SOA & Nuclear Option...remortgaging to pay off debt?

lunaspend

Hi all. 

I've just worked out my SOA... long time lurker, first time poster. Just looking for some advice / encouragement! 

Firstly, I am (just about!) managing all of my minimum payments / monthly expenditure. My credit rating is 'Fair' as generally I don't miss payments, but my affordability is shot. I'm on a decent salary (£34k), and I have about £70/month disposable income once I've paid all my minimum payments and bills, and I just can't get on top of them like this. 

My house is currently in my name (mortgaged) though my partner lives with me. He contributes £500/month to cover his share of household bills etc. (Which I've included as other income in my SOA, though this is obviously not taken account in my credit report / affordability checks!) We also split food costs, hence I've only included £100 for this.

I have a huge amount of personal debt, that I seem to be spiralling deeper and deeper into. I've tried consolidation loans, but have taken these out at high interest, and I've been stupid and taken out additional borrowing to supplement my spending. I can't tell anyone this... though I have told my partner, and he is supportive but a bit head in the sand about it - he's happy to cover additional items like takeaways and luxuries, and is talking about buying a car for us, but doesn't seem to compute that I am literally treading water trying to pay bills and spending more than I earn every month with no way out. I am too ashamed to tell other friends and family.

I took the leap and spoke with StepChange today, to talk about potentially remortgaging my home to release some equity to clear some of my debts.

I have two high interest loans totalling £16k, with monthly payments of £700. My current mortgage payment is £330.

I have around £39k equity in my home, with an LTV of around 70%. If I managed to remortgage to about an 85% LTV, this would release about £17k, which clearing my two loans and covering my ERC. I will still be in a dire financial situation! But I feel in doing this I'll have a little bit more breathing space, and can allocate some of the freed up monthly disposable income to paying down credit cards and ensuring I don't take out any further cards / loans / debt.

Has anyone done this? I know it's moving unsecured debt to secured, which is generally a bad idea... but I don't want to start defaulting on payments, and a few of my card companies have sent me letters about persistent debt and increasing minimum payments. 

I'm also worried about taking out a crazy mortgage with a bad lender and putting my house at risk... though using a StepChange broker is settling me slightly.

Any advice or encouragement would be gratefully received!! 

Thanks xx

Statement of Affairs and Personal Balance Sheet

Household Information

Number of adults in household........... 2

Number of children in household......... 0

Number of cars owned.................... 0

Monthly Income Details

Monthly income after tax................ 2100

Partners monthly income after tax....... 0

Benefits................................ 0

Other income............................ 500

Total monthly income.................... 2600

Monthly Expense Details

Mortgage................................ 330

Secured/HP loan repayments.............. 0

Rent.................................... 0

Management charge (leasehold property).. 0

Council tax............................. 160

Electricity............................. 60

Gas..................................... 100

Oil..................................... 0

Water rates............................. 0

Telephone (land line)................... 0

Mobile phone............................ 30

TV Licence.............................. 15

Satellite/Cable TV...................... 35

Internet Services....................... 35

Groceries etc. ......................... 100

Clothing................................ 50

Petrol/diesel........................... 0

Road tax................................ 0

Car Insurance........................... 0

Car maintenance (including MOT)......... 0

Car parking............................. 0

Other travel............................ 150

Childcare/nursery....................... 0

Other child related expenses............ 0

Medical (prescriptions, dentist etc).... 12

Pet insurance/vet bills................. 25

Buildings insurance..................... 10

Contents insurance...................... 10

Life assurance ......................... 30

Other insurance......................... 0

Presents (birthday, christmas etc)...... 50

Haircuts................................ 20

Entertainment........................... 100

Holiday................................. 0

Emergency fund.......................... 50[b]

Total monthly expenses.................. 1372

Assets

Cash.................................... 0

House value (Gross)..................... 128000

Shares and bonds........................ 0

Car(s).................................. 0

Other assets............................ 0[b]

Total Assets............................ 128000

Secured & HP Debts

Description....................Debt......Monthly...APR

Mortgage...................... 91500....(330)......2.34

Total secured & HP debts...... 91500.....-.........-   

Unsecured Debts

Description....................Debt......Monthly...APR

RBS Loan.......................10952.....425.......20.1

Lendable Loan..................6185......270.......23.65

RBS CC.........................5201......130.......17.43

HSBC Overdraft.................2000......20........39.9

Very Account...................1085......50........39.9

MBNA CC........................2117......70........18.8

Santander CC...................2572......70........18.8

Barclaycard CC.................4052......125.......18.7

Total unsecured debts..........34164.....1160......

Monthly Budget Summary

Total monthly income.................... 2,600

Expenses (including HP & secured debts). 1,372

Available for debt repayments........... 1,228

Monthly UNsecured debt repayments....... 1,160

Amount left after debt repayments....... 68

Personal Balance Sheet Summary

Total assets (things you own)........... 128,000

Total HP & Secured debt................. -91,500

Total Unsecured debt.................... -34,164

Net Assets.............................. 2,336

Created using the SOA calculator at www.stoozing.com. 

Reproduced on Moneysavingexpert with permission, using other browser.

sourcrates

Well when your in the frying pan, its unwise to jump into the fire, re-mortgaging unsecured debt is a risky business.

You MUST address the reasons why you built up this debt in the first place, as otherwise 12-18 months down the line, you will be back here again with nothing but the nuclear option left.

You have very little in the way of disposable income now, I doubt a re-mortgage would be possible, as on paper you cannot afford it, yes once the current debts are paid, it may be affordable, but they don`t know what you will use the money for, you could blow the lot on a holiday of a lifetime for all they know, consolidation is becoming less and less acceptable as a reason to borrow these days.

You say you don`t want to default, but its probably the best way to tackle this debt, debt management would take far too long, but an IVA may just work for you in this case.

I would take advice from one of the free debt charities, see what they recommend, my guess would be IVA.

Consolidation can go wrong on so many levels, yes it works out for some, but most end up running up the debts again, and find themselves in all kinds of trouble because of this.

lunaspend

My own (high street) mortgage provider won’t let me remortgage, but I’ve spoken with StepChange’s remortgaging team and a broker there is looking into options for me, even just to consolidate the two loans. 

My nervousness with an IVA is that if I did want to move house (potentially buy a house with my partner, which we’d like to do in the next few years,) or if I had the opportunity to become a director at work, this could be a huge stumbling block. So it’s also a nuclear option, particularly when I can (admittedly barely!) manage all the minimum payments at the moment. 

The reason for the debt has been a build up over years of being silly with lifestyle in my twenties, on a much lower income, when my partner had an even lower income, so I covered a lot on credit. Once you’re in the cycle of borrowing it’s hard to break, and interest rates are obviously a killer. We both have higher salaries now, and I’m now acutely aware of the importance of finances and the horror of debt… I’m just stuck in a never ending minimum payment cycle and I’m looking for a way to address that. 

TheAble

The amount of interest you're paying is £7500/year, it's no wonder you're struggling. Have you considered speaking to your lenders about freezing interest payments maybe? I'm not sure of the implications of this but it's an idea.

flipflopflo

Can I just say that you have already proved that consolidation doesn’t work for you. You are where you are because you consolidated and ran up more debt. 

I think @sourcrates and you really need to look at other options. 

enthusiasticsaver

I don't think consolidating by remortgaging is going to be possible and is definitely not advisable.  You are heavily over committed though so any small savings you can make on your monthly spends is not going to make much of an impact at that level of debt and with those interest rates.  You are paying an extortionate amount just to cover interest so not really bringing the debt down.  I think that you will need to consider some sort of debt solution if only to get the interest stopped.  It will affect your credit record but it is probably not great anyway if the only debt you have managed to get is at the rates you are currently paying. 

fatbelly

I agree with the above - you have already found that consolidation doesn't work and now you are going to try the worst kind of consolidation.

I think sourcrates may have missed something (I don't say that often). You have 34k of debt and £1200 a month available to pay them. That is fine for a debt management plan - clears the debt in under 30 months.

In an IVA you pay your surplus for 60 months, sometimes 72 if you are a homeowner.

There are a couple of things on your soa. You do not pay for water - are you in Scotland? And are you sure you can live on £100 per month for groceries?

lunaspend

@fatbelly I'm in Scotland yeah, so I don't pay for water as it's included in Council Tax rates, and my other half also contributes separately to groceries so household budget is more like £200.

I wasn't sure a DMP would work for me given the amount of equity I have in my house? It is something I had briefly looked into before. Interesting though that you think a DMP would be an option, thanks. I will see what options the StepChange broker comes back with and possibly also discuss the implications of a DMP with them as an alternative.

@flipflopflo I have fallen into the trap of consolidation before, and I think tried to do this with terrible interest rates which have made things worse. Not sure if I am being naive in thinking that because I have done this already, I understand better how easy it is to end up worse off for doing it, which would help avoid that pitfall again moving forward?

@enthusiasticsaver My credit rating is 'Fair' at the moment... (798/999 Experian; 398/700 Equifax; 569/710 TransUnion). Like I say, I pay everything! Just my affordability is shot and as you've said, I'm not making any sort of dent in it with the small changes I can make.

@TheAble I'm just not sure what incentive they have to agree to that, while I'm regularly making all their minimum payments with interest 🙈 Maybe if I called them and told them I was speaking with StepChange? But I'm not sure if that is advisable in advance or not!!

fatbelly

I'm not an expert in Scottish options but would this suit you?

https://www.nationaldebtline.org/fact-sheet-library/debt-arrangement-scheme-s/

enthusiasticsaver

lunaspend said:

My own (high street) mortgage provider won’t let me remortgage, but I’ve spoken with StepChange’s remortgaging team and a broker there is looking into options for me, even just to consolidate the two loans. 

My nervousness with an IVA is that if I did want to move house (potentially buy a house with my partner, which we’d like to do in the next few years,) or if I had the opportunity to become a director at work, this could be a huge stumbling block. So it’s also a nuclear option, particularly when I can (admittedly barely!) manage all the minimum payments at the moment. 

The reason for the debt has been a build up over years of being silly with lifestyle in my twenties, on a much lower income, when my partner had an even lower income, so I covered a lot on credit. Once you’re in the cycle of borrowing it’s hard to break, and interest rates are obviously a killer. We both have higher salaries now, and I’m now acutely aware of the importance of finances and the horror of debt… I’m just stuck in a never ending minimum payment cycle and I’m looking for a way to address that. 

I think a DMP  is a better solution than the IVA.  Getting the interest stopped is crucial.  Just as an example your Nat West overdraft (at almost 40% interest) must be costing you over £65 a month (unless you don't use the whole £2k limit) so that £20 is going nowhere.  Similarly the Very is costing you around £35 a month in interest so the £50 you pay is only reducing it by £15 a month.  This is why you are caught up in this debt cycle.  I know it is scary and you want to look towards the future but you cannot do that until you have dealt with the mistakes of the past.  (ie the debt). 

There are lots of people on the forum who have been through a DMP and gone on to get new mortgages.  

katsu

spending more than I earn every month with no way out

This is the key here. Firstly can you have a month or more where you live to your SOA figures for real so that you aren't spending more than you earn?  Nothing works whilst you are spending more than comes in.

Can you trim back at all, maybe deliver pizza for a few months to clear Very and the overdraft? Sell your old stuff on eBay?

Is £500 plus food split really fair or should your other half pay more for a while - or in general?

I would look at cutting the £50 presents and the entertainment down along with trying to make some money so that you can get rid of the OD and Very so that you can start increasing your other repayments but you have to get to balanced books first.

Everyone here will help you. Start with the small things daily thread. Lots of great ideas there