Debt Consolidation Loans

[Minnie]

My husband needs to do an IVA to cover his £46k debts. However, to give this more of a chance of being accepted it has been recommended I do a consolidation loan to cover my own debts even though all my debts are paid and up to date.

Has anyone any experience of a debt consolidation loan - was it a good thing; because the rate is variable did it ever increase beyond being manageable thereby defeating the whole purpose of why you took out a debt consolidation loan in the first place?

On paper it seems to make sense as it would reduce my monthly debt expenditure from £900 to under £500 but I am concerned about the rate being variable. I understand the rate may be subject to interest rate rises from the Bank of England but can companies who offer debt consolidation loans just increase the rate for no apparent reason or for what they may deem 'market conditions'?

My biggest concern is the rate varying to a level over the loan period that does make it unmanageable meaning not only I would be back to square one but also I would then be risking the house.

[Adam Davies]

Hi
Who has advised you to do this,is it an IVA provider ?
A consolidation loans interest will move up,generally in line with the base rate but do look at the t+c of the company involved.
However you need to think carefully about turning your unsecured debts into a secured debt over a longer period and be sure to cut up those credit cards and take no more loans otherwise you will be worse off.I took out a consolidation loan and had no problems with interest etc but I failed to cut up my credit cards etc and soon racked them upto the original levels before consolidating.You must be disciplined.
Regards

Andy Davie
IVA.co.uk Spokesperson

About me:
http://www.iva.co.uk/andy_davie_profile.asp

IVA Helpline: 0800 197 4838
http://www.iva.co.uk/iva_helpline.asp

[Minnie]

Hi Andy

It is an IVA provider that has advised me to do this.

We were asked to detail household income and expenditure, which we did even though from the beginning I had made it clear this was an IVA purely to cover hubby.

Once we had done this, on paper it looked as if we would not be able to pay my debts once household expenses had been paid, which creditors would then perceive the IVA as not being realistic and affordable.

Our situation is not as straightforward as some and whilst I obviously want to support hubby in going through the IVA process I need to ensure he is still able to contribute to some of the household expenses. The house is in my name and I pay all associated bills e.g. mortgage, buildings & contents insurance etc; I weather all interest rate rises in terms of mortgage repayments as the mortgage is in my name. I earn more than hubby.

I know it is not the way to live but living month by month is helped by being able to put some expenses on credit cards. Both myself and hubby have done this and whilst I have managed, hubby's is now out of control. My situation though is now being made more difficult because I am having to subsidise some of what hubby should be paying i.e. food.

Hence a consolidation loan.

If I do go down the loan route I would be disciplined enough to cut up some (not all) credit cards and because I find this all a frightening situation to be in do believe (and not niavely) that I would not get into yet another mess with credit cards and loans. There would be no need because I would have sufficient over per month to avoid having to put things like car insurance; car tax; petrol on credit cards.

However, reading the small print there is something that says about the lender being able to review interest no more than one month at a time and no less than three months (something like that), which has set the alarm bells ringing.

The company is through Ocean Finance.

[Adam Davies]

Hi
It really is hard to advise without the full picture etc but I get the feeling that you are dubious about consolodating loans just so that your husband can enter an IVA.Are you sure that your husband is commited and disciplined enough to live on a budget for five years and are you certain that living on a tight budget will suit you.
I do not think that you will have a problem with the interest rates,they will move with the base rate.
regards

Andy Davie
IVA.co.uk Spokesperson

About me:
http://www.iva.co.uk/andy_davie_profile.asp

IVA Helpline: 0800 197 4838
http://www.iva.co.uk/iva_helpline.asp

[Minnie]

Provided the IVA comes out at a reasonable level I believe hubby will be disciplined enough for the next 5 years. He has no money left at the end of month now. If, from the tentative figures already worked out, his IVA came in at around £300/£350 and based on the expenses indicated, he may have a few quid left at the end of month. Plus he will get incremental rises at work, which I know 50% will go to his creditors but he would still get the other 50%.

My biggest concern is the variable rate and I am looking for some reassurance that what I end up paying per month does not reach such a level that it does become unmanageable. Bank of England interest rate rises I will cope with. Frequent 'other' interest rate rises may become difficult and unmanageable.

At the present, Norton Finance are also looking at what rates they can offer.

I would be interested to hear of other people's experience with debt consolidation loans or these companies.

[BlueShoes]

Hi Minnie
The vast majority of our massive debt is due to consolidating smaller debts over the last 10 years. We always consolidated the existing balances, and borrowed a bit extra. We always thought it would be manageable, and then got to a point where we had simply borrowed too much, and the reason for the loans in the first place i.e. to give us financial peace of mind has turned into a huge nightmare with large amounts of money owed to several creditors.
Speaking from bitter experience, I would think carefully before consolidating any debt.
However, if you can be strict with yourself, and can keep the number of months over which you repay the debt to an absolute minimum, maybe it is the way for you.
Blue

[Minnie]

Thank you Blue.

Like you over the years I have re-scheduled loans, consolidated debts into one loan but always at the expense of still using credit cards.

My debts are at the highest ever level and whilst I just about manage, it would be nice to have some spare cash over at the end of the month.

It may also be the only way hubby can go down the IVA route, which is how all this started.

My biggest concern is the company I end up consolidating with upping the interest to above a manageable level.

I could be worrying for nothing but I need to be sure I am doing the right thing.

Thanks for sharing your experience

[louiseh]

My debt began to spiral out of control through debt consolidation, and finally through a secured debt consolidation loan, I now have an IVA. I certainly regret going down the debt consolidation route, and my loans were all at a fixed rate, so I always new what I would be paying.

[iva_squirrel]

Hello Minnie,

I usually use the term "financial suicide" for consolidation loans however as Andy says if you are confident that you would cut up those credit cards, perhaps you could consider it.

If you end up with one payment a month and all your outstanding credit card balances paid off, it may be tempting to start using these cards again and then get further into debt.

As these loans are essentially second mortgages over a long term, it will take you longer to be debt free.

Even as the interest rate is less, because the term of the loan is over such a long period, you may end up spending more in repayments.

Perhaps the most important point you must consider before taking out a debt consolidation loan, remember that the loan is secured on your home and if you do not keep up with repayments, you could lose your home.

So although debt consolidation may sound like a great idea, it may not be for everyone.

So the advice is to carry out thorough research (speak to atleast 2 more companies) before making a decision and ensure the interest rate you get for your debt consolidation is the best for you.

Kind regards,



Julia Simavi

Shortlisted with special commendation for Debt Counsellor of the Year by Credit Today Awards 2007

View my profile:
http://www.supersonicsquirrel.net/julia ... rofile.asp

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http://www.supersonicsquirrel.net

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[Minnie]

Thank you to everyone who has responded. I am still keen to hear from anyone regarding consolidation loans and especially those familiar with the 'small print'.

I suppose if a consolidation loan has worked for some people they are unlikely to be a member of this kind of forum.

By consolidating this should help my hubby's IVA stand a better chance of being accepted. It also means that I will go from paying £900 per month in personal debt to just under £500. Even though this is over a 10 year period and because I am doing this predominantly for my hubby, he will 'compensate' me for the extra interest I will be paying once his IVA has been settled.

My BIGGEST CONCERN is avoiding finding myself with a company, in this case Southern Pacific Personal Loans Limited, that over the years will just keep increasing the interest rate to beyond manageable.

I am confident (yes, we've heard it all before) that I will not start to re-use my credit cards. I will keep a couple that have good APRs but I am aware of the pitfalls. My biggest problem in the past has been being in a situation where despite being aware of the pitfalls, it has been unavoidable not to use the credit cards available to me.

If I could find a company that would do a fixed rate that was not extortionate then I would feel a lot happier. I still can't get my head around the letters I get from credit card companies advising that "having reviewed my account and taking into account market conditons, they have increased my APR" - what's that all about?

[MelanieGiles]

Minnie

The thing with small print is --- you just need to read it to confirm exactly what your commitments are, but in principle most lenders will increase their rates in line with the base rate.

Whilst you are to be applauded at helping your husband to fund and IVA, I rather feel that you are being coerced into doing this by his IVA provider obviously at your expense. Do be sure that this is the right thing for you to do, and at this stage I would definately get a declaration of trust drawn up between you with regard to the property, if he has not contributed anything to it since you were married. This is to protect you in the future, in the event that your husband is forced to go bankrupt.

Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

For further details contact me at http://www.melaniegiles.com and view my IVA blog at: http://melaniegiles.blogs.iva.co.uk

[UpToMyNeck]

Similar to a lot of other people who have posted, debt consolidation didnt work out for me at all, because having the discipline to stop using your cards when they are all "clear" is incredibly difficult to do - I was getting statements through showing £0 balance, and it was like I hed no debt, I felt that they had sort of gone away because it was on a loan, not a credit card, so I started using them again. Eventually I had nowhere left to turn, my loans were costing me around £600 a month, and my 7 or 8 credit cards were all up to the maximum - I was switching them around where I could to avoid having to make monthly payments, but in the end I had nowhere left to turn, no available credit, and noone would give me another consolidation loan because of my existing commitments, so I had to go down the IVA route, which is the best decision I could have made. Everyone is different, but I would think very carefully about consolidating, and if you do, be very careful what you do with your existing credit cards - take it from someone who has been there and made a complete mess of it.Good luck.

[in-a-mess-indeed]

This is from a 2007 posting UpTo just in case you were not aware But i also agree we made the same mistake with consolidation instead of admiting something was wrong for us. It all seems easy to make 10 debts into one payment, but actually just meant to us we freed up 10 more credit cards again.

[UpToMyNeck]

Oh yeah!! [:I]

How on earth did I manage to come across a 2007 post?? I was browsing through the last 150 debt posts, and I was sure it was in there! Oh well, sound advice in any case [:D][:D]

[in-a-mess-indeed]

[:D]