Should I use a loan to get out of debt?
Michelle Slade at financial information company Moneyfacts, replies: In the last few years banks have become very strict on who they will lend too.
This means that customers with existing debt looking to reduce their outgoings are finding it much harder to get more competitive deals. If despite your debt you still have a good credit file then you there are a couple of options open to you.
As you point out a debt consolidation loan would not necessarily reduce your outgoings in the short term, but you would have a structured repayment plan and know when your debts would be cleared.
The rate of interest charged on a loan is likely to be lower than that charged for your overdraft and credit card. Sainsbury's Bank currently charge 8.4% and Tesco Bank 8.7% APR for a loan of £5,250, which over a three year repayment term would equate to around £165 per month.
If you live in your overdraft then finding an account with a competitive overdraft rate could be a good option. Customers transferring to the Santander Preferred Current Account are charged no interest for the first 12 month, after which it charges 50p per day, maximum £5 per month.
Alternatively, the Co-operative Bank and Smile charge 15.9% EAR for an agreed overdraft. Before switching, you would need to check that they are prepared to match your existing overdraft.
With your credit card debt you could look to transfer to a 0% balance transfer card. Barclaycard's Platinum with Balance Transfer Visa makes no interest charges for 18 months, while Nationwide Building Societies Balance Transfer Visa offers 0% for 17 months.
During the interest free period your repayments will go towards repaying the debt rather than a large part going towards paying interest. All balance transfer cards charge a one off fee, typically around 2.90% of the amount transferred.
If you have previously missed payments and/or you don't have a good credit file then you may not be able to move your debt to a new deal.
If you are struggling to meet the repayments then speak to Citizen's Advice Bureau or the Consumer Credit Counselling Service who will be able to talk through your options free of charge and offer advice on sorting out your debts. Posted: 9 March 2011, 6:01pm
3. DO NOT LISTEN TO No. 1. Insolvent for 5.5K.......
You need to look at the rates you are paying.
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However did you bother to check on what are the rate of interest will be following on from the preliminary interest-free time period ? The speed may grow to be considerably more than your current card, and also you don’t want to get captured on the incorrect part of the higher APR. Forewarned is forearmed. You will have to prepare yourself – and not a day or two prior to the interest-free time period relates to a finish. Several customers may be amazed to find out that after a preliminary APR provides expires the interest rate may go back retroactively to an APR of 23% and also over and above. Need to make sure not really repay your balance methodically and also end up getting a big stability should the preliminary provide expires, often times customers are trapped spending an outrageously higher APR mainly because they didn’t reduce their card balance in any way. Therefore most importantly, ensure that you intend on paying down which balance prior to the promotional period expires or else you might repent this.
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