Debt consolidation advice

[Abuneri]

Hi all at CAG,

 

my question regards debt management. I got a call from today from LLoyds TSB and went in for a chat. The Account manager basically advised me to take out a consolidation loan of £6000 and use to pay off my credit cards - I have 4 of them with total balances of around £5,500.

 

This catch is this loan seems expensive: APR 18.3%, repayable over 5 years @ £150 per month without protection insurance.

 

Total repayable £8885. Cost of interest £2885.

 

Lloyds gave me 30 days to think about it and return it in full if I don't want it.

 

Please advise if it would be right to consolidate and or take this loan.

 

Thank you,

 

Abs.

[KeefG]

Simple question - if you dont take out the loan can you afford to keep up the monthly payments on all your credit cards or are you struggling?

 

Although looking at it another way, if you pay only the minimum payment on your credit cards for the next 5 years will the cards be paid off and if so how much interest would you have paid on those?

 

I'd guess that you'll pay a lot more interest paying minimum payments on the cards than on the loan.....

[Abuneri]

Thanks alot for your quick response KeefG.

 

Repaying mininum payments only on my current credit cards currently costs me £127 per month and I am comfortable with this. However, the interest on them is quite high - the Lloyds cc for example whacks me approx £22 per month in interest on top of the £30 minimum payment per month.

 

I reckon it will take me more than 6 years to clear them off at the minimum payment rate.

 

The dilemma is whether to stick with the credit cards and overpay them instead rather than locking myself in with the loan ?

 

Is this a competitive rate ? Or did Lloyds do the hard sell on me?

 

Please advise.

 

Thanks,

 

Abs

[KeefG]

Its not the most competetive rate out there to be honest, how good is your credit rating? If its good then shop about for a better deal if you want to go down the loan route.

 

Another option you could look at is balance transfer onto a different credit card company/companies and continue paying as much as you can while you have the interest free period with them.

 

Me personally, i'd take the loan or another loan from somewhere else, either way you're 'locked in' for at least 5 years paying arent you and with the loan option you will be saving in the longrun.....however, if you pay the cards off with the loans then the sensible thing to do would be to cut all but one of them up as you dont want to be in a situation of having the loan and full cards in a year or two down the line.

[Abuneri]

Thanks once again KeefG for your response. Appreciate it.

 

My credit rating is not the strongest (FAIR), but it would be wise to shop around for an alternative loan just in case. Will of course insist on quotation searches first so as not to damage my credit rating further.

 

Will also look into switching to interest free credit cards to save on the punitive interest rates I am paying out at the moment.

 

Yes you are right, either way I look at it, I am encumbered with a debt - loan or no loan, just that the loan route as you point out will save me more long term.

 

Cheers K.

 

Regards,

 

Abs

[rory32]

Are there charges on your cards you can claim back to reduce the balance?

 

I would generally advice against a consolidation loan as you can find yourself using the cards again and now have a loan as well. I would try for balance transfers (18% is very high for the loan) on credit cards, but whether you balance transfer or take out a loan you need to cut up your old credit cards and cancel them.

 

You need to also address the reasons why you got into debt in the first place. If you don't you will find yourself in the same position again but with possibly a loan as well to pay off.

[make them aktiv runners]

I agree with Rory.

 

If you really do want to consolidate into 1 loan, do you really need 5 years to repay? It is a long time to be paying for the past and may hinder life's future changes (eg mortgage application).

 

Can you afford to pay more than £150pm? If so why not work out how much you can pay in say the first year, making sure you can pay off one of the cards in that time while consolidating the other 3 (reduce your credit limit though to avoid temptation).

 

Overall leave yourself with sufficient money each month inclusive of a few treats. If not the discipline you would be imposing on yourself may be too much.

[Abuneri]

Thanks alot Rory and Make Active...

 

I am going to a be a rate tart for now and pay off as I much as I can on the my cards. This way I am not locked into to a high interest rate loan.

 

With determination, I should be able to clear this in a couple of years. I am also due a pay rise in August which should help me in this fight.

 

As regards overlimit charges, these were not many as I kept pretty much within limit except Barclaycard, to whom I wrote recently and they knocked off £140 from my balance in charges refunds.

 

Cheers all.

 

Abs

[make them aktiv runners]

Well done Abuneri. Couple of dilemma's now:

 

1) pay off the one with the highest % of interest first, or

2) pay off the one with the lowest balance first, with an empty card they may offer you a 0% balance transfer so you can then switch one of the others onto that card.

[Abuneri]

Thanks Make them...

 

Thanks once again.

 

I will start with attacking the highest interest card and replicate this for all cards until the end, whilst moving balances to interest free cards accordingly

 

Cheers,

 

Abs