Helping My Parents Get Debt Free

danedin

Advice desperately needed on my situation/parents' situation.

They have around £25 000 of credit card debt.

They've also just paid off their mortgage and the house they now own is worth around £120 000.

They are both in their early sixties and my mother is receiving state pension and my father is still working full time.

I also have a bit of credit card debt although it's under £5000 so they want to pay some of that too.

Their aim is to pay off all of their credit card debt but I am not sure how they should do it best.

They contacted Age Partnership who sent them a leaflet on equity release, lifetime mortgages, etc. but I didn't find it very clear and I don't understand with some of the options where the money (and profit) comes from to pay these back.

I was wondering if they should give me their house and then I could get a mortgage on it to pay their debt? They plan to leave it to me anyway but I thought this might be the cheapest way.

To complicate things further(!) I have had a trust deed in the past (I live in Scotland) and so I have several defaults on my credit file (due to disappear later this year) so I'm not sure what sort of mortgage I could get anyway.

Any ideas? I can provide more details if I've missed anything out. They don't have any defaults or credit problems, etc but their credit is pretty much maxed out I think.

fatbelly

It sounds like their non-priority (credit card) debt increased as they were paying off their priority (mortgage) debt.

Now that is gone, it makes no sense to transfer it back to priority debt in your name!

If they cannot afford the minimum payments on their cards they should look at a debt management plan with a fee-free provider in the first instance. (If they can pay more then snowball). It's nice of them to want to pay your debts too but they should really concentrate on their own until they are debt-free.

Equity release may eventually make some sense but they need to do a lot of research and probably won't get a good deal at their present ages.

danedin

They can afford the minimum payments on their cards it's just that they want to get rid of the debt before my father retires and his income is reduced.

That's why I thought it might have been better to borrow against the house? I expected that it might be easier for me to do this rather than them because of their age.

the_cat

Well if their priority is to pay the amount as quickly as possible and they can meet the payments at present, a mortgage would be a very bad choice IMO

There will be set up costs, legal fees etc etc and a minimum term, which is almost certainly going to take your father past his retirement age. Exactly the opposite result to that which they need

Sadly there are no quick fixes. It's time to knuckle down and start chipping away at the debts. By all means, they should look at whether they can reduce the interest by switching cards but secured debt is not the way to go. But primarily its the old boring story of cutting back and paying as much as possible now, in order to get straight as quick as possible

BTW generous at it is of them, if you feel that you are in a position to apply for a mortgage, why would they be wanting to pay off your debts? Equally, I think helping them get the right info and giving your support is absolutely the right thing to do...... but taking on their debts? Far, far too complicated and from the info so far, totally unnecessary

danedin

Thanks for all of your advice so far, much appreciated. I thought I'd be getting a lower interest rate though if I took a mortgage or secured loan? I'm confused because I thought it was good to consolidate credit card debt into a loan. They're only paying minimum payments on their credit cards at the moment.

Nottoobadyet

What if they downsized now that they are on their own and used the difference to pay off the CCs? Depends of course on them being able to sell easily, but they would be cash buyers and would be debt free if it went through.

whiteguineapig

Nottoobadyet wrote: »

What if they downsized now that they are on their own and used the difference to pay off the CCs? Depends of course on them being able to sell easily, but they would be cash buyers and would be debt free if it went through.

that was my thought as well, i don't know the practicalities of it tho

Nottoobadyet

danedin wrote: »

Thanks for all of your advice so far, much appreciated. I thought I'd be getting a lower interest rate though if I took a mortgage or secured loan? I'm confused because I thought it was good to consolidate credit card debt into a loan. They're only paying minimum payments on their credit cards at the moment.

It's not good to consolidate credit cards into a loan (despite what the salesmen might say) if:
a) its a secured loan, so if you cant pay you lose your house rather than just take a hit to your credit rating or
b) you haven't addressed the overspending that lead to the debt in the first place and just run debt up again on the now available card balances

poppy10_2

Couldn't they just default on their credit cards? Yes it would trash their credit rating, but if they are already old and paid off their mortgage, they are unlikely to need to borrow again.anyway.

bouncydog1

They need to look at their income and outgoings and work out how much they can use to service their debt - which is likely going to mean them cutting back. If your dad is say 62, and working until 65, then they effectively have 3 years to pay off £25k plus interest. Options might be, if he has a good credit rating, to see if there are any 0% deals around that would save on the interest.

If he cannot afford to pay the money back by the time he retires, then they need to look at other options such as downsizing or entering into agreements with creditors. Borrowing against the equity in the property will not help - this will turn unsecured debt into secured debt - and the loan plus the interest will still need to be repaid.

A full statement of their affairs would help - they may be spending £600 per month on groceries for 2 for instance, so it might be possible for people to help them cut back and formulate a plan.

By the sounds of it they have been living beyond their means, so any action is going to mean lifestyle changes one way or another. The other thing is that they have to want to make the change - if they downsize and have the difference in cash between the properties, would they pay off their debts - can they live on the income they have coming in? All needs to be thoroughly looked into before looking for quick fixes. Will they be able to live on retirement income? Could your mum get a job?

danedin

To clear a few things up:

-my mother already works, I forgot to mention that in the first post
-they have already looked at their spending and have cut it back completely so they have already had the necessary lifestyle changes
-they are paying at least the minimum payments on the cards (usually more)

Wouldn't any agreement with creditors, or defaulting on credit agreements mean that the equity in the property would be taken into account?