Advise for a friend Please re: Loan to pay off EVERYTHING

[roboraver]

Hi there

A friend has asked me to post as he wanted the views of this great site (As he is a little bit of a tech no phobe !). He and his missue are currently renting so do not own their own home, they also both work full time (combined salary after taxes per month is around 2,200 GPB) but they have around 20K of debt :o .

 

They have asked me for advice but I only know ablut bank charges.

I was thinking of telling him to take out a consolidation loan to pay everything off and then re-pay the loan per month (About 400 to 600 pm). But they have bad credit history (No CCJ) and only have basic bank accounts (And were refused a loan with there banks).

 

I did mention IVA but they dont want to go down that route and were thinking if they take out the loan and pay all the creditors off they would then have this marked on their credit file as "satisified" and in 2 years time they can then start applying for credit again ? (Maybe another loan with lower interest to pay off the original one thay took out ??? hope that makes sense)

 

Any ideas ?

[Bookworm]

A consolidation loan can work, but only if you are totally ruthless in your money management thereafter. It means closing down the credit cards accounts straightaway, not keeping one "just in case". Overdraft paid off and immediately tell the bank to remove it. All debts scoured clean, not one account left to get in debt with, or they will fall back in trouble, guaranteed.

 

They also need to consider the APR. The loan will be unsecured and not from high street lender, so the APR is likely to be very high. They need to sit down and work out the figures. If they have a smaller loan somewhere with a lower APR, it is counter-productive to then lump it on with the new one.

If they plan to re-budget this in 2 years time, beware the fees that may well load up the exit repayment figure.

 

It is worth considering to get rid of such thing as credit cards etc, where the interest keeps on rolling, and rolling and rolling. Usually not worth it if the sums owed are for fixed amounts, fixed rates.

[roboraver]

As far as I know, they cut up all cards except their basic step account cards ! they did get some advice from payplan and some letters to send to creditors but they just want to stop the calls and just have 1 payment going out (She even mentioned selling some of her shoes at a car boot sale :o )

[Bookworm]

Not a bad idea, as it goes. Car boot sales are getting a bit thin on the ground at the moment, so maybe not... But flogging a few unneeded things on e-bay will help, no matter how little.

 

Regardless of what their decision is, you could print them a copy of this:

 

http://www.consumeractiongroup.co.uk/forum/general-debt/73030-taking-back-control-your.html

 

It's basic advice, but I got surprising feedback on how many people don't even think it through and found it helpful to have things set out clearly in front of them.

 

As I said, it depends on circumstances. For some people, it does work, but you need great self-discipline, for some, it ends up being the biggest stone around their neck. People who are not terribly well organised do find it easier to consolidate, and have only one payment going out. some manage better by dealing with debts week by week. There isn't a one-size-fits-all solution, I'm afraid.

 

As for the phone calls, print them 1/2 dozen of the phone harassment letters to send to each and every one of their creditors. One of my friends was getting tens of phones calls a day, I sent the letters for her (even paid for stamps myself, she was that skint she coudn't afford them) and it has been blissful silence since. ;-)

[roboraver]

Thank you for the info, I spoke to them last night and printed out the info for taking back control which they found helpful. They are keen on consolidating and have already cut up all card etc, now the hard part of finding a loan for them where the APR isnt Sky High (And not using Tenant loans judging by the feedback on here !!)

[powelll]

They would really benefit from in depth advice from somewhere like National Debtline ( 0808 808 4000 ) - they offer free confidential impartial advice and will go through ALL relevant options for your friends - Bookworm is quite right it really depends on their exact circumstances.

 

Generally speaking they need to be VERY careful of consolidating ( again as Bookworm has pointed out ). They will effectively be paying interest on interest and it will cost them more in the long run.

[sequenci]

Bookworm and Powelll with the wise words as normal