Sorry, another request for advice on consolidation

Suziebabe

Apologies all, I know this one keeps cropping up, and the answer's usually 'don't do it, it's a mistake' - I guess I'm posting because I want some help from the lovely forumites to see if my logic is flawed.

So, here's the background .... Almost 2 years ago we got the wake up call (triggered by potential redundancy) that our credit card debt of almost £32k wasn't going anywhere. We were/are lucky in that we can afford the repayments, but they weren't going anywhere, and if anything were creeping upwards due to a broken budgeting system.

So, our debt-free journey started, and to date we've cleared £6k of debt, using 0% deals, and built up a savings pot of £5k - so net position leaves us £20k in debt. Obviously we're happy it's going down, and are looking at probably another 3-4 years to being debt-free.

So far so good ... then I followed up on Martin's email last week about remortgaging. Last time I looked at remortgaging (around the LBM) there was little benefit - but now it looks like there's about £150 a month benefit financially just based on our current mortgage amount.

Then I started working out what it would cost if we consolidated the remaining £20k of debt onto the mortgage - and while the payment goes up above our current mortgage payments, it still saves us over £100 a month on the combined mortgage+CC minimum payments, not counting the overpayments we make. Being of a cautious nature nowadays, I've gone through our budget on a worst-case scenario (5-week month, unexpected visitors etc) just to be absolutely sure that it's affordable, and it looks sound, and based on our current budgeting we'd be able to make overpayments against the mortgage every month too, once we've built back up the emergency pot. We've got piggybank pots to cover almost all eventualities, and the emergency pot is for, well, the unexpected!

So now we're in a quandary ....
- do we trust ourselves to cut up the cards, close the accounts and not run up the debt again? A resounding YES! The cards have lived in a drawer for the last 2 years, apart from 1 each used for work expenses and paid off each month, and we would be absolutely DELIGHTED to write and close them down!!
- does the extra interest paid over the mortgage term worry me? Not so much, we'll be able to keep to the remaining 9 year term, so it's not too bad, compared to the hassle of switching around 0% deals and keeping track of multiple overpayments (stupid CCs that won't allow fixed monthly payments make me mad!)
- is it cheating? This one does bother me ... Can we really say we're debt free if it's consolidated onto the mortgage?

What do you think guys? Are we kidding ourselves?
All challenges gratefully received!

tealady

You are kidding yourself.
Sorry to sound hard but that is the reality for most.
NEVER turn unsecured debt into secured debt, it is a disaster waiting to happen.
Cut down, cut back or cut out as much as you can, 2019 is not that far away in the scheme of things.
Sorry if I sound unsympathetic but I didn't want you to walk into a potential disaster without considering all alternatives 1st

Pixie5740

I agree with tealady. Do not turn unsecured debt into secured debt as you'll be making that credit card debt a priority bill.

You won't be saving yourself £100 a month either. Reducing the payment amount doesn't equate to saving money. You'll be borrowing that £20k over a longer term so it will cost you more money interest.

sourcrates

Hi,

You have obviously done your homework on this, however, the others are right, although it may reduce your monthly outgoings, your total amount of debt, and the amount you pay overall, will increase, its a big risk, as with many things in life, and you are essentially, turning unsecured debt, into secured debt.

If you can live with this, and be frugal enough to stay off the credit cards, then that's your choice, I cant endorse this course of action, as it was a disaster for me, but my situation at the time, was not the same as yours, down to you in the end, good luck with whatever you decide.

in_need_of_direction

There's a reason I'm in debt free diary section rather than mfw. It's cos I consolidated twice into my mortgage. Even though my rate is just 0.66%, it's a much longer term that I spread the debt over. You can and are tackling the credit cards. Why not change the mortgage and put the saving towards clearing them more quickly.

blisteringblue

Same here, consolidated twice into my flexible mortgage and still ran up another massive credit card debt. You've done the hard part and are making progress, don't go looking for the easy option now.

fatbelly

Moving unsecured debt to secured certainly does not make you debt free. It increases your priority payments and reduces the effectiveness of the safety net in that Support for Mortgage Interest will not cover the amount used for debt consolidation, just what was borrowed to buy the house, to a maximum of 200k. (Being of a cautious nature and considering the worst case)

https://www.gov.uk/support-for-mortgage-interest/overview

Your present strategy seems to be working. Stick with it.

rising_from_the_ashes

Sorry but, yes, your logic is flawed

What is the logic behind turning unsecured debt - that can be tackled and cleared in 3/4 years (in your own words - I bet it could be done sooner with some real buckling down), into a debt secured on your house that will be around for 9 years?

Sorry but that doesn't make sense ...... make some cuts and pay the cards off in a couple of years

If you post up a SOA I'm sure there would be some suggestions on how you could achieve this

redux

I can imagine most replies will agree with the above, but I'll just give some numbers that I worked out on an online repayment calculator recently.

For a £10,000 debt on credit cards with 36% interest rate, paying about £300 a month could see it continue almost indefinitely.

With 18% interest rate the interest would initially be £150 a month, but keeping the repayments up at £300 would clear the debt in just under 4 years. 3% per cent interest and still £300 repayment would cut the time to 3 years. So it's the top margin of the credit card rate that does the most damage.

So the question is how much do you trust your self-discipline? I assume that's where the strong warnings here come from, people might make the interest regime easier but not actually sort the spending and budget out and the debt carries on or even grows. Against that, it does sound like you're already cutting the debt.

I'd say if you find you can qualify for 0% card balance transfer offers on cards, keep using that option as it's cheaper and safer than adding to the mortgage. If you will add some to the mortgage, definitely don't do the whole amount, and aim to use all the monthly saving on the mortgage to accelerate card repayments not take things easier.

Suziebabe

Thank you all - your replies are exactly what we needed, fresh eyes and a different perspective.

You've all voiced the nagging concern I had at the back of my mind, it felt too good to be true (and I'm a big believer that if it sounds too good to be true, then it ain't true!) but I couldn't get my head around it. I was a little bit blinded by the possibility of not having to deal with credit cards anymore.

Redux, you've hit the nail on the head in terms of trusting our self-discipline - on a scale of 1 to 10, I'd put my confidence at around 8 that we wouldn't dig ourselves in deeper, but I'm not sure that's high enough.

Right, am off to work out what difference the extra £150 a month does to our debt-free date - thank you all!

rising_from_the_ashes

Suziebabe wrote: »

Right, am off to work out what difference the extra £150 a month does to our debt-free date - thank you all!

It's money you've never had (iykwim) so should be straightforward for it to go straight to the cards rather than the mortgage co - it should make a big difference to your dfd and doesn't add any risk to your house so sounds win / win :T