Consolidating debts with a long term loan?

DJChris

Hi

I owe £10K from credit cards, loan, overdraft, and catalogue.

These debts started as a result of a breakup.

However I am now a very active moneysaver in every sense, thanks to this site mainly, but find myself with hardly any cash left over each month because of these debts that i am only paying off very very slooooowly.

I have taken advice from these forums and contacted the 2 advice lines as well as payplan and CCCC.

All but one advised me to do a debt management plan.

The problem is that none of my payments are late - so even though i have debt problems, I'm actually officially 'clean', and I want to keep it this way. Going in to a DMP will not only register as defaults but also will take around 180 months to pay off apparently. For 6 years this will affect me getting favourable rates on my mortgage etc which I want to avoid.

The guy on Debtline was very honest, we talked about this site which he is familiar with and I said i have budgetted using the MSE budget sheet, found areas that I can cut down, and am confident I can live as I am used to with some savings in some areas, more prudent spending of money, and the continued use of the budget sheet. So I asked him about borrowing money on my mortgage (which has around £60,000 equity) to pay off all my debts. He didn't say NO, which was refreshing, but pointed out the negatives, ie house at risk, moving unsecured debt to secured one etc.

I am confident I can live within the MSE budget sheet i have done (thanks for that by the way - it is SO MUCH BETTER than the others that the advice lines complete for you) and am really looking forward to budgetting and paying for everything with cash.

So I am wondering what people think about going the money-on-mortgage route?

I believe in my heart of hearts that I will never go back to using ANY credit but obviously I am apprehensive about putting my debts 'onto' my house for 10 years. however, I felt the same when i was deciding to get my first mortgage and that was one of the best financial decisions I've ever made!

Furthermore, should I go for extra money on my current mortgage (quoted 5.5%) or a secured loan from elsewhere?

Thanks in advance for all your views, positive or negative!!

Chris

*Sparkle*_3

Hey chris,

Can you post your budget sheet?

DJChris

Hiya

Unfortunately not because I couldn't actually type anything into the fields so I had to print it off and write the figures in with a pen!

Chris

southernscouser

Welcome to the board DJ. Spin some tunes why I have a think for you! :dance:

OK if you can list all your monthly incomings, outgoings and debts with as much info as possible, ie. balances, limits, APR's, loan lengths etc, then we will be able to help you better.

Quite often just shuffling the debt about can save you money.

My debts are a lot worse than yours but am in a similar situation. I went through the CCCS website and they said contact us immediately. However, I've never made late payments either and am now in control (well debt is going down) of my finances. I also didn't want any marks on my credit file and although I've got 4 years of slog I personally prefer this to being in a DMP. That is just me. Many people are different and a DMP works for them. I guess no two cases are the same.

Also start a spending diary. Note down every penny you spend (not in the loo) even 20p on a packet of chewing gum. You'll be surprised where your money goes! I certainly was.

Anyway good luck, you've taken the biggest and hardest step and things can only get better. :beer:

johannamse

I think you sound very level headed and know what you are talking about. You just sound like the amount you are paying out per month, is putting you under too much pressure. So why not try to reduce them ANOTHER WAY. (BTW, I do not think you should add to mortgage - and I think you think that too).

So reduce them another way...why not transfer some of the debt to an mbna cc at 0% for 9m. The minimum payment is only £5 per month and this will give you a chance to build an emergency bit of money which always makes one feel better. Or maybe another idea is to transer from a 3% min payment to a 2% payment per month. It sounds like you just need a breather.

The last idea I have is to reduce the amount of debt payments you make as a % of your income. ie. increase your income. Are you claiming all benefits, could you get more overtime, get a second job.

Your doing well.

Good Luck.

DJChris

Hi southernscouser and johannamse, thanks for your replies.

I will post the financial info over the weekend as I don't have it with me at the moment.

johannamse - thanks for your ideas. I think that whilst reducing the debt, ie lower %age on CC, is a valid idea I don't think it will help me.....plus I have a second job as it is, sometimes pays only £50 p/m, sometimes £200+ - so in all my budget sheets I only put it down as £50 so that any extra is a treat.

southernscouser - I'm glad you are on the road to recovery yourself and can understand what I am thinking in terms of a DMP not really floating my boat! I will start a spending diary, its a good idea. For me, keeping my record clean is of high importance, and if I can do that It will motivate me further to keep budgetting....i think if i did a DMP i might see that as 'defaulting', ie 'admitting defeat' - and that would not be good for me! Are you saying borrowing on a long term 'self-consolidate' is possibly OK?

southernscouser

DJChris wrote:

Are you saying borrowing on a long term 'self-consolidate' is possibly OK?

To be honest with you mate I can't really offer you advice on that one because I've had no experience in that area and aren't to clued up on the pro's and cons'. Obviously it is an "option" but there will be lots of other people who will know more and will be able to advise you better.

nearlyrich

You will probably get the impression that consolidation is not a good idea from reading other posts on this board.

The danger with moving unsecured debt onto your mortgage is twofold, you can't usually lose your house over £10k of cc debt but if you add it to the mortgage and default because you can't really afford the new payment you can and will lose the house. Secondly you are paying over a longer time, for the length of the mortgage and you almost always end up paying out more in interest.

Some people consolidate to pay off their debts and run up the cards again because they are still spending more than they earn, from your initial post it appears that you are not in this category.

Have you see the what's the cost website, there are some useful worksheets there for working out consolidation, credit card snowballing etc which may help you.

ffs

You state that your debts started due to a change in circumstances, are you really sure there is no possibility of a further change in circumstances that could lead you to borrow again?

If you go down the DMP route you are much less likely to be able to get further credit, which is your stated intention.

If you are concerned that this reduces your ability to shop around for the best mortgage rate, perhaps consider moving to a fixed rate mortgage before arranging a DMP.

johannamse

I didnt mean reduce APR on cards, (although this is always a good idea) I meant reduce the amont your minimum payments come to. SOme credit cards have higher min payments than others (eg: mbna are only £5 per month, but Capital one are 3% of balance (quite high)). Do you get what I mean?

FrankieM

Hi
Just thought I'd give you the other view to the story...
We had debts of £50k that we consolidated onto our mortgage.
I know its not seen as a good thing by other people but we felt that we were then able to budget and live, and we have managed to do that.
Having said that my best friend has just consolidated 'again' and is now talking about buying xbox's and PS2's for christmas, days out and goodness knows what else.

It really depends whether you will still see that you have the debt and live acordingly or whether you suddenly think you have loads of money...