Parents in debt

kgall

Hello,

It has just come to light that my parents are in debt. In short my dad has been hiding this from my mum and it very suddenly and unexpectedly came to light. As you can imagine it wasn't pretty or polite.

They are in their late 50's and early 60's and (she at least) thought that the mortgage would be paid off in 5 years and that they had some savings. I have been through all the accounts with them (and done things like get their credit agency files to make sure he hasn't any other debt).

In short they have between them:
1. A mortgage that in 5 years, with current payments, will have £70k left on it.
2. Two endowment polices that in 5 years will be worth a minimum of £40k. Therefore a potential shortfall of around £30k.
3. Three credit cards with a total of £24k debt. With the highest rate at 34% (!!!) and the lowest at 20%.
4. One bank account with an overdraft of £3,000 at 19%.

With them I have done some immediate actions:
1. Set up direct debits on all the credit cards for the minimum monthly payments and paid off any arrears (cards are all pushing their limits and some payments had been late - not helped by paying by cheque!).
2. Cleared minor debts e.g. an insurance premium, council tax etc.
3. Applied for some 0% balance transfer cards. Unfortunately my Dad was not successful for three but my mum was for the current best "buy" Barclaycard (22 months), nearly all the 34% credit card debt was transferred here.

To do:
1. They have done a budget and I will sit down with them and go through every item to try and reduce their expenditure. There are many areas where easy savings can be made.
2. However my question is what to do about the remaining high rate debt. Clearly they need to move this to a lower rate.

So my questions are:
1. Should I see if they can get another 0% card in my mums name (she has made 2 applications already, 1 was successful)?
2. Even if that is successful there will no doubt be debt remaining. As I see it there are three options:
a. get a lower rate loan and consolidate
b. add the debt onto the mortgage (currently at a rate of 2% fixed until December this year)
c. cash in the endowments and pay off the debt. (I am not clued up on endowments (yet!) but presume there would be some form of penalty to factor in.

Any advice would be really most appreciated. I am trying to persuade my mum to come on here but that may take a little while. Things are very raw and to be honest just very sad.

Thanks,
K

MoneyMission

Hey kgall

I'm not the best person to give advice to be honest. Someone with far greater knowledge than me will be along soon to help I'm sure.

Really just wanted to say that your parents are in an awfully sad situation. They have been ably helped by you and are really lucky to have you on side. I'm sorry that things are how they are. Keep chin up.

MM
x

Little_Miss_Uni-Debt

Hi Kgall,

It sounds like you've been a lot of help already. The fact they are taking your help is a good sign too. I know my parents would be far too stubborn.

When did you parents take out their endowment policies? Could they have potentially been mis-sold if there is such a big shortfall?

The MSE endowments is here http://www.moneysavingexpert.com/reclaim/endowments-miss-sold

Keep on going! Your help now will take years of their struggles later on.

NeverAgain_2

I think the OP is wise to research the endowment further.

My concern is the current economic troubles may reduce the projected £40K return, although the OP describes that as a 'minimum', so perhaps it's guaranteed.

Verbatim

Is there a particular reason for the high debt? Is there a gambling or other addiction which needs addressing (which otherwise might undo all your efforts again in the future)?

Mikazaru

kgall wrote: »

Hello,


In short they have between them:
1. A mortgage that in 5 years, with current payments, will have £70k left on it.
2. Two endowment polices that in 5 years will be worth a minimum of £40k. Therefore a potential shortfall of around £30k.
3. Three credit cards with a total of £24k debt. With the highest rate at 34% (!!!) and the lowest at 20%.
4. One bank account with an overdraft of £3,000 at 19%.




So my questions are:
1. Should I see if they can get another 0% card in my mums name (she has made 2 applications already, 1 was successful)?
2. Even if that is successful there will no doubt be debt remaining. As I see it there are three options:
a. get a lower rate loan and consolidate
b. add the debt onto the mortgage (currently at a rate of 2% fixed until December this year)
c. cash in the endowments and pay off the debt. (I am not clued up on endowments (yet!) but presume there would be some form of penalty to factor in.

Any advice would be really most appreciated. I am trying to persuade my mum to come on here but that may take a little while. Things are very raw and to be honest just very sad.

Thanks,
K

I wouldn't apply for any more 0% cards, multiple applications in a short time will hamper her score and she'll be less likely to be accepted. Generally it isn't advisable to consolidate debt, a large percentage of people who do tend to run it up again, also adding it to the mortgage means you're turning unsecured debt into secured debt.

The best thing to do may be to snowball, pay the minimum payments on all cards/overdrafts and put all spare cash to the 34% debt. When this is cleared put the minimum payment for that which is now spare plus surplus to the next highest card and so on. As balances go down you may be able to shuffle it around a bit more to the 0% card or if you cancel the cards as you pay them off, they may offer a lower rate. You could also call them and they may reduce the interest rate.

Do you know what the money has gone? If it's been on material things have they got anything to sell? In the short term it will help get rid of the remaining 34% debt.

There is a SOA on here which you could post and people can offer some advice on possible areas to cut back.

DCFC79

Looks like you have helped alot so far, im sure aomeone more knowledgeable will be along soon.

RRRRodgA

If there is a remaining 34% debt then I would suggest moving it to the lower 20% rate card if you can, saving 14% of interest each year.

Other than that well done in the steps you've taken, it must have been difficult for your Dad to take the help also. Well done!

kgall

Thank you all!

Verbatim - you are spot on and it is something that they are just starting to address.

Little Miss - I will certainly look into the mis-selling angle for them but I would treat that as little bonus that is unlikely to come off rather than anything else.

From what people are saying I am thinking that cashing in or selling the endowments to pay off the debt may be the best cause of action. By doing that it won't be secured against the house. I will need to look into the details but simply if the endowment is not increasing by much (including any bonus) then surly it makes sense to use it to clear debt that is costing a lot.

They will obviously then have to cut back and save like mad in order to overpay on the mortgage.

Does that sound rational? Can anyone point me in the direction of an explanation about endowments and the types? Specifically anything about how to sell them or cash them in would be useful (they actually have two endowments that make up the total sum). I will get them to call up today and get some details but really I need to tell them what questions to ask.

Thanks, K.

debbiedebt

Is there any chance they could sell their house and downsize and pay off most of the mortgage that way?

Do you still live with them?

What's lovely supportive person you are!

kgall

Debbiedebt - not in the short term but my hope is that they can sort the immediate debt problems (credit cards/overdraft) and then we can look at the mortgage shortfall in the longer term (which may mean downsizing in a few years).

Any thoughts or advice on endowments anyone?