Remortgaging to clear debt

shteca

I have got so much help and support after my last post and everyone has been so kind and helpful!

I have equity in my home of about £45,000 and about £37,000 of debt.

Would it be wise to remortgage my home to 85% of the value and use the equity to pay off my expensive debt?

I do understand the value of the hardship of clearing the debt to change my ways and ensure this spending doesn't continue into the future and lead me into the same place again but it would really clear a lot of expensive debt like my overdraft and credit card.

Pixie5740

I posted this on your other thread too.

No it wouldn't. You'd be taking unsecured debt and securing it against the roof over your head. What happens if your income drops or a client doesn't pay you? Not only that but as mortgage terms tend to be a lot longer you could easily end up paying more interest.

First you need to put together a statement of affairs to find out where you are financially. Then you can see if you have enough money to snowball your debts or if a DMP would be a better option.

shteca

Pixie5740 wrote: »

I posted this on your other thread too.

No it wouldn't. You'd be taking unsecured debt and securing it against the roof over your head. What happens if your income drops or a client doesn't pay you? Not only that but as mortgage terms tend to be a lot longer you could easily end up paying more interest.

First you need to put together a statement of affairs to find out where you are financially. Then you can see if you have enough money to snowball your debts or if a DMP would be a better option.

Thank you Pixxie, I didn't think anyone would still be looking at that post.

I am going to do the SOA tonight

Dobbibill

I agree with Pixie - moving unsecured debt to secured is a bad move.

Get a SOA done, post it and see if the fresh eyes here can see where savings can be made to enable you to throw more at the unsecured debt.

Larac

If you convert the debt to a secured loan, you could be paying it off for the next 25 years. If you go the DMP route then given good budgeting and sticking to a plan,it should take a lot less time and at the end of the DMP you will still have your house and will have continued to pay the mortgage down. (I was in a similar position and went the DMP route)

another_casualty

The idea is to build up equity , not to lose everything .

enthusiasticsaver

No it wouldn't be wise. Converting unsecured lending to secured is the worst thing you can do. Failure to pay unsecured loans or credit cards lead to a poor credit record but very little else. Failure to pay secured borrowing risks your home. When you take into account you are paying back the borrowing over a much longer period it won't be cheaper either.

EssexHebridean

shteca wrote: »

Thank you Pixxie, I didn't think anyone would still be looking at that post.

I am going to do the SOA tonight

Yes, nobody does. Bottom line is that usually, if you've been given the right answers on one thread, they'll still stand when you ask them again on another, even if you didn't like them the first time! To underline the point I will also say - be careful where you park, and always get paperwork including the rate when you take out a loan. Yep - it's the nature of the internet that what you put onto it is always there for people to look back on! ;-)

Great advice already given. Get that SOA done and let's take a look.

January2015

Please don't convert unsecured debt into secured debt. I've done this twice and still ended up with more unsecured debt. I never learnt the lesson of managing to live within my budget until I addressed my debt problem and worked towards sorting it out without consolidating.

I now have higher secured debt on my home - some of it at a ridiculous interest rate of 11.6%. I cannot even begin to think what was going through my head to accept that loan.

GDB2222

The last time this question was asked, I pointed out the advantage of paying lower interest. In this case, possibly saving around 20% interest on a good part of the £37k unsecured debt (ie up to £7k a year interest saving).

I was then roundly told off, the argument being that someone who has got into this pickle won't have the sense to use the £7k saving to pay down the debt.

sourcrates

GDB2222 wrote: »

The last time this question was asked, I pointed out the advantage of paying lower interest. In this case, possibly saving around 20% interest on a good part of the £37k unsecured debt (ie up to £7k a year interest saving).

I was then roundly told off, the argument being that someone who has got into this pickle won't have the sense to use the £7k saving to pay down the debt.

The age old problem with consolidation loans is that the majority of people who obtain them, still continue their irrational financial behavior that caused them to get into debt in the first place.

Thus, a year, 18 months down the line, they have run up hugh credit card bills again, which they cannot service, because they have not changed there ways, and are not living within there means, and so the cycle continues.

Some even consolidate 2 maybe 3 times before they have there light-bulb moment, and see the folly of what they are doing.

So whilst on paper, consolidation can seem like a rational choice, you must live within your means, and make sure you cancel the existing, settled credit facilities, to have any chance of it working.