why not secured lending?

nomorebeans

Hi

I've just registered today, and decided to take the first steps to sorting our finances out, big breath....

We are 55k in debt not including mortgage, we have no arrears or CCJs, though this can't go on for ever. Looking through other threads it looks as though most people go onto payment plans rather than take out a secured loan. Apart from the fact that you run the risk of loosing your house what are the benefits/disadvantages of going onto a plan?
Thanks

chralph

Hi and welcome to MSE!

There will be experts who will come along with more useful information but i just wanted to say hi! They will probably ask you to post an SOA and then we can pick it apart to see where you can save money You can find it here

You've taken the biggest step in realising your debt and now we can help

Big Hugs

Chris.

Storm

Hello and welcome :hello:

The reason many people are against consolidating and turning unsecured debt into secured debt is partly because you're risking your home if you can't keep up with repayments. However, it's also partly because it doesn't tackle the reason you're in debt now, and it's very easy to consolidate and then run up credit cards etc again. Thirdly, many of the adverts for these loans are over a very long time - 15 years seems about standard - and so even though the interest rate looks low the total amount repayable is huge, so you pay more in the long run.

If you go to https://www.whatsthecost.com you can 'snowball' your debts to see how long it will take you to clear them all and how much interest you'd pay - you can then directly compare this with the various deals the loan companies offer.

As chralph says, posting a SoA will enable the wonderful people on here to see where you can save money each month. As you haven't defaulted on any of these the situation can probably be managed by re-jigging your SoA to free up a bit of cash each month.

Xbigman

Its reckoned that approximately 80% of consolidation loans fail to cure the underlying problem. This can lead to serial consolidation with high charges as you end up paying off previous consolidation loans and incur early settlement penalties. As you get more desperate its common to get much higher APR's and then you get pushed into PPI in order to get the new loan approved.

The phrase 'secured debt means risking your house' is something most people don't understand. If you fail to pay any secured debt, for any reason, your house will be repossessed. The lenders don't need CCJ's or charging orders, they just do it. If you try to go on a DMP then the secured debts cannot be negotiated down, they must be paid. CAB, CCCS and others have been known to turn people away if their debts are mostly secured, for the simple reason that they cannot do anything with secured debts.
Thats not to say you should panic if you have a short term problem. If you miss a secured debt payment or two no one will try to repossess (although some lenders will hit you with serious charges) but you will be expected to catch up later.

That said, consolidation can work 20% of the time. It can cut payments and help cash flow. But there are two major qualifiers.
You must have had your lightbulb moment. That means cancelling overdrafts and cutting up credit cards IE NO more easy debt.
You must also not take the consolidation over too long a time period. Many people don't consolidate to clear debt. They consolidate over very long (15 year) time periods to 'free up cash' or they borrow extra for a holiday / rainy day money. This is totally wrong. You should ideally consolidate over 5 to 7 years and you should actually make some effort to cut back on spending IE suffer a bit.
Thats how consolidation works best.
Regards



X

tyllwyd

The other problem with secured loans is that even though the interest rates are lower than unsecured, people end up going for a low monthly payment but then paying them for such a long time that the total amount repaid is huge, and they end up with an enormous milstone round their neck.

nomorebeans

crikey ours seems so bad compared to everyone else

credit cards
halifax. Balance 9400 6.9% life montly payment 187
Sainsbury. Balance 2150 5.9% life monthly payment 48
BA Amex. Balance 7865 4.9% life monthly payment 197
RBS. Balance 2000 7.9% life. monthly payment 44
Lloyds balance 2400 3.9% life. monthly payment 48
barclaycard balance 5200. std rate, monthly payment 150
Virgin. balance 4130 0% mar 07. monthly payment 15
Waitrose balance 3080 2% feb 07. monthly payment 92
Amex balance 3500 2.9 Mar 07. monthly payment 87

loans
cahoot july 05 10500 72 months 6.2% monthly 174
barclaycard sept 05 8000 60 months 5.6% monthly 154

what's left goes on
water 32
tv licence 11
pension 126
02 mobile 25
leeds hospital fund 24
telewest (cable, broadband, phone) 55
council tax 87
powergen (gas & electric) 124 (tried on uswitch recommended same supplier)
insurance 43
mortgage balance 163000 22.5 years, 1048 month, house value 220,000
petrol 140

as you can see we need drastic action

Xbigman

Theres no food, car tax, xmas, birthdays presents, cloths on your expences list (probably more). You may need to revise.

Taking your expences as listed, are you actually managing to pay all the loans and minimum payments or are you sliding farther into debt each month?

How much is your income?
Regards



X

MikeyB_2

nomorebeans wrote:

crikey ours seems so bad compared to everyone else

How much net income comes into your household each month as I can't seem to see it?

Are there any benefits or tax credits you could be claiming?

credit cards
halifax. Balance 9400 6.9% life montly payment 187 - LOB so not to bad
Sainsbury. Balance 2150 5.9% life monthly payment 48 - again LOB
BA Amex. Balance 7865 4.9% life monthly payment 197 -and again
RBS. Balance 2000 7.9% life. monthly payment 44 -and again
Lloyds balance 2400 3.9% life. monthly payment 48 -and again
barclaycard balance 5200. std rate, monthly payment 150 what is real APR?
Virgin. balance 4130 0% mar 07. monthly payment 15 -Need to sort this out by March then
Waitrose balance 3080 2% feb 07. monthly payment 92 -And Feb for this one
Amex balance 3500 2.9 Mar 07. monthly payment 87 -And March again

Are the LOB at their limits and/or after the introductory period. Could you roll some of the other balances onto the lower interest LOB cards and cut the others up?

loans
cahoot july 05 10500 72 months 6.2% monthly 174 That's a long period left to go
barclaycard sept 05 8000 60 months 5.6% monthly 154 -fairly good interest rate here

Is the BC flexible i.e could some of the Cahoot balance be moved across to the lower interest rate

what's left goes on
water 32
tv licence 11
pension 126 -Is this additional (voluntary?) contributions to a work pension? Could further payments wait until you've sort out the present somewhat?
02 mobile 25 - I presume this is contract? Could you get away with PAYG?
leeds hospital fund 24 -Is this a charity donation? If it is then sorry it has to go for now - you could always give more when you get back to a better financial place
telewest (cable, broadband, phone) 55 -Any chance of finding a cheaper package or dropping cable as this is a fair chunk of change?
council tax 87 -Do you have all the benefits you are entitled to?
powergen (gas & electric) 124 (tried on uswitch recommended same supplier) -Are you paying by Direct Debit as it might be cheaper?
insurance 43 -Is this the cheapest?
mortgage balance 163000 22.5 years, 1048 month, house value 220,000
petrol 140 -Could you sell the house and rent (drastic I know!) as it would clear your debts

as you can see we need drastic action
There are no debts on there at shocking interest rates so you are doing not to bad, but yes you need to get the numbers rolling back the other way

I hope that helps