Mortgage holiday to clear some debt

Mrsswift.82

Hello! I could do with some advice! I have substantial debt of around £25,000 (not including mortgage). At the moment I can only make minimum payments, with one of my credit cards I am paying £200 and £140 is coming off in interest. I am looking at all I can do to get some money to throw at the debt, and I am going to ring the credit card companies tomorrow to see if they will reduce my interest rate. I have no space on any of my cc's to shift around / balance transfer etc.

It is really getting me down, and I would like to get a good chunk of money to throw at one of the credit cards. So my question is; is it worth me taking a couple of months mortgage holiday and throwing that money at the debt instead? Does it affect my credit record at all to do that? (I was hoping to get a new mortgage in the coming months to incorporate this debt, but my circumstances have changed significantly since I got my last mortgage, and I'm not holding out hope that I will get anything).

Thank you!

TheAble

The question is, how did you get into 25k of debt? And will a mortgage holiday be the solution to that problem? Likely no, but you know your own circumstances best. The optimal solution though is to attack the underlying problem.

EssexHebridean

Hi Mrsswift - sorry to hear you're struggling a bit. 

If you are already in debt I'd be reluctant to suggest that taking a mortgage holiday at this point is a good way of dealing with your situation. Also - absorbing unsecured debt into a mortgage can be an extremely good way to lose the roof over your head - do NOT do that. You need to deal with the rot of the problem first, and then learn the processes that will keep you from going there again. If you're thinking that it will cost you less because of the low interest rate, that is also likely to be untrue as you will potentially be paying it off for far, FAR longer! If you're thinking it will be easier - that may be true, but we rarely learn anything by taking an easy route. 

In the first instance, your first step needs to be to put together your Statement of Affairs - SOA. You'll find a link to one of the calculators we recommend in my signature below, or an alternative one in one of the "sticky" posts at the top of the board.  You need to get together paperwork relating to all your outgoings - so bank statements, card statements, details of any loans etc you're paying. Make it as complete, open and honest as you can - there is no point in putting in what you "think" you should be spending as that helps nobody. Then once complete, if you "format for MSE" and post it into this thread, we can take a loo and see if we can help you identify any savings that you might currently have missed - you'd be surprised what we can find! 

As TheAble says above, you also need to work out precisely why the debt has arisen to a point that you are now uncomfortable and struggling to pay it off - it may be that you already know, and can pinpoint an exact cause, but often people can't, and it's only when they take a step back and think it through that it becomes apparent that there are habits that need working on to change. 

sourcrates

Asking creditors for help is only ever a short term solution, they may agree to lower interest or to lower your payments, for a short time, its usually between 3-6 months, if your situation is likely to go on beyond that timeframe, which yours undoubtedly would, then they would refer you to one of the free debt charities, such as stepchange, to take debt advice, so you may as well cut to the chase now.

You also risk "arrangement to pay" markers on your credit file, which stay twice as long as a default does.

Consolidating unsecured debt into your mortgage is something a lot of homeowners attempt to do, if your very disciplined, it may work for you, but most people ignore the reasons that were responsible for the build up of debt in the first place, they don`t change their habits, and before long the debt has been run up on the cards again, and you are back to square one, now more deeper in the hole than ever, and facing a serious risk of bankruptcy.

If you cannot afford your unsecured borrowing, its much better to admit this at an early stage, and take debt management advice, because if you enter debt management, most of the time, creditors will stop interest entirely, and you repay what you owe, at an affordable rate, over a longer period, as I said, hopefully interest free.

Yes your credit file will be affected, but its the right way for most people to tackle the debt.

We have a dedicated DMP support thread on this forum, I can almost guarantee if you ask any of those who post in that forum about your situation, they would agree DMP 100% over consolidation.

Mrsswift.82

Thank you all for your comments. I will get an SOA done on here. Unfortunately I am one of those who just "doesn't know how it got so bad" when looking at my debt. Over the last year I have reduced if from £32k to £25k.

I am just losing heart with what I am doing, and would love to see the cc come down a chunk over the next 2 months, for motivation really more than anything else!

I will look into the suggestions above too.

Thank you.

BabyStepper

If you have paid off £7k of debt recently, then your credit rating will start to improve soon, and that's good news for sorting out debts. You need to be paying less interest, as a matter of priority. You can use the tool on this website to find out who will offer you 0% interest balance transfers, and make sure you close the old accounts or at the very least, do not spend on them again. 

Good luck.   

Suseka97

Do take the advice given to speak with one of the debt charities, they will also run through an income and expenditure review with you and give you some ideas on the best way forward.

I would add to those who have said that debt consolidation is definitely NOT the way to go - I speak from experience here.  I consolidated, but many years later found myself back to square one and much worse off for it.  I can pinpoint why I ended up in debt crisis the 2nd time around, but regardless of that I then had to accept that a DMP was the only way forward and it changed my life.  

enthusiasticsaver

I would caution against consolidation or taking a mortgage payment holiday.  It rarely helps and usually makes things worse as others have said tackling the underlying root of the debt is the biggest issue.  As you say you do not know how it got so bad I would suggest it is probably lack of budgeting and using credit cards to fill the hole when you have more month than money.  An soa will help us advise further but if you have managed to reduce the debt by £7k over the  last year even with paying interest then I would suggest a budget and different approach to your  finances and eventually you will get to a point where you can get 0% deals again.  If however you are barely making minimums and still needing credit to live off then a DMP or other debt solution may be worth looking into but this will affect your credit worthiness.  

First step is to do a soa and that will help you set up a budget. Also do a spending diary and look back over past statements and be honest with where you are spending.  It is not for judgement but to help you see where you are overspending. This will also help us advise the best way of paying the debt off.  Don't forget the interest rates. 

Second step is to start an emergency savings account so you have some money put by in an emergency should you need it.  This is so you do not get demotivated should your car break down etc and you add to the debt in the early stages of trying to repay. 

Third step is get rid of the credit cards (maybe keep one until your emergency fund is up and running).