to feel that solving debt with more debt (ie a loan) is not a good idea?

[MrsSeanBean]

I have accrued an overdraft of £1,200 and would prefer to address this by controlled budgeting / reductions in spending over the coming months, rather than the instant fix of increasing the amount of another loan we have.

The bank (they would, wouldn't they?) and DH seem to think the loan option is a good idea.

I think it is mad.

I know I can vastly reduce or eliminiate the overdraft in about 4 months and in April we will be £400 p/month better off anyway.

If you work out how much in interest you'll pay on a new loan versus the 'cut back' approach and show it to DH he'll probably forget about the loan idea

yanbu, loans aren't the best answer but tbh banks are n't currently out to loan money freely so must see you as a secure proposition - they really want to attract more investment first.

It totally depends on the situation - DP had outstanding credit card debts of around £6000. The interest alone was crippling. So he got a loan, killed all the credit cards (ripped them up too) and it's much more manageable. But if it's relatively small and you think you can really smack it down in a few months, then it's unlikely to be cheaper doing it with a loan.

Although, I will say - reassess after a month or two as I've felt in the past that with a bit of cutting back I can get rid of an overdraft but somehow, the cutting back doesn't happen....

I always want to throw something at the tv screens when I see the adverts offering just this - a loan to pay off debt.

I can understand how it can be a good idea to consolidate a number of debts that you can't afford to service into one bigger, longer-term one that you can, but this isn't the situation that the op is in, so unless the interest on the loan would be substantially cheaper than the interest on the overdraft, then I can see no advantage in this.

If I can have a little rant - what REALLY ticks me off is when the adverts suggest adding to your indebtedness because you deserve a new kitchen/car/family holiday. Newsflash - if someone cannot afford to pay the debts they have, how on earth can it be a good idea to increase their debt by thousands of pounds???

I'm just hoping that the credit crunch will stop these companies preying on susceptible individuals. Not you, MrsSeanBean, I hasten to add.

I'm with Ilkboo - doing the math often generates the desired results. Looking at the actual numbers may help your DH see your point of view.

On the other hand, DeckTheHalls raises a good point. The cutting back has to happen. It can be hard to do.

Sunnygirl - thanks for your little rant. It always gets me angry also. Just as an aside - during our time in London, we managed to become debt free. We lived completely within our means. We lived very simply and frugally. We paid off all outstanding loans. But, when we recently moved back to The States, we had trouble getting a loan because we had no debt. So, to buy our house we had to take a "high risk loan." What kind of nonsense is that?

That sounds utterly ridiculous - are they honestly saying that because you are careful with your money, you are a poor lending risk????? Unbelievable!

Depends. We've done it before. Mainly when there have been several loans on different rates of interest. If you can set it up without a big fee, the rates are lower and it will make paying of the debt more regular and simpler, I don't see a problem with it.

poetmum - silly isnt it, dh hates credit cards and will always save up and then pay for it in cash, so he has never owed money and was told he was a bad risk as never been in debt

think you have to work out how much interest you will be paying on your loan, compared to an overdraft

problem is, with an overdraft, is once you are in it, it is very hard to get out of it,as you are poor at end of month, so you use your overdraft, when you get paid, you pay off your overdraft, only to be back in it 2/3 weeks later as you have no salary left

MrsSeanBean - yes, you are right with this one.

The first time I had an overdraft and the bank put me under much pressure to turn it into a loan. I wasn't confident I could pay it off so I agreed - still paying off the blardy thing years later.

Then I ran up an overdraft again, and actually despite the pressure I said no, stopped spending much and paid it off within a few months.

Do it, pay it off without going for the loan. Really.

OrmIrian - I'm sorry if I offended you - consolidating debt/loans for the reason you outline is a sensible thing to do - as is consolidating loans so you can service the loan and still afford to live so that you don't get into even more debt.

My only beef is with the companies who suggest that, whilst you are taking out their loan, why not take out a few grand extra and treat yourself to the holiday/new kitchen/new car that you deserve. All that does is increase the debts for people who can't afford it.

Yes Sunnygirl, that's what they were saying. We pointed to several debts we'd paid off satisfactorily...car, student loans, home, etc. They said, because we didn't have any current debt, we were a poor lending risk. Fortunately, they are now begging us to refinance because high risk loans aren't selling anymore because of the financial mess. So, we're going to make them eat a lot of interest and a big, fat slice of closing fees. (Don't mean to hi-jack. Carry on.)

You didn't sunnygirl

MrsSeanBean, I think you're right to try and give the cutting back a go - good luck.

YANBU. If you could'nt make changes and were not getting £400 p/m from April then I would have said the loan would be a good idea.

Blondeshave - Overdrafts are truly sneaky. When we opened our account, they asked how much overdraft we wanted. We said none. A few months later, I was feeling skinned, so I took it. After two months, I began to see just how tricky they were. They get you going in a cycle and keep raising your limit. So, I paid down every pound and stopped using it. We had a lean no frills month.

MrsSeanBean, I applaud your plan to just be done with it on your own terms rather than get dragged further in.

We took out a 9k loan a few years ago. We were buying a new car for DH, and also added on the amount of our outstanding credit cards. We'd been doing balance transfer acts for years, but kept getting charges for late payments as well as the interest charges. They weren't going up, but they weren't going down either. For us a loan meant that we had to pay it off each month, and now 30 months later we're almost debt free. However, that was a larger amount of debt. For what you are proposing, I would probably try and forgo a loan. We did this when we stopped using our credit card and went back to just debit cards. We only spent from our debit account and paid off the credit card bill for the month. It was tough, but we did it, and I much prefer being away from easy credit.

The problem with overdrafts, as flightattendant and poetmum have mentioned, is that once you have paid them off with what I call 'easy money' (a loan) then you are tempted to use the facility again as you kid yourself you are 'debt free', (loans oddly, somehow feel like a normal monthly outgoing rather than an actual debt). My aim is truly to tighten my belt and spend less each month, incressing the margin of 'spare' money. I honestly think this is the best way to deal with it.

I am going to open a cash book and reconcile my balance daily! Boring but guaranteed to reign me in.

It's appalling to hear that people have experienced problems getting credit simply because they have never been in debt!? They would surely be the most responsible people to lend to. Astonishing.

After my postgrad degree i had a big overdraft. I did the calcs and worked out how much i could pay off a month and i got a loan for the whole amount on a fixed rate with fixed payments and paid it off and never ran up an overdraft again.

For me it was a good tactic as the amount was fixed each month and HAD to be paid, unlike paying back overdraft which can be a bit casual.

I find that once you've got a bit of an overdraft it's easy to let it drift into a bit more... but if you have none and are in credit then it's easier to keep in the black as the zero line is a more clear line. I know that's not entirely logical but it is my psychology

Good for you MrsSeanBean! We try to live simply. But, it can be really hard when it is a choice. For me, it is always that DS "ought to have" this and that. (Especially because we are home educating.)

Well, I had a wake up call the other day. We visited friends who really do live simply...mostly homemade prezzies for Christmas, bake their bread every other day, rarely eat out, make most of the educational games for their children...you get the picture. I sat down and had a good think. I could being doing a lot better.

We did this when DD was young. It caused such a lot of trouble because she was in a preparatory academy. All of her mates he parents who were stretched to the end of their credit limit. And there we were trying to be financially responsible. The teen years were hell.

So, I'll be with you in this new year, MrsSeanBean, it's time for me to tighten up a bit around here. And get refocused on need versus want.

I would ONLY take a loan from the Bank where the OD is, for NO MORE than the amount of the OD, if the rate is better.

I have worked in Banks for many years and we often structure OD's to Loans to avoid OD charges (which far outstrip any interest poayments). Some loans allow flexible or over payments.

But Consolidation loans are a total No-No unless the interest rate & terms are better (eg cutting up Naff credit cards) and taking a Bank loan at a lower rate.