Advice BEFORE going into debt

iansime

Sorry if this isn't the best forum for this question.
If it isn't, just point me at the right one and I will re-post.

I am a married homeowner, and due to both my wife and I having to take pay cuts during 2010, we've been frantically juggling our finances around. This has meant us using a chunk of our meagre savings each month to cover the shortfall in our outgoings.
Unfortunately, the savings are dwindling, and they're probably only going to last another 3 months before we have more money going out than coming in.

So, since I havea very good credit record AND I've never missed a repayment on any loan I've ever had....I thought I would tackle the 2 largest monthly outgoings (Mortgage and Car Loan) BEFORE I am at risk of missing any repayments.

Mortgage : This is with Woolwich (Barclays) and they basically offered me 2 options. One was to extend the mortgage by 15 years (so it would finish 25 years from now, not 10 as it is currently), and this would reduce my payments to around 60% of what they currently are. The other was to complete a 'Financial Difficulties' pack and return it to them. I don't know what options this will open up to me (e.g. transfer to Interest Free for a period) but just by returning a completed pack my credit score will be affected (which seems ridiculous as I am going to them BEFORE I miss a payment).

Car Loan : Since this is a fixed-term unsecured loan, I can either get a settlement figure and then use another loan to pay that off (where the second loan is over a longer period), or wait until I go into arrears, then come to an agreement with the debt collection agency. Again, this seems ludicrous, as I am informing them of potential difficulties BEFORE I miss a payment).

I'm wary of committing to anything without understanding the complete ramifications of what I'm doing, and I also want to make sure I'm choosing the best path - which may include something I've not thought of yet.

It's frustrating that lenders don't seem to care that I am approaching them before the brown stuff hits the swirly thing :mad:

So, over to you guys - any thoughts or suggestions ?

Tixy

Hi

I know this is an obvious question but before you do either of the above have you worked on reducing your outgoings wherever you can? Checked all your utilitie suppliers, insurance policies etc are on the cheapest tariffs, and worked on reducing your spend on things like groceries, clothing, entertainment etc?
How much of a shortfall do you currently have each month? Have you worked out a detailed income & expenditure (or statement of affairs) so you have a true picture of what you need to make up each month.

Regarding the car loan if you take the first option are you certain you would get another loan? If your finances are showing you are spending more than you have coming in it might be that getting another loan will be difficult. Have you considered speaking to the loan provider to see if they will change the terms of this loan so you can pay it off over longer?, you will effectively be signing up to a new loan but you may have an better chance of getting the loan.

Extending the mortgage by such a long time does seem a drastic step. Do you really need to reduce it by as much as 60%? Have you asked them for different illustration figures if you upped your repayment to just 15 years or so? I don't see how completing a financial difficulties pack will enable them to affect your credit rating. It might affect an internal score with woolwich but if you've kept up with payments there is nothing they could mark on your credit file at the CRAs. You won't have defaulted at that point and you won't be in an arrangement to pay. I would clarify why you have been told it will affect your credit rating and what they will report based just on you filling in that pack.

iansime

Sorry, I should have made that clear in my original post.
Yes, we've been doing everything we can to reduce outgoings - cancelled what we don't desperately need (e.g. boiler cover), made savings where we can (moved gas & electricity to a cheaper provider), and generally not spent money where we could avoid it (which includes Christmas presents - sorry family!).

I haven't gone into the level of detail that you mention with regards to detailing our finances, as there have been a number of one-off or infrequent payments in/out of our account which makes that difficult. Perhaps I need to detail the list of the regular payments at least, alongside our monthly salaries.

I've spoken to the provider of the car loan, and they won't extend the period of the loan. In fact, they won't do anything (other than let me settle) unless I go into arrears - and avoiding that was the whole reason I contacted them in the first place !

I take your point about my chances of getting another loan, but since I have such a good credit history, I suspect (hopefully correctly) that this wouldn't be a problem. Whether or not it's the best course of action is another question completely.

Do I need to reduce my mortgage by as much as 60 % ?
Given what I said earlier regarding a detailed analysis of our financial commitments, I guess I can't answer that honestly. Suffice to say that compared to 9 months ago, we're bringing home almost £800 less each month via our salries. I'm therefore seriously considering an interest-only mortgage for 6-12 months which would help us get through until a better-paying job comes along.

Oh, and just to add to the fun - both my wife and I are explicitly at risk of redundancy. The mortgage and car loan come to around £520 per month in total, so my Sickness & Redundancy cover (which would pay out circa £450 a month) wouldn't even cover that.

isy1011

Sorry to hear about your situation. Interest only for a time seems best option. I would be tempted to do that.

Remember there are always options.

It's difficult to give further advise without seeing a SOA.