The best way to clear a large debt - advice needed please

emnoangel

I am looking for advice on the best option out of the ones I have come up with to clear an old business debt of my husband's.

The business is really no longer in existence and he only does one freelance job a month for it just to bring in a bit of money but this is only £120.00 a month before VAT and tax (I have calculated this to leave about £80.00 a month) and the current loan repayments (still 7 years to go) are just over £200.00 a month so obviously nowhere near enough money to cover it. He now has a permanent job as well but I am loathed to use our income (I am also self employed) to pay off this debt and leave us with less each month and the bank are refusing to change the repayments to an amount that he can afford through the business and therefore I have been thinking of ways we can get rid of all or part of it and this is where I need advice.

I have come up with the following:

1. We own a property that is rented out and mortgaged - should we see if we can re-mortgage to give us the amount needed to pay off he debt (we live in rented accommodation ourselves so this is our only option using property), bearing in mind that we are on a fixed rate and will be charged an early redemption fee as well as any other applicable fees, plus this would increase our borrowing to the LTV limit?

2. Should we try and sell the above property which would leave us with money to pay off the debt and put the rest into savings (I am concerned after my reading that having sitting tenants could be a problem and a higher expense on top)?

3. I have just over £3,500 in an ISA and about £2,000 worth of shares - should I use these to pay off part (about half) of the loan and therefore reduce the payments but still leave us with a debt?

4. Leave the loan as it is and use our monthly income to make up the difference?

Any advice or pointers would be most appreciated as I seem to be going round in circles trying to work out the best solution - I hope I have provided enough information.

fatbelly

I'm assuming the business was just a sole trader, self-employment thing.

1- converting unsecured debt to secured is not a good idea.

2 - not a good time to sell property

3 - well, you're probably paying more interest on the loan than you you are getting on the ISA, and shares are only heading one way, so that seems a sound idea

4 - paying the contractual monthly instalment is the best idea if it's affordable.

Do you know what the interest rate on the loan is? Your question mught be 'I can afford to pay off half the loan. How do I reduce the interest on the remaining half?'

emnoangel

fatbelly wrote: »

I'm assuming the business was just a sole trader, self-employment thing.

1- converting unsecured debt to secured is not a good idea.

2 - not a good time to sell property

3 - well, you're probably paying more interest on the loan than you you are getting on the ISA, and shares are only heading one way, so that seems a sound idea

4 - paying the contractual monthly instalment is the best idea if it's affordable.

Do you know what the interest rate on the loan is? Your question mught be 'I can afford to pay off half the loan. How do I reduce the interest on the remaining half?'

Yes the business is just a sole trader.

Thank you for your reply - it has helped with my thinking and no I don't know what the interest rate is yet (has gone through my mind today to find out actually but will have to rely on my husband to do so). With regard to my shares they fluctuate strangely compared to the market (not that I know much about shares at all, I just watch them on a regular basis and it never seems to make sense). So it looks like paying off half of the loan is the most sensible and viable option here.

I was wondering if I go for paying off half the loan if it would be better to take out a new personal loan for the remaining amount instead when we have found out the interest rate??

Jesthar

:eek: Options 1 & 2 aren't really that great - the property market is bad, and if you secure the debt on the house and then can't pay, that threatens your house.

Personally I'd go with a combination of 3 and 4 - although you should check to see if there are any early repayment penalties on the loan.

~Jes

emnoangel

Jesthar wrote: »

:eek: Options 1 & 2 aren't really that great - the property market is bad, and if you secure the debt on the house and then can't pay, that threatens your house.

Personally I'd go with a combination of 3 and 4 - although you should check to see if there are any early repayment penalties on the loan.

~Jes

Thanks - though it is a rented house so I don't have a major problem with that side of things and am fairly sure the tenants won't be going anywhere in the near future (now on HB and family a few doors up).

Yes I need to check on both interest rates and early repayment penalties, thanks.

insider66

option 4.

It's not really the banks fault the business doesn't make enough to cover the loan, but you are "loath" to pay it from your income?

If this genuinely leaves you struggling you should look into other options.

Is this the case - or is it just that you expect the old business income to cover it's own costs?

emnoangel

insider66 wrote: »

option 4.

It's not really the banks fault the business doesn't make enough to cover the loan, but you are "loath" to pay it from your income?

If this genuinely leaves you struggling you should look into other options.

Is this the case - or is it just that you expect the old business income to cover it's own costs?

I knew I wouldn't have explained myself properly - I am not loathed to pay the bank back (though after the numerous years my husband has banked with them both personally and through business I would have hoped they may have been a bit more accommodating - especially as when his business trade was good, it was very good), but I run a business and my husband is now employed, plus we run a business as a partnership and due to the work I put in on the businesses to make an income I don't want to have to use that much money a month out of my hard work to pay for a business that should have been closed years ago. And yes I expect it to cover its own costs and debts.

Anyway I think this is getting away from the point, it is not paying back the debt I have a problem with and I don't even care how we do it now, I just want it paid off ASAP which is why I am looking at the various options.

insider66

emnoangel wrote: »

I knew I wouldn't have explained myself properly - I am not loathed to pay the bank back (though after the numerous years my husband has banked with them both personally and through business I would have hoped they may have been a bit more accommodating - especially as when his business trade was good, it was very good), but I run a business and my husband is now employed, plus we run a business as a partnership and due to the work I put in on the businesses to make an income I don't want to have to use that much money a month out of my hard work to pay for a business that should have been closed years ago. And yes I expect it to cover its own costs and debts.

Anyway I think this is getting away from the point, it is not paying back the debt I have a problem with and I don't even care how we do it now, I just want it paid off ASAP which is why I am looking at the various options.

You have no problems paying - you just want it paid off ASAP - yet you even consider selling a house in this climate to do it?

I think there's a little more to this than meets the eye

emnoangel

No we can't afford to pay it (when did I say that we have no problems paying - that is the whole point of my post) - that is the problem and why I want to decide on which is the best option to pay it off ASAP (using sale of house or remortgage) or reduce it (using my savings and shares) - I want the debt gone as soon as possible if I can find the best way to pay it off or reduce it.

There certainly is not more to this than meets the eye - it is a genuine problem and now I am feeling upset and stressed that I have come across that way when I am just looking for advice (and have been searching and researching for the last couple of months now).

insider66

If you are worried about being able to afford the payments then I suspect the best way to solve the problem is to use the savings to pay as much as possible, but negotiate with the bank as to what this will mean to your payments and remaining interest rate. If at all possible, try to keep the house (assuming you are at least breaking even renting it) as it is bound to become a bigger asset in future.

Hope this helps

Jesthar

emnoangel wrote: »

There certainly is not more to this than meets the eye - it is a genuine problem and now I am feeling upset and stressed that I have come across that way when I am just looking for advice (and have been searching and researching for the last couple of months now).

Hi angel,

If you are having general cashflow problems, how about popping up a Statement of Affairs for us to have a look at - this is a sort of summary of your monthly finances, and helps us help you with where you could save money and what to do next. you can find the calculator here:

http://www.makesenseofcards.com/soacalc.html

If you fill out absolutely everything you can, you can use the 'MSE' button in the 'Format results for discussion board' section near the bottom to copy and paste it into a post here for people to help you with.

*hugs* Hope that helps,

~Jes