Younger me it turns out was an idiot, and I'd like to make changes

bobcat2

My personal opinion is there's some mediocre advice going on on this thread!

If you have debts which you are paying 17 or 18% on this way too much to be paying for someone who has a decent income. This is far too much money to be wasting on paying interest and you could get the debts paid back a lot quicker if you can reduce the interest that you are paying.

Yes, turning a 6.9% loan into an 8.9% loan is madness, but so is just leaving the credit cards at 18% and trying to pay them off, surely there is no reason to be even considering this kind of rate anyway.
There seems to be a lot of negativity around anything that could even remotely be termed "consolidation" which, if its just trying to lump everything together into "one easy payment" that has a higher interest rate but cost less each month so appears more affordable is a stupid idea, but refinancing in order to reduce the amount of interest you are paying in order to repay the debts faster is a completely different thing.

Also, agreed it is usually not advisable to turn unsecured debt into secured debt and definitely not a good idea with high loan to value and on a very tight budget, but if this the cheapest way of financing the money you owe AND you have a low loan to value and the percentage you are increasing you mortgage by is relatively small it is going to have absolutely no affect on whether your home is going to be more at risk or not.
Just because it increases the mortgage payment by £54 doesn't mean that you just pay an additional £54 per month for however long the mortgage has to run.. Nearly all mortgages will allow you to overpay and there should be a plan in place to repay the extra amount borrowed over a set period of time. This will cost less not more. If this is the cheapest way available of financing the money owed, this will be the quickest way of repaying it - it should obviously only be done with caution and proper planning and set time to repay the money, whilst ensuring that the debt inst just built up on the cards again.

Just leaving the cards and overdraft at 18% interest and snowballing your payments is very bad advice in my opinion as it it will take you longer to repay it and cost you more in interest than finding a cheaper way of borrowing the money.
I would personally look at some of the very good balance transfers cards to at least deal with some of the credit card debts. There are 25 month 0% balance transfer cards available with 0% transfer fee and 0% for 40 months with 3.5% fee. Id look at these...

sourcrates

This is what Dave Ramsey says about it :

Myth: Debt consolidation saves interest, and you have one smaller payment.

Truth: Debt consolidation is dangerous because you treat only the symptom.

Debt consolidation is nothing more than a "con" because you think you’ve done something about the debt problem. The debt is still there, as are the habits that caused it — you just moved it! You can’t borrow your way out of debt. You can’t get out of a hole by digging out the bottom. True debt help is not quick or easy.

Larry Burkett, noted financial author, says debt is not the problem; it is the symptom. I feel debt is the symptom of overspending and undersaving. Our financial coaches will not recommend debt consolidation for a client. Why? Because debt consolidation doesn’t work.

Debt Consolidation Statistics

A friend of mine works for a debt consolidation firm whose internal statistics estimate that 78% of the time, after someone consolidates his credit card debt, the debt grows back. Why? He still doesn’t have a game plan to either pay cash or not buy at all. He also hasn’t saved for "unexpected events" which will also become debt.

Debt consolidation seems appealing because there is a lower interest rate on some of the debt and a lower payment. However, in almost every case we review, we find that the lower payment exists not because the rate is actually lower but because the term is extended. If you stay in debt longer, you get a lower payment, but if you stay in debt longer, you pay the lender more, which is why they are in the debt consolidation business.

The Real Way to Get Out of Debt

The answer is not the interest rate; the answer is a Total Money Makeover. The way you get out of debt is by changing your habits. You need to commit to getting on a written game plan and sticking to it. Get an extra job and start paying off the debt. Live on less than you make. It is not rocket science, but it is emotional, which is why most people need help getting through it from someone like Dave Ramsey. Don’t try debt consolidation!

redux

The consolidation loan has about £1900 of interest in the 5 year term.

Cutting back spending a bit and paying back maybe £800 a month towards the debts clears everything in about a year, and costs about £5-600 in interest, maybe less if the higher interest parts are cleared first.

enthusiasticsaver

wingingit wrote: »

Thanks all for your replies!

I haven't a clue what my credit card interest is, or my overdraft for that matter. I believe they are around 17% ish.

I definitely don't want to take out the personal loan, as it won't cover the total debt properly, and is just setting myself up again for the cycle.

Why I would be tempted by the secured borrowing is that would clear my debts, wouldn't stuff up my LTV, and would only be £54 a month. That's cutting my debt repayments by around 200 quid a month, which I can save, or indeed put towards overpayments on my mortgage. I live in London, and would be intending to sell my flat in a year and a half to two years time to move in with a partner, thus clearing mortgage and secured debt at that juncture. Obviously property prices etc, but I have a pretty good cushion against negative equity if prices fall, and if they do, then they all do right?

I'm not in a terrible position debt wise, but I think my key priority is making my repayments more manageable, and enabling me to start saving some money. My SOA is probably slightly misleading, in that I definitely don't have that much of a surplus at months end! I have started a spending diary already, and as you all say, it is quite illuminating....

Can you see the irony of moving that on to your mortgage to give you more spare money to overpay your mortgage and pay the bank a wad of interest? Even if you will be getting a lower rate due to the loan being secured you are effectively increasing your mortgage and delaying the debt being paid off as it will effectively increase the term of the borrowing. You have a surplus if you stick to your soa. Concentrate on paying off overdraft, then credit card, then loan. At the moment it is manageable but moving it to yor mortgage is not clearing it and I strongly expect you would be back again next year with higher mortgage and back in overdraft. Manage your money more tightly, spend within your income and set aside an affordable monthly payment to reduce the overdraft initially or try and money transfer to 0%. Same with credit card.

wingingit_3

Thanks all for more replies!

I do agree that the personal loan is a no no, but I do think I'm going to go for the mortgage option. It'll get me back in the black on all accounts, and although my mortgage is 25 years (23 now), I certainly don't intend on staying in that flat for all of them. As I understand it when I come to sell it will clear my mortgage, and my secured loan. If I stay in London I'll end up with another mega mortgage, and if I move literally anywhere else in the country I'll have a much smaller one.

I'm sorry for posting in here as my problems are probably quite small, and thanks for all of your advice!

EssexHebridean

Bobcat, there are ways of wording things, and then there are ways of wording things...

bobcat2 wrote: »

My personal opinion is there's some mediocre advice going on on this thread! Thanks. I'm sure we all appreciate that.

If you have debts which you are paying 17 or 18% on this way too much to be paying for someone who has a decent income. This is far too much money to be wasting on paying interest and you could get the debts paid back a lot quicker if you can reduce the interest that you are paying. Yes - several of those giving "mediocre advice" have already suggested that...

Yes, turning a 6.9% loan into an 8.9% loan is madness, but so is just leaving the credit cards at 18% and trying to pay them off, surely there is no reason to be even considering this kind of rate anyway.
There seems to be a lot of negativity around anything that could even remotely be termed "consolidation" which, if its just trying to lump everything together into "one easy payment" that has a higher interest rate but cost less each month so appears more affordable is a stupid idea, but refinancing in order to reduce the amount of interest you are paying in order to repay the debts faster is a completely different thing. There's a good reason why those of us that have been about here for a while, and see a LOT of people who have "been there, done that", say that in MOST cases consolidation is a bad plan - Sourcrates excellent Dave Ramsey quote explains it in quite simple, concise terms

Also, agreed it is usually not advisable to turn unsecured debt into secured debt and definitely not a good idea with high loan to value and on a very tight budget, but if this the cheapest way of financing the money you owe AND you have a low loan to value and the percentage you are increasing you mortgage by is relatively small it is going to have absolutely no affect on whether your home is going to be more at risk or not. Adding ANYTHING to a secured debt, if the root cause of the problem has not been addressed, increases your risk.
Just because it increases the mortgage payment by £54 doesn't mean that you just pay an additional £54 per month for however long the mortgage has to run.. The majority of people who add a debt to a mortgage to save on monthly payments never even think about adding the extra amount to the mortgage in O/Ps, unfortunatelyNearly all mortgages will allow you to overpay and there should be a plan in place to repay the extra amount borrowed over a set period of time. This will cost less not more. If this is the cheapest way available of financing the money owed, this will be the quickest way of repaying it - It will only be quickest if the maximum amount possible each month is added to the monthly payment - and a lot of mortgages have limits on how much can be overpaid in a year. it should obviously only be done with caution and proper planning and set time to repay the money, whilst ensuring that the debt inst just built up on the cards again.

Just leaving the cards and overdraft at 18% interest and snowballing your payments is very bad advice in my opinion as it it will take you longer to repay it and cost you more in interest than finding a cheaper way of borrowing the money. You will find that the only point that advice was given was before the OP edited their post to include the interest rates - when he first posted it appeared that everything apart from the loan was at 0% - and in that case, the advice would have been correct
I would personally look at some of the very good balance transfers cards to at least deal with some of the credit card debts. There are 25 month 0% balance transfer cards available with 0% transfer fee and 0% for 40 months with 3.5% fee. Id look at these... Amazing,....I'd never have thought of that.... https://forums.moneysavingexpert.com/discussion/comment/71809067#Comment_71809067 (And it wasn't just me, either!)

EssexHebridean

wingingit wrote: »

Thanks all for more replies!

I do agree that the personal loan is a no no, but I do think I'm going to go for the mortgage option. It'll get me back in the black on all accounts, and although my mortgage is 25 years (23 now), I certainly don't intend on staying in that flat for all of them. As I understand it when I come to sell it will clear my mortgage, and my secured loan. If I stay in London I'll end up with another mega mortgage, and if I move literally anywhere else in the country I'll have a much smaller one.

I'm sorry for posting in here as my problems are probably quite small, and thanks for all of your advice!

It will clear your mortgage, yes, but it will do it by giving you less money to play with on your next purchase - which may make a difference to the deals you can get down the line. Does your mortgage deal allow overpaying in unlimited amounts? If so then if you're going to do this, you need to re-set your monthly payment to take account of what you would otherwise be throwing at debt repayments.

You also need to cut up that credit card, and substantially reduce the Overdraft on your current account. With your income/surplus, if you have a proper, workable budget in place, all you should need in the way of an OD facility is a "cushion" which will cover those small oversights that can happen to any of us. Realistically £100 should do that.

Something worth trying with a current account - particularly if it's an interest-paying one. Leave a cash balance in it, and mentally re-set that figure as zero. My current account pays a small amount of interest, but also has a 50p/day OD charge. I leave £100 in there permanently, but in my head - a balance of "£100" is actually a balance of zero. make sense?

Good luck getting yourself sorted.

enthusiasticsaver

wingingit wrote: »

Thanks all for more replies!

I do agree that the personal loan is a no no, but I do think I'm going to go for the mortgage option. It'll get me back in the black on all accounts, and although my mortgage is 25 years (23 now), I certainly don't intend on staying in that flat for all of them. As I understand it when I come to sell it will clear my mortgage, and my secured loan. If I stay in London I'll end up with another mega mortgage, and if I move literally anywhere else in the country I'll have a much smaller one.

I'm sorry for posting in here as my problems are probably quite small, and thanks for all of your advice!

This is definitely the more expensive and dangerous route to take. Should you lose your job your mortgage payment will be higher and puts you at more risk of losing your home. You are reducing the loan to value ratio and as EH says giving yourself less equity. The main reason it is dangerous though as sourcrates has kindly reminded us CONSOLIDATION DOES NOT WORK unless you have sorted out your income and expenditure and do not rely on credit cards and overdrafts in the future.

You have been here before and it is known as the debt cycle. You overspend on easy credit like credit cards, overdrafts, consolidate onto a loan and consider yourself debt free then carry on at existing level of spending. You have admitted you do not have a surplus so there are gaps in your soa and unless you address this you will be back next year or the year after with more unsecured debt and a higher mortgage. Moving unsecured to secured is not getting debt free.

If you must move it and I agree that 17 or 18% interest is high then look into 0% credit cards for balance transfers and stop using them for paying for stuff.

All we can do on this forum is warn of pitfalls and ultimately it is your decision but there are many who have taken this route and regretted it afterwards. It just delays your debt free date.

MrsTinks

wingingit wrote: »

Thanks all for more replies!

I do agree that the personal loan is a no no, but I do think I'm going to go for the mortgage option. It'll get me back in the black on all accounts, and although my mortgage is 25 years (23 now), I certainly don't intend on staying in that flat for all of them. As I understand it when I come to sell it will clear my mortgage, and my secured loan. If I stay in London I'll end up with another mega mortgage, and if I move literally anywhere else in the country I'll have a much smaller one.

I'm sorry for posting in here as my problems are probably quite small, and thanks for all of your advice!

Sorry but you're in my view taking just about the worst of the options if you do that... You're securing an unsecured debt. Probably the biggest no-no ever.

Should the worst happen and you loose your job then THIS debt currently has no bearing on the risk to your home. However adding it to your mortgage (which is also likely to be the most expensive option...) it will directly impact any chance of you loosing your house in that scenario.

The main question here is: "Have you changed your spending habits?"

You need to address this and then you need to make sure you actually overpay every single month. It's still cheaper to have the debt on 0% cards and over paying these, but ultimately I think no matter what we say you don't really want to hear it :cool:

sentientpoet

While I can't deny there's a certain logic to shifting higher interest debt to a mortgage on a much lower interest rate when you have a large amount of equity, I personally would still advise caution. I took the same route early in my own spiral by eating into substantial equity in my property as a solution. Unfortunately, for me it was a solution that didn't tackle the underlying problem to which I remained blind, and my best intentions soon slid into worse case scenario because of it.

I'm not by any means suggesting that you will end up where I did - we are all different people with very different circumstances - but it does take an awful lot of discipline to funnel the extra money you have each month from 'reduced' payments - plus budget surplus - into that debt once it has magically disappeared from view. In order to prevent a slide and to make the changes you appear determined to put in place, you need to understand where your current surplus is going each month and be sure you can commit to a new routine.

Either way, best of luck with whichever path you choose and just remember not to ignore the lightbulb which has obviously started to flicker in your subconscious!