Am I doing the right thing?

[ElaineLL1]

Hello everyone.

I need to check to see if others think that this makes sense....

We got into a lot of debt over the course of about 5 years when our income dropped massively. We are now in a much better position income wise, and it's now time to clear the debt asap. Unfortunately our credit scores are not great and this prevents us from getting any 0% deals, however this should change as we continue to repay the debt

I have two credit cards that are an issue. One has a balance of 5K with an apr of 32% and a catagloue account with a balance of 3K with a shocking 50% apr. The minimum payment on these two accounts is ££380. Much of this goes on interest, and if I only pay the minimum then there is not really any end to these debts.

I have been offered a loan that would pay off both of these accounts. The loan isn't great at 19%, however it's significantly less interest than the current card apr's and there is also an end date ( 5 years). The monthly payment is £210. This means that I will repay £12600 in total which isn't great, but is considerable less than I will pay if I continue to pay the card minimum payments.

My plan is to pay £380 instead of the contractual £210 loan payment. I have checked and I am allowed to do this. This will clear the loan in less than 4 years and save a lot of interest.

Am i doing the right thing?

I should add that our debts were accrued a while ago and we have been living frugally for a while now, with a much better financial attitude.

Can you get an interest free credit card and move both to that? If you can, and pay off £380/month your debt will be gone in 18months. But any move would be better than what you are currently doing.

@Ohsugarhoneyicetea

Clues in the post, end of second paragraph

Makes sense to me to get a loan paying less interest and over pay

Can you also repay early if, at some point in the next few years you can get an interest free card as you think you may?

Most debt advisors advise not to take on additional debt to clear ongoing debt. The reason is that statistically most people end up in more debt.

You could increase the payment of the highest interest account by as much as you can. Just an extra £50 a month will make a dent in it and you will clear it much more quickly, bearing in mind the more you pay, the less the interest added on to it. The alternative is to increase the payments to the debt that is the least. Once that debt is paid all of that payment can then go to the remaining debt. So you would be paying 380 plus extra you can afford against the remaining debt. You will clear it much quicker that way. Once your credit rating improves try for a 0% cc again.

If you will commit to clearing the loan within 24 months, then I think it is fine.
4 years, no. You need to get intensive about paying off debt. Sell stuff, work lots, do everything possible to increase income and decrease expenses.

The other way to do it is to pay over the minimum on the biggest debt, so if the minimum on that was £170 then pay £200.
Then pay as much as possible as quickly as possible on the smallest debt until it has gone, then pay as much as possible as quickly as possible to the remaining debt.
Still with the aim to be clear of debt within 2 years. Really challenge yourself, otherwise it will hang around for a long time.

Yes, the interest rate is lower, so it is the right thing to do, with the caveat that you must close the credit card and not run up any more debt. But it sounds like you know not to do that now

Sounds like a plan but please do cut up the card and close both accounts once they are paid off

I think if you’re going to cut up the cards and pay the loan off quicker then this is the best thing to do. How long would it take you to pay the credit card off at the same monthly payment? A long time by the sounds of it, so to me this is a no brainer, as long as the cards are never used again