Debt consolidation

cb123

I've been fortunate and been gifted some money (unexpectedly) for help with a deposit for a house - I've saved up an equal amount over the years (inconsistently) and now have enough.

My problem is, I thought I was a couple of years from this stage - I have two loans (€5k) , credit card (€2k) and a very messy current account

My plan was to spend the next 6 months consistently saving, clearing the CC debt and cleaning my account but that will leave me with the two loans.

The current monthly breakdown for debt -

Car loan (15 months left) - €160
Personal loan (24 months left) - €150
Credit Card - €200

I'm wondering would it be better to get a loan to consolidate the debt (and cancel CC)- €7k over two years @ €325 pm OR would the banks look down on this and affect my chances of ever getting a mortgage?

jimmy86

Why not clear all the debt and start saving the €500pm you would have been using for repayments. In a years time you will be able to show the bank a tidy account & the ability to save regularly, you will have the majority of your 7k saved too!

cb123

jimmy86 wrote: »

Why not clear all the debt and start saving the €500pm you would have been using for repayments. In a years time you will be able to show the bank a tidy account & the ability to save regularly, you will have the majority of your 7k saved too!

My apologies - I should have stated I'm paying 2.5 times in rent what a mortgage would cost - I really want to get away from that but maybe thats not the way to look at it... hmm

dotsman

It doesn't matter if you consolidate or not. The focus is to pay them all off completely before applying for a mortgage.

When determining your repayment capacity, it is the repayment capacity for all debt that matters, not just the mortgage.

Put it another way, if you are deemed to have an overall repayment capacity of 1,000 per month, and are paying off loan totalling 400 per month, then you only have a repayment capacity of 600 per month for the mortgage rather than one for 1,000 per month. Which is a huge difference in both how much you can borrow and how favourably the bank would look at your application.

Secondly, regardless of the bank, for your sake, you shouldn't want to take on a mortgage until you have cleared all your other debts. Otherwise, you will likely drown in debt within months/years of starting the mortgage.

Use your current savings to immediately pay off all your debts. That way, you can concentrate on just saving up the outstanding balance, while keeping your current account in good shape.

Trish56

Hi, you don't have to pay off short term loans in order to qualify for a mortgage once your earnings are high enough to pay the mortgage and short terms repayments. If you are single you will need to have €1400 net disposable income per month after stressed monthly repayments and the €310 for short term loans.

My advice would be to continue to pay them and when you are applying for a mortgage in 6 months time to then clear the €160 short term loan as you will only owe €1440 then.

The lender will also want to see repayment capacity over a 6 month period and you can show both your rent which must be paid monthly through your bank account and savings and the €160 pm you will just have cleared. At that stage you will more than likely have sufficient savings to clear the 2nd personal loan.

What is very important is that you are managing your finances properly and not running up credit card debt and constantly using an overdraft and have referral fees on your current account. You need to pay off the credit card balance asap and then clear monthly.

You also need to apply for Credit Reports from www.icb.ie and from the www.centralcreditregister.ie

Jim2007

cb123 wrote: »

I've saved up an equal amount over the years (inconsistently) and now have enough.

If you've got debts, then you have not got savings... all you have done postponed loan payments and the cost of that illusion is the interest and fees your racking up on you debts.

First clear you debts and then start seriously saving and if you find you are racking up new debts then you need to do some serious thinking about your finances and if you can really afford the costs of a mortgage.

cb123

dotsman wrote: »

It doesn't matter if you consolidate or not. The focus is to pay them all off completely before applying for a mortgage.

When determining your repayment capacity, it is the repayment capacity for all debt that matters, not just the mortgage.

Put it another way, if you are deemed to have an overall repayment capacity of 1,000 per month, and are paying off loan totalling 400 per month, then you only have a repayment capacity of 600 per month for the mortgage rather than one for 1,000 per month. Which is a huge difference in both how much you can borrow and how favourably the bank would look at your application.

Secondly, regardless of the bank, for your sake, you shouldn't want to take on a mortgage until you have cleared all your other debts. Otherwise, you will likely drown in debt within months/years of starting the mortgage.

Use your current savings to immediately pay off all your debts. That way, you can concentrate on just saving up the outstanding balance, while keeping your current account in good shape.

Due to the LTI 3.5 rule, my mortgage cost would be around €600 (want to live in the countryside and houses are within my price range)

If I pay off my loans immediately, I've essentially taken out a third of my saving. I do understand that it would be better to start fresh but I would prefer to get out the rental market and use the extra money to clear the short term loans. Maybe that's naive - I dunno. A lot to think about.

Trish56 wrote: »

Hi, you don't have to pay off short term loans in order to qualify for a mortgage once your earnings are high enough to pay the mortgage and short terms repayments. If you are single you will need to have €1400 net disposable income per month after stressed monthly repayments and the €310 for short term loans.

My advice would be to continue to pay them and when you are applying for a mortgage in 6 months time to then clear the €160 short term loan as you will only owe €1440 then.

The lender will also want to see repayment capacity over a 6 month period and you can show both your rent which must be paid monthly through your bank account and savings and the €160 pm you will just have cleared. At that stage you will more than likely have sufficient savings to clear the 2nd personal loan.

What is very important is that you are managing your finances properly and not running up credit card debt and constantly using an overdraft and have referral fees on your current account. You need to pay off the credit card balance asap and then clear monthly.

You also need to apply for Credit Reports from www.icb.ie and from the www.centralcreditregister.ie

Thanks for the info! With an expected mortgage of around €600, the stress percentage and debt, I would still have 1400+ to my name. Thankfully no missed payments and no overdraft - just need to reduce the credit cards.

Jim2007 wrote: »

If you've got debts, then you have not got savings... all you have done postponed loan payments and the cost of that illusion is the interest and fees your racking up on you debts.

First clear you debts and then start seriously saving and if you find you are racking up new debts then you need to do some serious thinking about your finances and if you can really afford the costs of a mortgage.

Agreed, just trying to weigh it all up - rent vs. mortgage. In my current situation due to rent, I can't put lump sums against my debt.

niallers1

Avoid taking on new debt before you apply for a mortgage. CONsolidation can be a con(clue is in the name). what happens in many cases is that the loans are consolidated and then people end up using the credit card again or taking out another loan.

Don't cancel the credit card until you have the mortgage. Banks look at how much of your available credit are you using as a percentage. Owing little or nothing on your credit card looks better to a bank than not having one. Shows you can mange credit responsibly
Just pay it off and cancel after you have mortgage approval if you want. You don't need a credit card.
Aggressively pay down your loans/cc/overdraft using snowball method smallest balance to largest. You'll feel motivated to continue as you pay it off smallest to largest. ( small wins)

Put the head down, turn into a hermit , no takeaway , new clothes , shop in lidl , make your own lunches and just get those monkeys off your back. Another job working 10 hours a week won't kill you.
You'd have 7k paid off in no time doing this.

cb123

niallers1 wrote: »

Avoid taking on new debt before you apply for a mortgage. CONsolidation can be a con(clue is in the name). what happens in many cases is that the loans are consolidated and then people end up using the credit card again or taking out another loan.

Don't cancel the credit card until you have the mortgage. Banks look at how much of your available credit are you using as a percentage. Owing little or nothing on your credit card looks better to a bank than not having one. Shows you can mange credit responsibly
Just pay it off and cancel after you have mortgage approval if you want. You don't need a credit card.
Aggressively pay down your loans/cc/overdraft using snowball method smallest balance to largest. You'll feel motivated to continue as you pay it off smallest to largest. ( small wins)

Put the head down, turn into a hermit , no takeaway , new clothes , shop in lidl , make your own lunches and just get those monkeys off your back. Another job working 10 hours a week won't kill you.
You'd have 7k paid off in no time doing this.

Cheers for this. Going to go this direction. Looking forward to clearing the debt and hopefully life getting a bit cheaper once I get out of the rental market!