# Need help - finances question

Discussion in 'Off Topic [BG]' started by Marlat, Jan 20, 2004.

1. ### Marlat

Sep 17, 2002
London UK
Okay, heres the problem - I have a little finance question which I can't work out the solution to. Don't worry - I won't rely on your advice nor hold anyone accountable for what they say - I just want to get an idea of the answer to this:

If I have a loan of approx \$11,000 @ 9.7%pa; plus
a loan of approx \$5,000 @ 14.95%pa;

Is it beneficial to consolidate them into a single loan of \$16,000 @11.65%pa?

Or, would it be better to leave them as is?

2. ### Ty McNeely

Mar 27, 2000
TX
Well, I am by no means a finance major or anything, but here's the opinion of a former banker:

It depends on the length of the term of each loan.

If the \$5000 loan at 14.95% is for more than a couple of years, then YES, it would be beneficial to drop to the lower rate of one loan and up the rate of the other loan. You would end up paying MORE interest in the long run because of the higher interest on the \$5000 loan than you would if you consolidated.

Make sense?

EDIT: It's a really good thing I'm *NOT* a finance major...

I got really bored and decided to work it out using Yahoo's Loan Payment Calculator.

Over a two year term, you'll be paying the following in interest for each loan

\$5000 - \$808
\$11000 - \$1144
Total - \$1952

\$16000 - \$2000

Result - \$48 difference with the two separate loans being favored.

Now, over a 3 year term.

\$5000 - \$1228
\$11000 - \$1708
Total - \$2936

\$16000 - \$3008

Result - \$72 difference with the two separate loans being favored.

Final result - The two separate loans are probably the way to go.

3. ### Tim ColeSupporting Member

Jun 12, 2002
Findlay, Ohio
I'm not sure if you are paying the minimums only on these or not, but here is my thought.

My advice would be to put any extra money into paying the \$5000 off asap, then after you get that paid off, take the full payments you had been putting into the both of them, and go after the 11K loan. You might be surprised how fast you can eliminate these. I personally wouldn't consolidate.

4. ### Marlat

Sep 17, 2002
London UK
Well the \$5000k is (obviously) on a Credit Card - so the minimum repayments are 3% of balance (roughly \$180 per month I think). THere is no term on this "loan"

The \$11,000K is a monthly repayment of around \$360 - but I pay about \$412 per month back on it. So, the period of the loan is probably 2-3 more years?

Thanks for your help guys - I am useless at maths!

5. ### rustyshakelford

Jul 9, 2002
I am assuming the interest is not tax deductible.

First, pay off the credit card. Use all extra money to pay off the CC.
At \$180/month, the loan will take ~34 months to pay off.

If you take the \$42 extra you are paying on the \$11k and put it towards the CC, the loan will take ~25 months (\$232).

If you cut an additional \$40 per month out of your budget (no newspaper, beer, cable, etc), you can pay it off in ~20 months.

When you made the CC purchases, you agreed in essence to work for the bank. 15% is predatory. Get rid of the debt.

Once the CC debt is gone, you could refinance the remainder.

Take care,

rs

6. ### Marlat

Sep 17, 2002
London UK
Neither of them are tax deductible because they are not sufficiently connected to the gaining or producing of assessable income.

The 11K loan is a car loan (hence the lower interest rate).

There is another option, which is pay the CC off with a personal loan from the bank at a slightly lower interest rate (ie 14.3%). I dont know if the small drop in interest is worth it though.

Again thanks for all your help - BTW im not struggling to pay off either - I just wanted to know whether it was worth simplifying the two debts into one rather than having to make repayments to two differnt companies!

7. ### Ty McNeely

Mar 27, 2000
TX

Unless you're going to bankrupt yourself buying TWO \$.37 stamps instead of just ONE, I don't think I'd be beneficial

If it were me, I would pay of the CC loan AS SOON AS POSSIBLE. Credit card companies are usually much more unforgiving of late payments, whereas banks (if you have a decent or even ANY relationship at all) tend to give a bit more slack in the repayment of loans. Not saying that you're going to miss a payment, but I'm just saying in case anything unexpected came up (car problem, medical problem, household problem, etc.).

THAT is my opinion, but I'm also a credit card company hater.

8. ### Marlat

Sep 17, 2002
London UK
In AUst the cost of a stamp is now 50c! - But it doesnt matter as all the payments are made electronically.

Theres really no danger of me missing a payment (unless I lose my job - but even then I have a fair amount of savings) - but yeah - I realise the CC debt is a priority - I may just have to readjust my repayments as such!

Thanks!