Taking secured loan to clear outstanding credit card debts

Elfuego

Hi all

as per the title. I’m currently considering a secured loan offer to clear quite a considerable amount of credit card debts. As a result of struggling with repayments since covid and the subsequent loss of my main source of income.

i have a steady job now but not making enough to comfortably cover all the monthly repayments as well as mortgage child care and other bills.

i have had a look at the numbers the APR is crazy high and over 10years I will be paying back nearly twice as much as I’m borrowing. Seems the short term it will clear these credit cards give me a bit of breathing space but long term is this something I’m going to regret?

any advice or pointers will be very helpful.

Thanks in advance.

Grumpelstiltskin

Any advice, No No No.

Someone will be along soon to give you advice, so hang on.

EssexHebridean

Absolutely do NOT turn unsecured debt into secured. Right now if you are unable to pay the cards, the worst that will happen is they’ll write some letters, probably hassle you on the phone, then default you and a while down the line will sell the debt on to a third party who will be happy for you to make an arrangement to clear it over time. Turning it to secured has two effects - firstly it’s consolidation which is rarely a good idea. It seems easier and more straightforward but the majority of people who tackle debt via consolidation end up back here in a year or so in more additional debt than they had in the first place. This is because a lot of the lessons learned about getting out of debt and STAYING out of debt happen while you’re going through the process of clearing it. Consolidation means there is no “process” to go through, so it’s easier to not put the mechanisms in pace that will stop it happening again.  The second issue is that if you then default on a secured loan, you will lose the roof over your/your family’s heads. A bit more significant than a few letters and a poor credit history! 

Your first step here is to stop, take a deep breath and start from the beginning. Your SOA (Statement of Affairs) needs to be completed - there is a link to a calculator in my signature or another in the sticky post at the top of the board. Grab your bank and card statements together then sit down and complete the SOA line by line - make it open, honest, and reflecting your situation right now - warts and all. Post that into here and then we can take a look and almost certainly suggest a better solution for you than putting your home at risk. 

Have you established the root cause of the debts on the cards? Is it just essential spending that had to be put on credit because of the loss of income or something more? 

Are you claiming tax relief on childcare? (There are several ways people can do this - and you’ll find more information elsewhere on here about this bit). 

Just from what you’ve said, it really sounds as though your situation is not too severe so definitely do NOT rush in to doing anything - take one step at a time. 

sourcrates

I echo the above, consolidation is a path many ex bankrupts have walked.

Debt management is much more preferable to consolidation, interest can be stopped entirely, and you repay what you owe at a reduced rate over a longer period of time, that way your debt is never a threat to the roof over your head, and you won`t be paying insane rates of interest will you.

SOA is the first step, debt management plans are available for free via the debt charities in my signature.

Elfuego

EssexHebridean said:

Absolutely do NOT turn unsecured debt into secured. Right now if you are unable to pay the cards, the worst that will happen is they’ll write some letters, probably hassle you on the phone, then default you and a while down the line will sell the debt on to a third party who will be happy for you to make an arrangement to clear it over time. Turning it to secured has two effects - firstly it’s consolidation which is rarely a good idea. It seems easier and more straightforward but the majority of people who tackle debt via consolidation end up back here in a year or so in more additional debt than they had in the first place. This is because a lot of the lessons learned about getting out of debt and STAYING out of debt happen while you’re going through the process of clearing it. Consolidation means there is no “process” to go through, so it’s easier to not put the mechanisms in pace that will stop it happening again.  The second issue is that if you then default on a secured loan, you will lose the roof over your/your family’s heads. A bit more significant than a few letters and a poor credit history! 

Your first step here is to stop, take a deep breath and start from the beginning. Your SOA (Statement of Affairs) needs to be completed - there is a link to a calculation my signature or another in the sticky post at the top of the board. Grab your bank and card statements together then sit down and complete the SOA line by line - make it open, honest, and reflecting your situation right now - warts and all. Post that into here and then we can take a look and almost certainly suggest a better solution for you than putting your home at risk. 

Have you established the root cause of the debts on the cards? Is it just essential spending that had to be put on credit because of the loss of income or something more? 

Are you claiming tax relief on childcare? (There are several ways people can do this - and you’ll find more information elsewhere on here about this bit). 

Just from what you’ve said, it really sounds as though your situation is not too severe so definitely do NOT rush in to doing anything - take one step at a time. 

I posted a lenghty response to this but got a message its being treated as suspicious, hopefully clears soon but really thank you so much for clearing this up for me.

Suseka97

Elfuego said:

....... Seems the short term it will clear these credit cards give me a bit of breathing space but long term is this something I’m going to regret?

Yes... you would most certainly regret it!

The advice above is sound and you should follow it.  I made this very mistake many years ago, believing it was the answer to our prayers.  We were drowning in debt and we consolidated turning unsecured into a charge against our home - persuaded by a very well known personality who sold the idea of these types of loans back in the day.   It was the biggest mistake of our lives - simples!!

Sncjw

You have lost your main source of income and already struggling to pay tour bills and mortgage but want to add to it which will cause to struggle more as you must pay this secured loan or risk of loading your hiuse. 

fatbelly

If you post a statement of affairs we can point you in the best direction

enthusiasticsaver

You will regret it long term.  Debt consolidation never works and if you have lost some income and are heavily in debt you are unlikely to get a good rate anyway. Definitely securing it on your house would be a mistake. If you lost your income you would be in a difficult position with a higher mortgage payment. 

Elfuego

Thank you all for your help on this. I have called the company who I might say were very convincing to cancel it now and got a plan in place with Stepchage that I am going to finalize in the next couple of days. 

EssexHebridean

Good call - and yes, of course the company trying to sell you the "solution" were convincing - they will know as well as anyone that down the line there is a good chance that they would be making a lot of money out of you in interest!

It would still be a good plan to complete the SOA and consider posting here by the way - you'd be astonished how often we can find savings to be made in SOA's meaning you can either build an emergency fund faster, or set aside money towards potential full & final offers further along the process.