Getting the balance right/help!

takeachillpill

First of all, just want to say what an inspiration a lot of you on here are.

Cutting a very long story very short, myself and my wife have got ourselves in not a poor financial position thanks to various things happening, some within our control and some not.

We have a house worth £130k

Mortgage: 67k (5.7 with IF)
Sec loan: 43k (6.5 with EPF)
Credit cards: 8k (at 0 per cent with Halifax until feb 06)

Have just tried to remortgage the first charge but the second charge people won't agree to DOP.
Can't afford at this stage to consolidate the two together.
However, I have been told I can over pay my secured loan by upto 1k per month with no penalties, the alternative of paying it off in full is not possible due to hefty penalties.

Not a great deal of spare income, but I do have the option of taking an unsecured loan of 25k at 5.7% which I could use to pay stuff off over the next year or so.

Thoughts would be grea t

Robert_Sterling_3

I can see why you might consider this.
If each month you paid £1000 off the £43000
and then paid 5.7% instead on new £25000 loan
then at first sight you save 0.8% interest on that £1000
i.e.£8 per annum or about 67p per month.
Doing this each month for 25 months would eventually
be saving you £200 per annum or £16.66 per month.

Howerver in the mean time what will be happening to the balance of your loan.

E.G. After the first £1000 payment
You will still have £24,000 at 5.7%.
You will not be earning interest on it at 5.7%
So it will represent a loss.
Suppose the interest is 5% on this £24000
You are paying 5.7%
This is a loss of 0.7% even if you get interest tax free.
0.7% of £24,000 is £168 per annum i.e £14 per month
So in month one Gain 67p Loss £14
I hope that you can see where I am coming from here.

Also I do not think that having £25,000 extra cash at your disposal
is conducive to improving your debt position.
You might be tempted to spend some of it and worsen your position.

Suggestion One: Forget about the £25,000 loan at 5.7% for the time being.

.......................................................................................................

Now consider your £8000 debt on a 0% credit card
When does it end.
Take steps to ensure that you transfer as much as possible of this debt to another 0% card in good time.
Try not to pay a 2% transfer fee i.e. £160.
A capped transfer fee say £50 or less would be better.
No transfer fee would be ideal.

If at some point you can't get the £8000 onto a 0% card
then this is the time to condider a loan to pay off the card.

However before you do that look at life of balance transfers
particularly if the interest rate is 5.7% or less or even a tad above 5.7%.

Suggestion 2 Don't take the £25,000 loan

However

If ever you are at a point where you are forced to pay, for example 15.9%
on the £8000 on your credit card.
Then try and get an £8000 loan at 5.7% or thereabouts to pay off the credit card.
At this point you would be better off with the loan than with the debt on the credit card.
On the other hand you would be worse off than you are now.

Suggestion 3 If you must at this point have a loan make the
amount as low as possible e.g. £8000 or less.

RS

takeachillpill

Thanks a lot.

To be fair, the debt problem (the reasons behind it) are behind me and I am in fact a lot better off than I was two years ago. I.e I have my head screwed on and therefore would not simply use some of this money on nothing.
My credit rating is good, I have never missed a payment on anything to be fair.
Part of what I want to achieve is to have less money secured on my house so in a couple of years time I can move up the ladder.
While the monthly outgoings are a massive factor in any financial issue, should I be slightly worse off month on month in short term, but gain equity and more control over my finances it would be worth it.
The reason we are in this mess is a combination of factors, failed business, stupid spending habits on both parts, redundancy (twice for me, once for her) and two kids.
We are better off than a lot of people on here who have found themselves unable to cover their essential outgoings.
However, I want as little secured against my house as possible because I have the option of a lovely house in the summer of 2007 and want to be able to afford that.

I appreciate your advice and thoughts RS