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consolidating debt - good idea?

(12 Posts)
pickyvic Sun 05-Jul-09 22:19:47

hi

basically since we moved house we have got ourselves into the mire money wise - we sat and did a budget today and looked at our finances really hard - we do have enough but we are just not budgeting and weve gone deeper and deeper into debt - so now we have a loan, credit card, overdraft etc. its not major league debt but debt enough and i cant see a way out, and were paying through the nose in interest rates, we just teeter on the edge of the overdraft all the time. so im thinking of getting a 10k loan, to pay off the lot. have drawn up a very manageable budget plan (went to moneysaving expert website,) thing is it s gonna be a mill stone for a good few years but i cant see any other way of getting out of this mess.
just wondered if others thought it a good idea or not? obviously credit card will get cut up so no temptation to do it again but on this budget plan we could actually save 2k a year.(into a savings account - it would pay for luxuries like hols/xmas/car service etc) weve just been really careless and i think were gonna have to pay for it now by flogging ourselves for a few years.
im starting to panic a bit and need to see an end to the debt - i think this is the only way, plus im job hunting for a full time job madly which would also really help.
whats the verdict? anyone else done it?

shonaspurtle Sun 05-Jul-09 22:25:07

Things to think about:

Are you exchanging unsecured debt for secured debt (ie secured on your home). If so, you need to be absolutely sure you can keep up the payments as the consequences are far more severe than if you defaulted on a credit card.

Do you really, hand on heart, think you will be disciplined enough not to re-build the debt and end up owing twice as much?

Watch out for loans where you borrow a sum of money at what looks like a lower rate but over a long time - very, very expensive.

If you've looked into all this and stick to your budget then it can work ime.

pickyvic Sun 05-Jul-09 23:25:34

not swapping it for anything dogdy - its still unsecured.
total repayment is 12k with 10% of the interest paid back at the end. its with HSBC.thats borrowing 10k. interest is 8.7%

i know its expensive but somehow ive got to get this under control - at the min im paying from my wages about £350 per month - by taking a loan with my bank im cutting that to £200. problem is its 5 years but i really cant see any other way out of this mess!

this month i went overdrawn on both my bank accounts incurring massive charges. we simply have to stick to the budget but its quite a generous one, dont think we will have too much difficulty with it. weve just got to be disciplined. its got to the point where i dont sleep at night worrying about money. this would be one way of knowing the debt is being sorted and not having to sell the house.tbh im wishing id never moved house - we bought during the boom and the mortgage is expensive, that and the household bills mean my hubbys wages dont see much change. mine is for shopping and spends such as car etc, but its mine thats slipping deeper and deeper into the red. taking this loan means that my our car isnt gonna get changed for another 5 years, but at least an end is in sight.
ive been daft about it really - should have got a much better grip earlier but i just couldnt be bothered to worry about it all the time. now paying the price.

thanks for the insight tho. im really dreading the thought of having this for the next 5 years but i cant see any other way. hard lesson to learn! a full time job would really help so im looking.

trixymalixy Mon 06-Jul-09 14:38:32

It's a good idea if you are disciplined enough to cut up the credit cards as you will be paying a lower rate than the credit cards and overdraft.

lou031205 Mon 06-Jul-09 16:59:13

Two things that had we realised would have prevented us going bankrupt:

#1 - It is very rare to get consolidation loans that don't increase your overall debt.

#2 - You will only get out of debt if your spending is less than your income.

#3 - Lower payments normally mean that you are paying mostly interest charges, so your balance isn't increasing.

It is so easy to keep 'consolidating', but unless there is a radical change to your lifestyle, you will be consolidating in 1 or 2 year's time, until one day you are told 'no'.

pickyvic Mon 06-Jul-09 20:19:41

hi - thanks for that.
its something we have thought carefully about. its not actually increasing our debt - we have the same outstanding its just spread about, a 6k loan, a credit card, a next account, it tots up to just under 10k. the debt is going to be repaid at £200 per month with a very carefully worked out budget plan. ive never consolidated before, but we incurred £105 worth of bank charges last month. basically we have spent 3 years doing up a house and that pushed us into the red, we did the budget thing on moneysavingexpert.com and we have more coming in than going out - we just used c/card etc to do up house when we got surprises - like having to fully rewire at 2k. the budget is very do-able. not too painful, but if we dont get this loan we are at a point where i cant see how else to pay it back at im paying out about £350 per month as we are which we cant afford with the overdraft aswell.

its either do this or sell up and rent and im loathed to drop off the property ladder. there is no way we can do this again. the credit card will be cut up and my next account closed. everything else will be paid for in cash. im planning on going weekly to draw out cash which will then be distributed into tins - one for clothes, one for spends, one for pet costs, shopping, petrol. personal spending, kids pocket money etc etc. that way when its gone its gone and the bank will only be touched once a week. it used to work for us before we moved, it will have to again!

nametaken Mon 06-Jul-09 20:40:25

Moneysavingexpert recommends paying off all debt before saving. You say your new plan will allow you £2k savings to spend on luxury but that money would be better put towards paying off your debt.

Have a really really good read of MSE it has changed my life completely. All my worries have settled now and although I am still in debt, it is manageable and I feel calm - I took the recommended MSE route by starting to pay off the smallest debts first and (a really helpful tip) getting interest free credit cards for 9 or 12 months and pushing as much money as possible onto this.

I have reduced my total debt from 17k to 3k in 16 months by being the most frugal person ever to walk this earth grin and will be debt free by November. I have gone cold turkey and cut absolutely EVERY NON ESSENTIAL out of our lives, and actually, I've found that I can live just fine without them. I am so happy I can sleep again at night and once this is paid off I am gonna start saving again. What a relief it will be.

Please have another really good look at MSE - especially the chat forums, and "debt free wannabe" - they are so helpful.

Good luck. You can do it.

LIZS Mon 06-Jul-09 20:50:13

Take independent advice from CAB or CCCS before doing this. It rarely pays long term to swap one debt for another. If by making cutbacks you think you can save money then you are better putting that towards paying off existing debt. They may also be able to have some of the interest frozen.

ToughDaddy Mon 06-Jul-09 20:55:44

Agree with Nametaken- you shouldn't be saving for luxuries but considering paying off your debt faster.

When consolidating your debt check that the overall interest rate is lower than existing and that you aren't simply extending the repayment period.

Check also that there are no early repayment penalties.

Depending on the mortgage type and the lender, adding it to your mortgage could be the cheapest waqy to consolidate BUT you then have to ensure that you don't continue the overspending habit: consider a year or two of local/stay home holidays- the weather in the UK is very nice this year so consider house swap or visit friend or something like that for example.

best wishes

pickyvic Mon 06-Jul-09 21:26:21

thanks. ill look at that website. we dont go abroad - only one hol per year in this country. refuse to add the debt to the mortgage - its already nearly £700 per month so that could be lethal for us - would certainly end up losing house.
the reason for the saving in the other account is i have 2 kids - would need something for christmas/birthdays and car maintenance etc without using a credit card. ive already said its going to be a frugal xmas thsi year but we have no family, they only get presents off us. they arent spoilt but without something put aside theyd get nothing at all. also need the car - that money will be for servicing and MOT etc. but i agree if i could use it to pay off debt quicker then i should - but i really dont want to be in a position where i am tempted to rack up another credit card when xmas comes or when the car needs work. i thought id avoid temptation. i need to clear the accounts to start again. my aspie son wrote a computer programme and using a modified sim card was using my bank account to automatically top his mobile phone up - he used over £300 before i realised, so there is no buffer, i need car servicing and that account went overdrawn incurring huge bank charges. ive panicked. ill slow down and have another look but i dont want to add it to a secured loan on my house and i cant save while im in debt all the time - im robbing peter to pay paul.
ill take a look at that site before i sign anything. ta all.

TDiddy Mon 06-Jul-09 21:46:17

understood. But keep an eye on the interst rate and not just how high the monthly payment is.

lou031205 Tue 07-Jul-09 10:15:27

If you google snowball calculator, you can see how you might be able to reduce debts without consolidating.

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