Would you take a loan out In these circumstances

[LoanyPoany]

Hi! I know to take strangers advice from the internet with a pinch of salt but I just wanted to know what others would do in my circumstances.

I have a some debt which is:
1600 outstanding on a car loan, I pay £150 a month for this
£330 on monzo flex (basically a credit card)
£430 on a Lloyds credit card
£320 on Very
£600 to family member

I am really trying to build my credit rating up. I haven’t missed a payment in 4 years and in 15 months my credit rating will be clear of any defaults which I’m really proud of. I have adhd and bipolar and these can really affect my decisions around money but believe me I am working so very hard to rectify this. DP has a good job but we have seperate finances (always have, always will, my parents were the same and I prefer that). He has savings, investments etc and abour £3000 in debt which he is paying off monthly.

My monthly bills are
£760 joint account
£45 phone
£29 bus pass for son
£60 school dinners (he has gone into high school and doesn’t want sandwiches any more)
£14 professional body membership

I also have a holiday I pay £175 a month to and this is paid off in December. I have about £2500 in savings which I’m very proud of even though I know I should pay my debts off with it, I still want a little buffer.

Lloyds have offered me a loan and I have worked out I can pay off everything I owe (all of the above), consolidate it into 1 payment of £250 a month and have this paid off within 15 months.

i am not sure if this makes good financial sense. My head is telling me yes but I am worried about how it will look on my credit rating taking out a loan although my research shows me that paying on time and showing I am responsible with credit limits improves things (which I am, my current credit limits are 7000 and I’m using a lot, lot less than this)

what would other people do?

thanks in advance.

What's the interest rate on everything?

I forgot some really important information there!

apart from my normal bills I pay bak
150 loan
30 monzo flex
50 credit card
50 very
60 family member

I am a band 6 nurse and bring in approximately 1800 a month

No, I'd just snowball (pay off higher interest first) and work my way down chucking all spare cash at it.

The loan with Lloyds I would borrow 2900 and pay back 3200.

I pay interest on my other loan which is definitely higher than that. I don’t pay any interest on anything else currently

Personally I would use your savings to pay off everything bar the existing loan and then use the money you were paying for them to top the savings back up.

The interest on the savings will most likely be a lot lower than the interest on a loan.

Honestly I would use the savings to pay off the car and then add that 150 to pay off the others in order of higher interest. Then start saving again after that.

I'd use savings to pay off the loan and not bother about any of the interest free ones as there's no benefit. You can build up your savings again every month.

That’s what I was thinking this morning but this is the first time in my life I’ve ever had savings (which I know really aren’t savings as I have debts) but this is the first time I have had a buffer. I look at DP who’s so financially responsible and don’t get me wrong, my bills are paid on time but I definitely do rely on credit (which my mum has always done) and I’m really trying to break this cycle but cannot bring myself to use my ‘savings’.

my life has turned around now but before I met DP I’d been in an abusive relationship including financial abuse then I was a single parent so couldn’t really afford to save anything and missed payments etc, this was when my mental heath spiralled BUT in the last however many years I’ve met DP and completed my nurse training so I am in a much more sound, solid position and this is where I want to make solid financial choices but I just really struggle mentally with that

I agree with the others, pay off the loans asap using your savings, then straightaway start putting the money you were using to pay off the loans back in to your savings. You're paying £340 a month in loan repayments, if you put this into savings for 12 months you'd have just over £4k, so you'll be in a better position in no time at all.

I would take the loan. You say your other payments have a higher interest to pay. You would be paying less a month than you are now and everything would be paid off in 15 months. I know the advice is often use your savings to pay off debt but I understand the feeling of security it gives to have a little in savings. Also; n your case it would be all paid off in the 15 months. The only thing I would say is don't be tempted to leave the £600 family debt! until the other debts are paid. Pay that upfront out of your savings or make sure you are still keeping up the payment to your family member or your plan won't be as efficient. Well done for getting your debt organised op. It isn't easy. 💐

Pay off the car loan.

Save that £150 a month and your savings are built back up in a year.

When your holiday is paid use that money towards the credit cards to pat them off faster.

Personally I’d use my savings and pay off all the debt bar the car. You’ll still have roughly £700 of savings left and all you are paying is your car each month. Which is manageable.

This way you have no debt apart from a car and you can start putting the money you would normally use to pay off your debts back into your savings. Start budgeting and stop over spending.

there is no point having savings if you are in debt!

So your monzo, credit card and very debts are all interest free just now?

There is no way you should be taking out a loan you pay interest on to consolidate these.

If the interest free period is ending soon then you would be better off with a balance transfer card. Money saving expert show you the best deals currently, Natwest is doing one with 0% fee. If you are worried about having too many credit cards then cancel your current one or your monzo card once you have made the transfer.

What is the interest rate on each of your loans?
What is the interest rate on the proposed lloyds loan?

You need to prioritise paying off the highest interest rate loan first. Where possible switch to lower interest rates.

More importantly, you need to change your behaviour going forwards and not take more loans in future. It's good that you have managed to save up a savings buffer rather than needing to take out loans for future emergencies.

Don't take out loans for holidays - save up and book the holiday when you have enough money.

Your phone contract is really expensive!! I appreciate you have it now. But in future I'd buy a cheaper phone, don't upgrade when this contract ends

Definitely don't consolidate. You really don't need to.

When you have a number of scattered debts (but relatively low amounts) I personally think paying off as many as you can is more beneficial - the mental satisfaction of clearing them is worth more than the 20 quid a month or whatever you'd save by paying off highest interest first.

In your shoes I would do this:

Take £1680 of your £2500 savings and pay off Monzo Flex, Very, Credit Card and family member.

You'll then have:
£820 savings
Car loan of £1600 @ £150pm
£190 a month 'spare' from what you paid off

I'd then save that £190 for one month to bump my savings up to a grand. Then plough that £190 a month into your car loan which will be paid off in what...5/6 months?

By Spring you'll be debt free with £1k still in savings and £340 a month to save.

I understand how comforting it feels having a buffer but the interest rates for some of your debts will be higher than the interest you’re getting with your savings. Personally I wouldn’t take the loan and would use £1.5K of your savings to pay off some debts which would still leave you with a buffer of £1K.

I understand that these debts feel huge but they are manageable. I also get that you want to keep your savings.

I wouldn't consolidate. Pay as you are but pay off the smallest debt in its entirety first. Then the next one up and then the next one.

Having a good credit score is just up get more debt so I wouldn't worry about it.

I’d use the savings to clear as much debt as you can (highest interest first), set up a fixed term regular saver for £100 per month to start building savings back up, use the difference between that and what you are currently paying in debt to clear any outstanding debts quicker, then start saving that in an easier access savings account. That is assuming you can afford Christmas without taking on any debt. If you’re going to need some of your current savings for Christmas factor that in.

you can be debt free in a year, with some savings in the bank.

the interest rate on a loan could be higher than you think - if you’re doing your sums based on a ‘borrow £10k for x%’ email, you might find the rate is higher because you’d be looking to borrow less.

As an aside, can you definitely not claim back your professional membership fees from work?

Good luck, it’s not easy getting out the other side of a poorer credit rating, but it’s absolutely worth it (I’ve been there, a long time ago).

I wouldn't take the loan either.

You could pay one debt in full each month so you don't feel your savings are too depleted. I understand not wanting to touch them. The thing with the current debts is you can pay them flexibly whereas a loan would tie you down.
You could pay Very first and get it off your mind.

1500 from savings + the 100 you would pay next month for the car loan.

that leaves 1000 in savings.

then you have 150 per month to pay off other loans

so
£330 on monzo flex (basically a credit card) paid off by Jan (which frees up another 30)

you now have 180 per month to put towards
£430 on a Lloyds credit card - which may be a bit less by then as you are still making min payments too. So this will be paid off by let’s say April.
You then do the same for the very card and you will have that paid by June.
then pay your family member whatever is left to pay
then start saving again.
so by JULY 25, so 9months @LoanyPoany you will have no debts. 1k still in savings and 340per month to save! So you will be back to 2.5k after 4/5months.

or take the loan and you will still be paying it this time next year!

Use your savings to pay off the debt with the highest rate of interest now. I'm assuming that is Very at nearly 45%. Then work your way through paying off as much as you can to the next highest until it is all paid off. It's much quicker to do it this way as you will not be losing so much money on interest, rather you are paying down the actual debt. This is what snowballing is.

Have a look at debt snowball. Keep£1000 in savings and chuck the rest at the debt. Then pay as much as you can off the smallest up to the largest.

You would probably be better off with a 0% interest credit card if you can get enough credit limit to transfer everything on to that, then you're just paying off the debt no interest. Any extra goes in your savings so you earn interest, then at the end of the interest free period pay the remainder off from your savings.
Pay the family member back now from your savings

Thanks everyone so much! You’re all talking so much sense

i have two 0% interest credit cards. They are both with Lloyds and one of the 0% offer ends this morning but the balance is £0 on that.

the credit card with the balance is 0% until next year. I can’t use that to pay off the loan, I have tried but there’s no option to do that (the loan is with monzo)

I think i am going to pay off the loan today. I am paying interest on that which is so silly when I literally have the money in my bank.

i think a lot of it is shame you know, i look at people with savings and I think im 33 and have barely a months salary in savings and wonder where I went wrong. But as I say my mum relied on credit a lot, life circumstances and illness has meant I’ve never really got going and also yeah, living beyond my means!

Taking a loan is really not the solid financial choice in your circumstances, it's introducing interest to sums that you're currently not paying interest on.

If you can't bear to touch your savings then are you making the minimum payment or more on your interest free credit? If it's any more than minimum then drop to minimum and put the rest to your car. How long is your interest free period? If it's short then can you transfer anything over to an interest free card with a longer period?

But paying off the high interest loan from savings is the right call.