Any advice for this option please.

coworcoo

Hello All,

I wonder if anyone could offer some advice.

Married couple 39 and 38, three kids, joint income £2,700 a month.
Owe £40,000 on credit cards.
We can cover the payments for all the bills etc but this is a hole we are in and we need to stop digging now.

One option we have is our home/mortgage. I think we bought well at the right time although we still need to do a bit to the house, new bathroom etc.

We are 8 years in to a 25 year mortgage for £68,000. Even without a survey the building society recon the house is valued at least £148,000. We could re-mortgage for £108,000 for 20 years leaving us with enough to live on, pay the bills and save a bit. We will be paying the mortgage for an extra three years past the time when our current mortgage is paid up but we can kill off the credit cards now and make a new start debt free apart from the mortgage.

I suppose we are, in principle, moving our debt into the house/mortgage with this option but at least it is still valued more than the mortgage we would have for it and the chances are that the value of the house should increase over time.

Is this a sensible option?

The other options we might have are to tighten the belt and to throw as much as we can at the cards. Chaffordred's post is interesting and the suggested solutions along these lines:

http://forums.moneysavingexpert.com/showthread.html?t=115548

I've only just got up to speed with our financial situation so I'm just starting to explore the other links and options via the CCCS http://www.cccs.co.uk and the National Debtline http://www.nationaldebtline.co.uk/

Thanks for any thoughts any of you might have for this one. Finding this forum and such helpful people is a comfort at a difficult time.

Regards
coworcoo

Magentasue

The problem with adding to your mortgage is that you can still carry on with your living-beyond-your-means lifestyle.

Would recommend changing spending habits, snowballing and getting out that way. Can only happen with resolve though!

Robert_Sterling_3

My thoughts.
Yes it is at first sight a sensible option.
Having the 40,000 debt in the first place might not have been.
The downside is that the debt becomes secured on your property.
Also with no credit card debts you might splash out rather than save up for a new bathroom.

exessexmum

Hi :-)
We had £50K equity in our old house and very nearly put our £20K of debt onto our mortgage. Fortunately for us we discovered this site and worked out that by doing that we would be paying something like £18,000 of extra interest AND our debts would be secured on our house. Our spending habits were pretty bad and we needed completely re-educating, and consolidating our debts (again!) wouldn't have changed our rubbish buying habits.
We are using the snowball calculator on https://www.whatsthecost.com (or .co.uk?) and we now are hoping to be debt free in 5-6 years, rather than the 20 it would have been if we had remortgaged.
Adding to the mortgage is the easy option, yes, but as others have said, its a radical change in lifestyle you really need to stop you accumulating another £40K of debt.
Good luck
Tracey

Almost_Redundant

where did the 40k go to? Do you have anything to show for it that could be sold/downsized?

coworcoo

Thanks for your thoughts Magentasue, Robert_Sterling, exessexmum and Almost Redundant.

For a bit of further explanation our debt has accumulated primarily through going for our house and having kids come along before we where ready. Paying back a couple of car loans at the same time and a drop in collective income due to my wife working part-time for the sake of the kids. We have never been in a shopoholic situation or buying ourselves treats like holidays and gadgets.

I think we got into the credit card hole and it just got deeper. As I said I have only recently become aware of our true financial position. I am absolutely determined that this is our lowest point. The line is being drawn here and I will do whatever I can to get us out of this hole/mess.

Using the house/re-mortgage to get rid of the credit card companies in conjunction with a proper budget and savings plan seems a good way forward.

Moving forward from here will require that we heed your warnings regarding not splashing out and not overspending. I will be tightening our belt and be looking to save every penny as well as earning a few extra if I can.

With three kids future to secure I never ever want to be in this position again, this is where it stops.

Looking at the positive side without the debt we have got ourselves into we would never have managed to buy the house or have the kids when we did. Rationalising our situation I wonder if getting a 20 year mortgage on £108,000 for a house worth at least £149,000 would seem like a good deal.

Do I kill the credit card companied off now and take the hit to the mortgage or try and keep our existing mortgage and battle the credit card companies via the changing spending habits, snowballing route?

I'll have to go through our figures very carefully.

Thanks for all your help so far. Talking with you here is a real help with my worries.

Regards
coworcoo

southernscouser

Have a read of this thread coworcoo and then post back here.

http://forums.moneysavingexpert.com/showthread.html?t=107280

Like others have said, there is no point just putting all your debt on to your mortgage if you are just gonna run the CC's up again! You need to change your spending habits.

Good luck

SS

lush_walrus

Personally, I would do a bit of both, put the debt onto the mortgage so at least it isnt esclating with interest, and then sort out your budget to make sure that you dont accumulate more debt. Then try to get your mortgage back down with overpayments where you can.

HLK

If you are going to re-mortgage, for whole or part of this, make sure you get the best deal, including moving provider - you may cut the repayments. I was going to suggest overpayments but lush beat me to it. So, whichever mortgage you choose make sure this is a feature.

kazzaj

We found ourselves in a similar situation about six months ago. £25k credit card debt and we could not keep up with even the minimum payments, we had 5 cards and all 5 were referred to recovery companies. After careful consideration we decided to remortgage as we had approx £120K equity in the property. Although we were concerned about adding to our term and the long term effects, I have to say that 6 months on, its the best thing we could have done. We also managed to negotiate Full and Finals with three of the five companies and saved almost £7000 on the outstanding amounts.

We now have no cards or loans and the hassling phone calls and snotty letters are no more. Its peace of mind and its bliss. We will not be borrowing through cards or loans ever ever again, now we save up and buy things when we can pay for them.

It may not be for everyone, but it worked for us.

Almost_Redundant

I'd be inclined to put half the debt onto the mortgage provided you made a concerted effort not to borrow against it for anything else (bar saving a life). I would then get the remaining 20k onto 0% credit cards - then cut them up! Sell one of your cars to reduce this further. A family can get by on 1 car, i've been doing it for the last 2 years.

Eventually you will come out of this. Never say it was the wrong time to have kids as there is never a right time! As they get older, providing you dont spoil them and pander to their every want, you will gradually see them becoming cheaper to 'run'.

Make sure that if you remortgage you find out exactly what you will be paying and for how long. Work out if you can afford repayments if interest rates rise. Posting all in and out goings on this site can be useful for others to identify where you may be able to cut back.

And finally, congratulations on recognising and addressing your situation.