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Thread: Debt Consolidation the Best Way ?

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    Registered User stewart38's Avatar
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    Debt Consolidation the Best Way ?

    Normal convention is you pay off the debt with the highest APR first

    However looking at how one repays ‘debt’ it would appear for example on a £25,000 loan over 10yrs the first few years your re-paying mainly interest and less capital. Same for a repayment mortgage

    As the years go buy you pay more capital then interest

    Lets assume you had a £180,000 mortgage interest only 20yrs at 5.95% would it be better to pay that back and leave the 6.9% loan on going as the settlement figure and hence what you ‘save’ relatively by paying back 'early' is less as the years go buy

    Confused

    One saves about £3,000 buy paying back 6 yrs early , cost £16,750 to cancel loan

    Or put £16,750 off £180k mortgage would you ‘save’ more ?? over 6yrs

    e.g. 10yr loan

    Month Interest Repayment

    1 25,000.00 143.75 145.22 288.98
    2 24,854.77 142.91 146.07 288.98
    3 24,708.70 142.08 146.91 288.98
    4 24,561.79 141.22 147.75 288.98
    5 24,414.03 140.38 148.60 288.98

    55 15,833.96 91.05 197.94 288.98
    56 15,636.02 89.91 199.08 288.98
    57 15,436.94 88.76 200.22 288.98
    58 15,236.72 87.61 201.37 288.98

    116 1,420.33 8.17 280.82 288.98
    117 1,139.51 6.55 282.43 288.98
    118 857.08 4.93 284.06 288.98
    119 573.02 3.29 285.69 288.98
    120 287.33 1.65 287.33 288.98


    Last edited by stewart38; 20th-March-2007 at 05:39 PM.

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    Re: Debt Consolidation the Best Way ?

    Have you tried a professional financial adviser?

    They do this for a living and a good one can defiantly safe you money

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    Re: Debt Consolidation the Best Way ?

    Quote Originally Posted by philsmove View Post
    Have you tried a professional financial adviser?

    They do this for a living and a good one can defiantly safe you money
    No. It's too easy.

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    Re: Debt Consolidation the Best Way ?

    Quote Originally Posted by stewart38 View Post
    Lets assume you had a £180,000 mortgage interest only 20yrs at 5.95% would it be better to pay that back and leave the 6.9% loan on going as the settlement figure and hence what you ‘save’ relatively by paying back 'early' is less as the years go buy
    Uh-DUH.

    If you have an interest only mortgage, there is no capital element. What are you wibbling on about?

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    Re: Debt Consolidation the Best Way ?

    Well, without doing any sums and with about 2 minutes thought....

    I'd say pay off the 6.9% loan first if you have the spare cash. If you don't have the spare cash I'd even say try and increase your mortgage by £25K to pay the loan off, thus getting the 6.9% effectively reduced to the 5.95% (albeit over a longer term). Due to lower rate/longer term this should reduce your monthly repayments. Then you can use the savings from that to make overpayments on your mortgage and bring the term for that down, thus reducing the overall cash cost of the loan.

    There is a risk here that the 5.95% mortgage rate (which is probably variable?) may increase beyond the 6.9% loan rate, which may be fixed for the term (?).

    Apparently Albert Einstein once said that man's greatest invention was compound interest.

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    Re: Debt Consolidation the Best Way ?

    I think the point is that if the 6.9% loan has an early redemption penalty, it might be worth holding back paying off this loan until the penalty no longer applies, or is not cripplingly high.
    Let your mind go and your body will follow. – Steve Martin, LA Story

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    Registered User stewart38's Avatar
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    Re: Debt Consolidation the Best Way ?

    Quote Originally Posted by Paulthetrainer View Post
    Well, without doing any sums and with about 2 minutes thought....

    I'd say pay off the 6.9% loan first if you have the spare cash. If you don't have the spare cash I'd even say try and increase your mortgage by £25K to pay the loan off, thus getting the 6.9% effectively reduced to the 5.95% (albeit over a longer term). Due to lower rate/longer term this should reduce your monthly repayments. Then you can use the savings from that to make overpayments on your mortgage and bring the term for that down, thus reducing the overall cash cost of the loan.

    There is a risk here that the 5.95% mortgage rate (which is probably variable?) may increase beyond the 6.9% loan rate, which may be fixed for the term (?).

    Apparently Albert Einstein once said that man's greatest invention was compound interest.

    This is what I was thinking sorry if its gone over the heads of others re talk to financial advisor of course i have !! however this is very specific

    still not sure not as easy as i thought, just thought it was APRs

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    Re: Debt Consolidation the Best Way ?

    Well duh again.

    The APR which is advertised before taking out a loan is an artificial calculation. It was brought in because consumers often had difficulty comparing one source of finance to another - a situation that (like mobile phone companies and utility companies nowadays) the suppliers did everything to foster.

    All the costs of a finance deal are rolled up and divided by the number of years across which the loan is to be paid back, and that is your APR. So if the arrangement fee for one lender is £2,000, and another has no arrangement fee at all, and they both use the same base interest rate, it will easily be seen - since the former's APR will be slightly higher - which is the more 'expensive' loan.

    The APR cited once you have taken out a loan, includes all the costs from that point onward. So an arrangement fee, for example, will fall out of the calculation. The APR is different from the ordinary loan interest rate, which is only one of the elements that goes up to make the APR calculation.

    The amortisation calculations, as far as I'm aware, are the same from one loan and lender to another. But the higher the interest rate applied, the more of the initial payments are interest rather than capital repayment.

    A further complication comes from variable rate products, and also and particularly concessionary products, designed specifically to make a particular loan attractive. Low start, temporary fixed rates, etc. A temporary-fixed rate product will be amortised using the current interest rate as the applicable rate from the end of the fixed-rate period, so an APR calculation applied at the beginning of the fixed rate period will give a misleading figure.

    Finally, there are early redemption penalties.

    I think that about covers it. Long time since I did financial products.

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    Registered User stewart38's Avatar
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    Re: Debt Consolidation the Best Way ?

    Quote Originally Posted by Barry Shnikov View Post
    Well duh again.

    The APR which is advertised before taking out a loan is an artificial calculation. It was brought in because consumers often had difficulty comparing one source of finance to another - a situation that (like mobile phone companies and utility companies nowadays) the suppliers did everything to foster.

    All the costs of a finance deal are rolled up and divided by the number of years across which the loan is to be paid back, and that is your APR. So if the arrangement fee for one lender is £2,000, and another has no arrangement fee at all, and they both use the same base interest rate, it will easily be seen - since the former's APR will be slightly higher - which is the more 'expensive' loan.

    The APR cited once you have taken out a loan, includes all the costs from that point onward. So an arrangement fee, for example, will fall out of the calculation. The APR is different from the ordinary loan interest rate, which is only one of the elements that goes up to make the APR calculation.

    The amortisation calculations, as far as I'm aware, are the same from one loan and lender to another. But the higher the interest rate applied, the more of the initial payments are interest rather than capital repayment.

    A further complication comes from variable rate products, and also and particularly concessionary products, designed specifically to make a particular loan attractive. Low start, temporary fixed rates, etc. A temporary-fixed rate product will be amortised using the current interest rate as the applicable rate from the end of the fixed-rate period, so an APR calculation applied at the beginning of the fixed rate period will give a misleading figure.

    Finally, there are early redemption penalties.

    I think that about covers it. Long time since I did financial products.
    why the sarcastic comment you missing -ve rep ??

    I think credit cards are done differently to a 'loan'. £9,000 on a credit card is about £55 interest a month and with a 2% payment back each month £180 (min) repayment. This 'differential remains the same.

    with a 'loan' the 'interest element' is much higher at the start. it would pay to pay back a loan at 6.9% then a credit card at 6.9% I think ! the differences could be very large


    dont think there was any harm posting if people knew anything

    My next post will my cat is up a tree what should I do

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    Lovely Moderator ducasi's Avatar
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    Re: Debt Consolidation the Best Way ?

    Quote Originally Posted by stewart38 View Post
    I think credit cards are done differently to a 'loan'. £9,000 on a credit card is about £55 interest a month and with a 2% payment back each month £180 (min) repayment. This 'differential remains the same.

    with a 'loan' the 'interest element' is much higher at the start. it would pay to pay back a loan at 6.9% then a credit card at 6.9% I think ! the differences could be very large
    If the interest is compoundly charged interest at the same rate as the original loan – how does it matter whether you are paying back interest or original loan?
    Let your mind go and your body will follow. – Steve Martin, LA Story

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    Re: Debt Consolidation the Best Way ?

    Quote Originally Posted by stewart38 View Post
    why the sarcastic comment you missing -ve rep ??

    I think credit cards are done differently to a 'loan'. £9,000 on a credit card is about £55 interest a month and with a 2% payment back each month £180 (min) repayment. This 'differential remains the same.

    with a 'loan' the 'interest element' is much higher at the start. it would pay to pay back a loan at 6.9% then a credit card at 6.9% I think ! the differences could be very large


    dont think there was any harm posting if people knew anything

    My next post will my cat is up a tree what should I do
    You had not hitherto struck me as someone who I would expect to say "just thought it was APRs". Hence the duh.

    You are right about revolving credit (e.g. cards) because the calculation has to be done anew each time you add to the borrowing; the APR is even less help with cards. It's arguable that APR on credit cards can be misleading; the point I suppose is that if you have - like Amex - an annual fee then that has to be factored in giving a different APR than another card with the same interest rate but no fee.

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    Re: Debt Consolidation the Best Way ?

    Most financial advisers i have encountered are crap.

    A few years ago I was one of the best qualified financial advisers in scotland.

    I then qualified as an IFA with a big network, and then gave up from the financial industry due to the low quality of advice I was expected to give.

    unfortunately most of the public are bored rigid by advice, which will save them money, and don't want to know important details.

    For a far simpler case than yours, a couple had quite a bit of disposable income and were going to buy their council house.

    I was invited round by them to discuss options.

    As I tried to explain how much better off they would be by going for a twenty year mortgage, compared to 25 years, they just sat and watched the Cartoon network.

    I still encounter "intelligent" people who have no idea about the investments or policies they have and what they do.

    There are a few good financial advisers out there, however they are very hard to identify.

    Most advisers I have encountered are unable to comprehend the question you posed, because they are not trained in this type of work.

    2nd top Financial adviser at Alliance and Leicester GB - massive personal debts, and £18k on credit card.

    Branch manager at "leeds building society", big debt problems

    etc, etc. etc.

    rant mode off:-

    Stewart, you seem to have been given fairly good information in earlier posts.

    One of the things which makes the situation harder to resolve is , what do we actually mean by cost ?

    monthly cost ?
    or overall cost.

    putting it rather crudely,
    some people would rather pay £40 a month for 25 years than £200 a month for 1 year.

    you seem bright enough to work out loads of figures for yourself, and as said in an earlier post, the differences between your two interest rates are not massively high, so there is not a huge difference.

    the best ( simple) advice is to pay off all of your debts as quickly as you can , without paying exhorbitant penalties. starting off with higher intererst rates first.

    I would suggest you go to your lenders and find out the penalties, and ask foir illustrations for different ( shorter) terms, then work out yourself how much you are paying back, and what is affordable for you. Then change your products ( reduce term) to suit.

    You may find a "mortgage adviser" better able to help you than a "financial adviser"

    The best ( complicated) advice is keep yourself up to your eyes in manageable debt and invest every penny youcan on the stockmarket. In any ten year period that will have historically made you wealthier.

    Best of luck.
    John

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    Registered User stewart38's Avatar
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    Re: Debt Consolidation the Best Way ?

    Quote Originally Posted by johnthehappyguy View Post

    Stewart, you seem to have been given fairly good information in earlier posts.

    One of the things which makes the situation harder to resolve is , what do we actually mean by cost ?

    monthly cost ?
    or overall cost.

    putting it rather crudely,
    some people would rather pay £40 a month for 25 years than £200 a month for 1 year.

    you seem bright enough to work out loads of figures for yourself, and as said in an earlier post, the differences between your two interest rates are not massively high, so there is not a huge difference.

    the best ( simple) advice is to pay off all of your debts as quickly as you can , without paying exhorbitant penalties. starting off with higher intererst rates first.

    I would suggest you go to your lenders and find out the penalties, and ask foir illustrations for different ( shorter) terms, then work out yourself how much you are paying back, and what is affordable for you. Then change your products ( reduce term) to suit.

    You may find a "mortgage adviser" better able to help you than a "financial adviser"

    The best ( complicated) advice is keep yourself up to your eyes in manageable debt and invest every penny youcan on the stockmarket. In any ten year period that will have historically made you wealthier.

    Best of luck.
    John

    I think a trip to Las vegas £50,000 on black it comes in thats £100,000, do it again it comes in £200,000. seems to make sense

    Or black 29 it comes in at 35-1 and your sorted

    I dont know the 'answer ' but will find out

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    Re: Debt Consolidation the Best Way ?

    don't go to america - doit in britain instead.

    the odds are better in britain as there is only one "0".

    In America there are two, "0" and "00"

    Best of luck

    John

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    Registered User stewart38's Avatar
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    Re: Debt Consolidation the Best Way ?

    Quote Originally Posted by johnthehappyguy View Post
    don't go to america - doit in britain instead.

    the odds are better in britain as there is only one "0".

    In America there are two, "0" and "00"

    Best of luck

    John
    The Monte Carlo in vegas has one 0,im a regular hence the thread

    yes most have 2 , the main punters dont seem to know the difference

    will try Texas Hold em !

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