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Original poster

Is it a good idea to consolidate debt?

10 replies

horseyhorsey17 · 19/07/2023 11:22

Just asking some advice from the financial gurus on here - not looking for judgement on my financial situation, just advice on most sensible way forward. I have about £4K to pay off on a personal loan (5%APR) and £5K worth of credit card debt and was thinking of consolidating the lot with a personal loan, to reduce my monthly outgoing on this to one manageable sum. At the moment I pay £198 for the loan (which has 2 years left to run) and about £150 for the credit cards, but this isn't paying them off, plus I have a tendency to spend what I pay off on there almost at once. I am not awful with money but separated from husband and bought a house last year (which needed work, as I bought the worse house is the best area and I am in the SE) and sorting a lot of this out ended up being put on credit cards. I have a decent income, but need to get organised as I am definitely wasting money on interest etc.

The best personal loan I can find for £10K to consolidate it all is 10% APR (to be expected with rising interest rates I guess) - which means if I use that to pay off the old loan and my credit cards I'd be paying an extra £2K to the bank, which does make me wince. Payments £250 a month over 48 months. I've paid off debt like this before down to nothing so I do know I can do it. Is it worth it or will I just end up costing myself more money? Wise people of Mumsnet, what are your views.

OP posts:
Dammitthisisshit · 19/07/2023 11:28

I’m assuming the credit card interest is a lot more than 10% so it’s worth moving the 5k you have on your cards into a personal loan. Then do not build a balance up again - it’s one of the most expensive ways to borrow (I have cards but always pay in full every month)

but it’s not worth adding the other 5k personal loan as all you’d be doing is paying more interest on this 5k.

in general, meet all repayments then pay down the highest interest part as quickly as possible

If you haven’t already, it could be worth asking your existing personal loan at 5% if you could consolidate your credit card onto the loan.

MrsDanversGlidesAgain · 19/07/2023 11:30

The problem with consolidating debt is not dealing with the reasons you ran it up in the first place. If it was a one-off for work on a property, maybe, but as you say plus I have a tendency to spend what I pay off on there almost at once you might find that you use the loan to pay off the debts then start spending again because your mind tells you they're 'cleared' and you're debt free - which you aren't, you've just transferred the debt somewhere else. So then you end up with the consolidating loan and new debt. Can you trust yourself not to spend what you pay off?

Original poster
horseyhorsey17 · 19/07/2023 11:30

Dammitthisisshit · 19/07/2023 11:28

I’m assuming the credit card interest is a lot more than 10% so it’s worth moving the 5k you have on your cards into a personal loan. Then do not build a balance up again - it’s one of the most expensive ways to borrow (I have cards but always pay in full every month)

but it’s not worth adding the other 5k personal loan as all you’d be doing is paying more interest on this 5k.

in general, meet all repayments then pay down the highest interest part as quickly as possible

If you haven’t already, it could be worth asking your existing personal loan at 5% if you could consolidate your credit card onto the loan.

Yeah I've done that but can't get the 5% rate now (nothing wrong with my credit history so I assume they're not really offering that rate now).

OP posts:
Original poster
horseyhorsey17 · 19/07/2023 11:33

MrsDanversGlidesAgain · 19/07/2023 11:30

The problem with consolidating debt is not dealing with the reasons you ran it up in the first place. If it was a one-off for work on a property, maybe, but as you say plus I have a tendency to spend what I pay off on there almost at once you might find that you use the loan to pay off the debts then start spending again because your mind tells you they're 'cleared' and you're debt free - which you aren't, you've just transferred the debt somewhere else. So then you end up with the consolidating loan and new debt. Can you trust yourself not to spend what you pay off?

The main reason I've got the debt is from moving house - which is done now, so I don't have the same reasons to run it all up again. I was dumped with paying the full cost for the removal van, which was £3K I didn't have at the time so it went on a credit card.

I am now husband-less in my own house so that shouldn't happen again!

OP posts:
BarbaraofSeville · 19/07/2023 11:34

Another option could be to transfer the credit card balance to a 0% deal - this works out a lot cheaper than refinancing everything to 10%.

Maybe you need to look at your overall budget first - you need to work out what you can afford to pay off your debt each month - you say you have a decent income, but seem to be spending it all each month, so a review of all your expenses might identify savings especially if on paper you have spare money that doesn't materialise in reality. It's also good to make sure you you can afford to pay down your debt - otherwise the CC interest could spiral.

https://www.moneysavingexpert.com/family/money-help/

Badbadbunny · 19/07/2023 11:34

Only worth it if the interest payable over the remaining/new period would be less than if you don't change it.

Sounds like you need to leave the current loan in place if you can't transfer it to a lower interest rate.

Just concentrate on the credit card which will almost certainly have a higher rate of interest than a new/second loan to pay it off.

Concentrate on interest, not monthly repayment amount. That's what matters really. Don't get suckered into thinking you're paying less by paying less per month over a longer period of time - you end up paying more overall if you've not crunched your numbers correctly.

Why not set up a simple spreadsheet to illustrate to yourself how much interest would be payable under the various options and timescales for paying off etc?

BarbaraofSeville · 19/07/2023 11:35

Ah, cross posted. But the advise still stands. Try transferring to a 0% CC and pay down as fast as you can, while keeping an eye on your day to day spending and then try and build up some savings.

Catspyjamas17 · 19/07/2023 11:36

It's good if you can pay less interest- I put all mine onto a 0% interest card and will pay it off before the deal ends next year.

Original poster
horseyhorsey17 · 19/07/2023 13:06

Thanks for the advice everyone - have just done a financial audit, added overpayments for my mortgage and transferred the credit card debt to an interest free card and set payments to pay it down in the next couple of years. I feel cleansed!

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