Debt Advice?

[Nick F]

Me and my girlfriend have been living together for the past three years and are now looking to buy a house in the next six months with the great shared ownership schemes in our area. We both owe about £8k between us on credit cards and overdraft's. We only came out of uni 6 months ago and now both have "Real" well paying jobs.

Because we are so far into our overdrafts which are 0% intrest free even we we get paid we never go into + funds so we are broke again before long. We need about 2k in savings to pay legal fees for the house so we have come up with the idea of getting a 10k loan to pay off everything, cancel all credit cards and our overdraft and set ourself up correctly for the long run instead of struggling for years in debt.

Just had a quick search on the net and northen rock are doing loans at 5.8% which is pretty good from what I understand. We could easily afford to pay the repayments + more as well as the morgage etc.

Are there any benifits / downfails to getting a loan? Does it affect your credit rating?

[badass]

Me and my girlfriend have been living together for the past three years and are now looking to buy a house in the next six months with the great shared ownership schemes in our area. We both owe about £8k between us on credit cards and overdraft's. We only came out of uni 6 months ago and now both have "Real" well paying jobs.

Because we are so far into our overdrafts which are 0% intrest free even we we get paid we never go into + funds so we are broke again before long. We need about 2k in savings to pay legal fees for the house so we have come up with the idea of getting a 10k loan to pay off everything, cancel all credit cards and our overdraft and set ourself up correctly for the long run instead of struggling for years in debt.

Just had a quick search on the net and northen rock are doing loans at 5.8% which is pretty good from what I understand. We could easily afford to pay the repayments + more as well as the morgage etc.

Are there any benifits / downfails to getting a loan? Does it affect your credit rating?

If you've both got decent paying jobs and 0% overdrafts, just pay off the overdrafts with your disposable income and keep saving untill you have the £2k you need.
The downfalls to getting a loan is you end up paying for something you're already getting for free!

[Nick F]

But our credit cards need paying off first due to them charging stupid APR rates.

[Taz]

The rates advertised are 'typical rates' that lenders offer. You will undergo a credit check when applying for a loan and I fear that the lender may not offer you 5.8% unless you have an 'average' credit rating. Part of the credit check will be the amount of debt you currently have and the £8K will damage your credit rating score. Hence, I think you may struggle to get a loan at that APR. One other thing is that each loan you apply for usually requires a credit check and this will be recorded. Lots of credit checks damage your credit rating, so it can become a vicious circle. I also think that you may not be able to jointly apply for a loan (but i'm not 100% sure about that).

I agree with badass. Pay off your debts as soon as you can and then save up the £2K that you need.

A loan does negatively affect your credit rating - which is just a risk assessment of your financial situation.

There's some good financial advice on Motley Fool site: http://www.fool.co.uk/

[Nick F]

Was just on money saving expert and I did a credit check and it reckons I have an average credit rating.

Does anyone know if I can apply with my partner generally?

[TeePee]

Keep the overdrafts as long as you need, it's interest free, so no worries. Either get a loan to pay of your credit card debt (you're probably paying 14-20%!!!), or look at getting another credit card which offers 0% for six months on balance transfers as an introductory offer. Transfer and CUT UP THE OLD ONES!

Paying off your debts and savings is about an attitude change. Sure, you can get loans and a sound financial base (stopping paying interest on credit cards WILL make a difference) but the fundamental thing is, spend less money!

[pp05]

Don't get a high street loan!!

[Nick F]

Don't get a high street loan!!

Moneybank have got a 5.5% APR rate. It's the best online.

[smtkr]

I'm surprised you have an average credit rating with that much debt. It has to be a high percentage of your available balance. In the U.S., that would net you a nasty interest rate for your loan.

[5lab]

are you sure you could get a decent enough mortgauge? i'm on good money now - and granted i'd be buying solo - but i couldnt even get a 2 bed flat with a 100% mortgauge..

[TeePee]

It's a shared ownership scheme, basically the government's excuse for a solution to the housing problems in this country!

[Russ]

get new cards, transfer the balance, will give you an extra 6-12 months of 0% on paying it off.

[Rave]

MoneySavingExpert is a good place to start. There's a specific subsection of the forum called Debt Free Wannabe, maybe you could post there.

Simply put, to get rid of your debts as quickly as possible you want to a) minimise the interest you are paying overall b) minimise your outgoings so you can maximise your debt repayments and then c) pay off the debts with the highest interest charges first. In your situation, your best bet if you can would be to try and get a new credit card(s) that offer 0% on balance transfers, then pay off those balances as quickly as you can. DON'T spend on the card in the meantime though as that balance will then remain on your card accruing interest until the original transferred balance is paid off. If your overdraft is completely interest free and will remain that way for some time, then (subject to leaving a bit of a buffer for emergencies and rainy days), you should operate as close to your overdraft limits as possible, using the money to pay off your credit card balances.

What I would also recommend is doing a budget- sit down and work out how much money you have coming in every month, and how much you spend. That makes it easier to identify where you could reasonably cut back to pay off your debts quicker. When my wife and I got married and moved in together we got some cash as wedding presents. When it was nearly all gone I sat down and looked at our outgoings and realised we were living beyond our means to the tune of about £400 a month! Drastic cutbacks were required. In general, cutting back is pretty common sense- take homemade sandwiches to work rather than buying them every day, rent DVDs and watch them with a bottle of wine rather than going to the cinema, make meals from scratch instead of buying expensive convenience food etc. etc. Again MSE has loads of info and suggestions.

Finally, IMHO shared ownership schemes are a last final desperate throw of the dice by the government to try and prop up a housing market which is hugely and unsustainably overpriced. Do the sums and read the small print very carefully indeed if you do decide to go ahead. In a lot of cases it's cheaper overall to rent. I've heard that some of the schemes don't share the risk between you and whoever owns the other share of your house- I.E. if the price falls it all comes off the value of your share- this is a grade A rip off if ever there was one so beware. I'm firmly convinced that the great house price crash is just around the corner- prices are definately falling in most areas of London already and bankruptcies, reposession applications etc. are soaring. Don't be in a hurry to buy- you won't 'miss the boat' by not buying now, you missed it in about 2000 and it's about to turn around and come back and get you. See the housepricecrash link in my sig for much more.

[Nick F]

Cheers for all that information Rave, me and my partner are planning a big sit down to discuss what we can do. The thing we really like about shared ownership is that we can sell at any time and get whatever profit we make on the house and our share. Between us we only need to get a morgage for about 100k which will give us 50% of the house.

Because we live in London we can't get anywhere to rent at a cheap rate and we both need to stay here for our jobs. If we rented a one bedroom house we would be paying much more than actually getting a house through shared ownership so it kinda makes sense.

[badass]

I'm surprised you have an average credit rating with that much debt. It has to be a high percentage of your available balance. In the U.S., that would net you a nasty interest rate for your loan.

Your credit rating is not based on what you owe at all. It is based purely on your repayment history.

[Nick F]

Your credit rating is not based on what you owe at all. It is based purely on your repayment history.

Okay that's cool me and partner have got good credit historys then. Never missed a payment etc and I have lived at my current address for 21 years which also helps.