Advice - move credit cards to secured

springfieldpark

Hi,

I have the below cards and unsecured loan that I want to consolidate:

Card 1 - credit 8500 - 22.9%
Card 2 - credit 7800- 23.9%
Card 3 - credit 5700 - 19.9%
Card 4 - credit 1900 - 16.9%
Card 5 - credit 1350 - 16.9%
Loan - 7600 - 6%

I'm meeting the minimums each month but as you can guess these are nearly £800 so I have no spare cash at all each month and I'm really struggling.
Now I initially went to my mortgage provider as I have enough equity in my home but they wouldn't give me the additional borrowing due to credit scoring.
Looking on my credit report with both equifax and experian the only negative is the credit card utilisation (which I'm tyring to clear) and my score is good.

When I looked at available loans on Experian it took me to secured loans with who I've had a chat with. They have offered me a secure loan to clear all the balances above at 5% which is higher than my mortgage rate but still pretty good.
As soon as the credit cards are clear they're getting cancelled (I've already cut them up!)
Does anyone see any problem with doing this?

Thanks
Adam

MallyGirl

if you don't keep up payments on a secured loan then they take away the roof over your head.
The interest rate is lower but it will be over a much longer period so you will end up paying a lot of interest.
Certainly do not swap a 6% loan for 5% secured loan.

lindens

consolidation loans rarely work. you are paying interest on top of interest.

put together an SOA and have a look at snowball calculators. whatsthecost.com

play around with card payments, balances and interest rates. look into overpaying on one card to free up that cash earlier then throw more cash at the next card etc

it does require some monthly discipline though

MallyGirl

I have edited your thread title as it said unsecured

EssexHebridean

Short answer to your final question would be a resounding YES - there is a MASSIVE problem with this.

Consolidation - as alluded to previously - has a massively high failure rate as all too often it is used before putting measures in place to stop further debt occurring in the future. This essentially means putting in place - and learning to live within - a sensible budget that covers not only all your expected spending, but also a good many of those spends which may NOT be so expected.

Now - right now, if you for whatever reason cannot pay your CC bills, and they go to default, the worst that realistically happens is that your credit history goes a bit pear-shaped for a while, and you get some nasty letters in the post. You *could* theoretically get a CCJ taken again you, but frankly that's pretty unlikely, not least as you'd move to a DMP arrangement before that happened. If however you convert that debt to secured the worst that can happen suddenly gets a LOT worse - as you could lose your home.

Best case scenario with adding debt to a mortgage, by the way, is that although you *think* you're paying less, you actually end up paying a heck of a lot more as rather than the short-term pain of heavy CC bills each month, you end up paying it off over a lot more years. Allowing that all the time you are making payments and keeping up with the CC debts you also have the potential for options to transfer debt to 0%, you can see how the overall cost might well end up a lot higher.

First step - put together your Statement of Affairs - the link is in my signature below - format for MSE and post it in here and we'll have a look and see if we can spot any areas you may be able to make savings. Have you joined the MSE credit Club so you can see if there are options available to you for 0% Balance transfer cards currently?

ratrace

Welcome op, as above the posters have stated secured loans dont work well for most people as they just end up racking debt onthe cards again "secured loans" are a way people just brush the debt under the carpet and just carry on spending

what has caused the £30k+ debt and is there anything of value such as a car that can be sold to pay this of faster, you really need to address the root cause of the problem to stop you from making the same decisions again all the best get a soa on here and the folks willpoint you in the right direction

Suseka97

I guess you've got the general sense of how unwise this is from all the previous posts. But I just wanted to add my voice to that advice.

Many years ago we were in a substantial amount of debt, greater than the sum of yours - and we foolishly thought that a secured loan was the answer to all our financial worries. We too cut up all our cards and for a good few years we kept to a very tight / sensible budget - but then slowly but surely we got drawn back into the debt trap. What we ended up with was a secured loan, plus a whole load of unsecured debt. We could have managed - but then my husband had a massive drop in income and our financial stability was rocked to the core.

We did then, what we really should have done all those years ago, and set up a DMP and took the hit on our credit files. It took us 5 more years to dig ourselves out of the debt cycle and we will never go back - we've been managing well within our means for over 2 years now.

We still have that unsecured loan with 2 more years to go and over that time we have paid a significant amount of interest, and its monthly cost is now higher than our mortgage! It was 'sold' to us as being the answer to all our prayers.... but instead it turned out to be a milestone around our necks.

Ultimately you will do what you choose to - but don't be under any illusions that a consolidation is the answer to your problem and to move unsecured debts into a secured loan is a very risky business.

Sanctioned_Parts_List

Secured consolidation loans are a horrible kind of con - failing to pay credit card debt cannot* make you homeless. Failing to pay a debt secured on your home can.

If you're meeting your minimum payments already, however hard, then your situation is recoverable without consolidation and without putting your assets at risk. As EH says, start with the SOA.


(*OK charging orders, but that's at the end of a very long sequence of events)

Willing2Learn

I urge you to rethink your plan for busting your credit card debt. You need to determine the fault-lines in your monthly budget. If you fail to do that, then you could end up losing your home.

The best way to identify and fix the structural weaknesses in your monthly budget it to complete your Statement of Affairs (SOA), and to post it up here, in this thread. You will then get bombarded with advice, guidance and support to successfully manage your budget and reduce your debt.

Unicorn_cottage

Here's the link https://www.lemonfool.co.uk/financecalculators/soa.php

Do not go down the route of a secured loan - there are other ways to sort this situation out.

sourcrates

Hi Adam,

You’ll notice a fair few of the respondents to your post have been members of this forum for a good few years, in that time we’ve had hundreds of posts from other users about consolidating debt, in fact most asking the very same question you have, should I consolidate ?

When debt starts to become a problem, the first option most folk tend to look at is a balance transfer, to lower or zero interest deals, when those offers dry up, next on the list is consolidation, it’s a well worn path, we see it all the time, the reasons why it’s a bad idea, or can be a bad idea, have been outlined above already, but as a rule of thumb, you cannot borrow your way out of debt, these loans are taken out for some considerable amount of time, and not resorting to further borrowing over that length of time proves impossible for most people.

Which is why we get so many ex consolidators now in some kind of debt management or insolvency, it can take a while to see the error of your ways, it really is best not to go down that road to begin with, there are debt solutions for you to use, if necessary, and at least you are repaying your debts, and not adding to them.