Need to rid this debt!!

Batoutofhell_2

Hi,
This is my first post here, so first of all hello all and this site looks like it will become a permanent fixture for me in the months to come.
Basically I am in a situation due to circumstances a few years ago whereby I am in debt and I have been embarrassed at the extent, and have stuck my head in the sand about it. My current situation is much better - infact a complete turnaround - however I still have this debt and I need to work out the best way to rid it or consolidate it with a view ultimately to getting a mortgage for a family home.

I am totally unsure as to the best way to proceed and need the quickest way to rid these debts OR to manage them in such a way that I could still be mortgaged approved:

Debts owed between my partner and I:
Credit Union (16,000) 10.9 APR- paid out of my work salary and over 3 years.
Credit Card (£1,500) - standard APR rate
Credit Card (£3,000) - 0% APR - 8 months left at 0%
Credit Card (£2000) - standard APR rate
Loan (6,000) left out of original £7,5000 loan. Paid at £233 p.m.
Loan (4,000) paid at £200
we also have a car finance at £200 per month.

Our combined incomes are £58,000 per year.
At the present time we have zero disposable income to save for a mortgage deposit - every spare penny after normal outgoings is attacking the debts. I am paying more than minimum payments but cannot see any real hope for progress in years and that is a worrying thought.

We have moved in with a relatives and put our home on the rental market with a £500 p.m. additional income, this is also saving us £ on not paying household bills. (mortgage currently £300 p.m). We have outgrown this property due to having a young child and hence the need to move into a larger property as soon as we realistically can. I appreciate the help Im getting but need to stand on my own two feet as soon as possible. No chance of selling to pay the debts as Im in slightly negative equity!

The Credit Union will offer unsecured loans up to £25,000 over up to 8 years. I have thought about upping my current 16,000 to 25,000 and swallowing up the debts with highest APR and paying back over a longer period and hope the mortgage company understand this is a manageable debt?

I am hoping for a mortgage of around £150,000 - £165,000 (after deposit paid). The deposit will be thankfully assisted with family but I cannot/dont want to ask them to use this to pay of our debts. They will stand as guarantor though if needed?
Strangely I am shown as having good credit.

Any ideas on what to do? apologies for posting this in the debt free and mortgage forum as I am unsure as to where was most suitable.

I appreciate any honest advice and guidance and hope to be a regular member of the forum to offer advice in other areas.

Thank You

Tixy

Hi and welcome to the forums.

Very sensible to be paying off debts with every spare penny, not trying to save for a deposit.

You say you cannot see any real progress at the rates you are paying - have you tried looking at the snowball calculator http://www.whatsthecost.com/snowball.aspx to see how long it will take to pay off these debts as things stand? Put in your debts and APRs and how much you can afford in total towards them each month. That will then give you a starting point to work from.

I'd imagine with an existing buy to let mortgage, plus your current level of debts you will struggle to get another residential mortgage at the current time.
How much are you paying towards your debts a month in total? on your income and with living with relatives I would have imagined you could make a real dent in the debt in a year (the snowball will also show that info at the bottom)?

foxgloves

When you go to try & arrange a mortgage, the lender will want to know how much debt you have. They are not overly concerned how you manage it. They will look at how much they are prepared to lend you, based on your income & the usual factors, then they will deduct from that the amount you are in debt. To give an example, when my partner & I were arranging a mortgage, we'd had a valuation of our current home & knew there was going to be sufficient positive equity in the sale to more than cover my partner's £16,000 loan as well as allow us to put a deposit on the new house. The lender still deducted the £16,000 from what they would lend us even tho we said we can manage it, we're fine, we're paying it off with our positive equity, etc. I'm glad now, as we'd have ended up buying a more expensive house & having a bigger mortgage, but I think you will find the same, they are not likely to be bothered how you manage your other debt, only that you have it, & it limits what you can pay back in mortgage payments. So, I'd get it paid off, then get some of the money you are putting into debt repayments into a house deposit fund, THEN go for a mortage in a much stronger & more responsible-looking position.

Batoutofhell_2

Thanks so much for your replies -
Realistically I do need to be in a position to look at moving in 12ish months however unlikely it now seems
The snowball calculator is good and has opened my options a little although it requires alot of discipline and the amount each month I can pay can fluctuate. I can be ill-discliplined (at times).

What I was considering was to top-up my credit-union loan in March to £24-25k. Then wipe out/pay off the two credit cards with high APR, and the loan of £6000. Then increase the repayment time of it to 90 months which would cost me £400 per month. This comes out of my wage so I never 'see it' in my bank and can be replaced with overtime etc.

I could then concentrate on paying off the remaining loan (which I have worked out at actually nearer to £2,500 outstanding rather than 4k) and the 0% card, whilst also at the same time saving for a deposit.

Id be going to the mortgage company with 20K of manageable deb tat £400 pm. but Id only be asking for 2.5 times our wage, rather than 3 or even 4 x. Id also have a 15% deposit once family assist with it.

How does that sound - realistically?

Thrifty_Pixie

I'm afraid I suspect that the previous poster is correct: whether you consider your debts are 'manageable' or not mortgage lenders will still take it into consideration in what they lend you. Who knows when your circumstances will change? One of you might be made redundant and then your £20K of 'manageable' debt is no longer manageable almost overnight. Also, will the deposit money loaned to you by your family have to be repaid at some point, adding to your debts?

Tixy

£20k is still a lot of debt, but I believe mortgage lenders would prefer to see a loan with a fixed repayment rather than card debts.
But I don't know how they would feel about the buy to let mortgage that you already have. The mortgage board could help you better with that.

So you think you'd be able to pay around £11k off the debt in a year then? Are you also assuming saving something towards the deposit yourself? If you are not then I'd just wonder if you couldn't afford to pay off more than £11k on your incomes?
Are you taking home around £3700 a month between you? And how much are your essential living costs?

Batoutofhell_2

The family contribution will not need to be paid back thankfully.
I only have a 12 month (or slightly longer) window to get in a position to move though which is the problem unfortunately
If they discount the current debt of what they would lend then hopefully that would be ok as Halifax have stated they could lend just over 200k however I would only need a maximum of 145-150k to borrow.
Im thinking this would be the n1 x debt payment (albeit over a longer period) rather than the current 6/7 I have currently?

Batoutofhell_2

Between us take home would be around £3000 once pensions and healthcare etc are taken out of the equation. I dont know the essential living costs as we've only just moved back 'home'. But we have 1 dependant and need around £300 per month petrol minimum for commuting. The rest would be food and general day to day spending. Most of the bills have been paid off awaiting a tenant into my existing property. If that makes sense.

Tixy

Oh yes I forgot you'd said you had a child. Obviously your living costs do tend to be higher then - and £11k would still be an impressive reduction in your debt in a year (whether or not it would be enough for a mortgage).
But I'd thin worth a year of trying to live as frugal as you can so that you can get to a positon of being able to move out as soon as you can.

Good luck.