The big 'but' here is that if you go down the consolidation loan route you will be paying £52800 over the 10-year period.

I don't specialise in Scottish law but on the face of it a DAS looks a better deal.

So what if you come into money and have to pay your debts? You will only be paying the original sum, not 26k of extra interest

soutermon · 24 April 2019 at 5:35PM

Thanks for your reply Fatbelly.

As things stand, I can foresee managing to pay the loan off in half the time with over payments, whilst still reducing my monthly outgoings by £250. This reduces the interest paid on the loan by about £23k.

Yes, the DAS certainly looks a good option, but ultimately I'm loathe to put myself through something like that if I can do it through more traditional methods, methods which leave my credit rating in a much better position. I also think having to pay a lump sum in would hurt more than paying the extra monthly amount, not to mention the fact I really would hate having to use all of the money from a deceased relative for paying off debts, rather than using it for something which I can remember them by. It also would not make a difference to any payments, but would do if it was put towards a loan, or at least that is my understanding.

RhiBi · 24 April 2019 at 5:38PM

We took out a loan to consolidate debts once, guess what, we still used the cards as we hadn't broken the bad habits. We also believed when we took out that loan that we wouldn't use the cards anymore. Are you absolutely sure that this wouldn't happen to you?

sourcrates · 24 April 2019 at 5:46PM

The other "big but" as mentioned above, is have you taken steps to change your bad money habits ?

You need to stick to a budget, and live within your means, otherwise, as usually happens with consolodation, you will be back here in 12 months time, having run up the debts on the cards again, but now staring bankrupcy in the face.

You call it a "traditional method", i call it a first step to the bankrupcy court, as ive seen it happen so many times, you have great thoughts about how you will pay it down quicker, never happens, you go into these things with the best intentions, but something always happens to rock the boat.

I dont wish to come over as been negative, its just this idea that consolodation will be your savier rarely comes true, its normally a precurser to an even worse predicament.

I agree with Fatbelly, never borrow your way out of debt, far too many pitfalls.

soutermon · 24 April 2019 at 5:50PM

RhiBi, this has been discussed between my wife and myself already. Once a card debt is cleared, it will be cut up and the account closed. We are consciously trying to change our habits, with our monthly outgoings being scrutinized and agreeing that we don't get anything new unless we can pay for it outright.

Sourcrates, is this what you mean by bad money habits?

Money_maker · 24 April 2019 at 5:54PM

Absolutely not. You were still in a debt position 5/6 years ago from a wedding and pregnancy. Now you have a debt problem from buying a home and overspending on improvements. Nothing has changed. Your relationship with money is not good and you could end up paying your debts off like forever.

Try living frugally for a couple of years and throw every penny at your debt.

sourcrates · 24 April 2019 at 6:05PM

soutermon wrote: »

Sourcrates, is this what you mean by bad money habits?

Allow me to list the usual course of events we see in these situations, and we do see it a lot on here, many people choose to consolodate debt as they perceive it to be an easy option without having to face the reality that they are, most likley, already insolvent, or heading that way.

Consolodation just moves the debt sideways, restructures it over a longer period of time, and of course costs you more, the problem we see most often, is that the consolodated accounts dont get closed down, so the OP tends to gradually start spending on them again, it happens a lot, and before long, they have racked up the debt again, but also have the consolodation loan to pay as well.

Your reasons for been in debt in the first place must be addressed, otherwise history will repeat itself, a lot of our regualr DMP contributors consolodated there debts on more than one occasion, until they had what we call their "lightbulb moment" when they realised the only real answer was debt management, and not further borrowing.

soutermon · 24 April 2019 at 6:12PM

Money_maker wrote: »

Absolutely not. You were still in a debt position 5/6 years ago from a wedding and pregnancy. Now you have a debt problem from buying a home and overspending on improvements. Nothing has changed. Your relationship with money is not good and you could end up paying your debts off like forever.

Try living frugally for a couple of years and throw every penny at your debt.

Thanks for the honest reply, the hard truth is much welcomed. I completely understand what you are saying, but I will caveat that with the fact that a redundancy is what lead me to being where I am now rather than better off. I was making inroads into the debt, but then that happened and it all got out of hand debt wise. I'm now in a better position to start paying things off again, and potentially pay off extra every now and again too. A consolidation loan, whilst costing more in the long run, gives me the opportunity to reduce payments and see an end date sooner.

I realise that I am sat here looking like your suggestions are falling on deaf ears, but I truly believe I can get my way out of this without a DAS, and at the moment I definitely need to reduce my payments or risk not paying them.

soutermon · 24 April 2019 at 6:17PM

Sourcrates, that's interesting about the lightbulb moment you speak of. I have spoken to my local councils debt management team, and started the process for a DAS, but not followed through thinking I can do this without it. You have certainly put it in to perspective for me.

Bored · 24 April 2019 at 6:40PM

soutermon wrote: »

Thanks for the honest reply, the hard truth is much welcomed. I completely understand what you are saying, but I will caveat that with the fact that a redundancy is what lead me to being where I am now rather than better off. I was making inroads into the debt, but then that happened and it all got out of hand debt wise. I'm now in a better position to start paying things off again, and potentially pay off extra every now and again too. A consolidation loan, whilst costing more in the long run, gives me the opportunity to reduce payments and see an end date sooner.

I realise that I am sat here looking like your suggestions are falling on deaf ears, but I truly believe I can get my way out of this without a DAS, and at the moment I definitely need to reduce my payments or risk not paying them.

I would suggest completing a statement of affairs (http://www.stoozing.com/calculator/soa.php) and posting it in this thread before you make any decisions regarding next steps. Are you sure you can't afford the current repayments even if you cut back on your other spending?

Should I take out this loan?

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