Bad choice? still in cooling off period

wilson1972 · 21 September 2018 at 2:58PM

Hi All

Until 6 months ago things had been tough, and i built up about 10.5k debt against an income of 28k (i never missed any payments though).

My situation improved 6 months ago though and i paid off 3k of debt in 6 months...leaving 7.5k of debt (all on credit cards at fairly high interest)

I went into my bank on an unrelated matter and the advisor talked me into a consolidation loan for 7.5k over 4 years, i was easy to convince since i knew minimum payments on credit cards were going up due new laws, and was paying a tonne in interest on them.

Ive chopped my credit cards into tiny pieces :beer: so wont be using them again and the balances are cleared, and to be honest the loan repayment is much lower than my CC minimums and i can manage it fine.

But i am wondering if this was a good move? Would a zero percent card have been a better move?

If careful, i can afford to put another 250-350 a month away on top of the loan repayment- but over-payment wasn't mentioned by the bank, do fees tend to be high for over payment?

Also should i close the CC accounts? or will that hurt my credit file? My only debt is the loan now...but i dont know whether to leave the CC accounts dormant, or close them.

I just want to be debt free really- asap.

Thanks.

MallyGirl · 21 September 2018 at 3:03PM

I would keep 1 CC open if it was me. Either the longest held or the highest limit as both can have a positive slant when your credit history is assessed.
Use it to pay for something small and essential and set up a DD to pay in full so you never incur interest.
You have got the loan now so just move forward. What APR was it?

[Deleted User] · 21 September 2018 at 3:04PM

Not enough information to say.

What were your rates and balances?
What is the loan rate?
Are you able to get a lower rate offer?

The main thing you've done wrong is to reduce the amount you are paying each month. You should be increasing your payments until it hurts.

Then overpaying some more.

Years_of_debt · 21 September 2018 at 3:05PM

There are no fees on over payments on your loan.
Who is it with?
What is the amount and term?
What is the total charge for interest?

It doesn’t matter if you have 0 balance on CC, it’s not going to matter. Having available credit and not using it on a CC can be a good thing. Just cut the cards up so you can’t spend, if you want to close it down do that. The CC isn’t an issue no longer.

You should just focus on paying £250-£300 a month extra on your loan. That will reduce the term significantly. Taking 7.5k over 4 years probably wasn’t the best idea as the interest on that is going to be higher than putting it over 2 years for example.
What is your Monthly loan repayment?

wilson1972 · 21 September 2018 at 3:16PM

Hi All

Thanks, i will definitely over pay by 250 a month if i am not going to be charged for it.

The main credit card with by far the biggest balance was 29.9 (compound equivalent)

The interest rate on my loan is 5.5%

enthusiasticsaver · 21 September 2018 at 4:16PM

I would overpay the loan if you are able to without penalty. 5.5% is not the worst rate but this will be hanging over your head for 4 years and cost you £850 in interest. If you had carried on paying the £500 a month you were using to clear debt the loan would have gone in 15/16 months and cost you around £200 or so in interest. Less if you had used 0% credit cards.

PRAISETHESUN · 21 September 2018 at 4:58PM

Depending on how lenders assess your affordability (debt vs income), you may not be eligible for a 0% card with a high enough limit, or long enough term to make a decent dent in the debt so I think the loan is a good idea - provided you use it to pay off the cards, and shut them down so you no longer get into more debt (keep the oldest one open to show a lasting relationship - which lenders like to see). Overpay as much as possible to avoid paying excess interest

wilson1972 · 21 September 2018 at 8:19PM

^^ Yup ive chopped both cards up, but i will close one account.

After reading my terms on loan (its natwest) it looks like i pay 58 days interest for over payment... thats 58 days interest on the over payment though so shouldnt be a lot

Interesting to read id have payed less interest by just paying the cards off asap though! I was paying 160 a month interest on my cards each month, yes that would have gone down each month, but i just assumed it would be more interest in total than the loan

Moral of the story, do the maths first i guess.

Thanks again all.

Bad choice? still in cooling off period

Comments

Categories

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