Remortgage or debt consolidation?

MrRichTea

Turning unsecured credit, into secured against your home, is rarely a good idea, unless you find the underlying reason for so much debt in the first place, with 8 credit cards, what's to stop you adding to them again once cleared? this is reason why debt consolidation isn't the answer / doesn't work in most cases. proven by many a poster on here over the years.

You have a healthy family income (esp without debt repayments) a DMP might be your best option, if you let them default to stop interest (& start a savings fund from all the saved payments not going out) putting a stop to using credit i/e cut them up, you could then use your full amount of debt repayment in your SOA to pay all of it off in around 52 months / 4.3 years! debt free..... If you budget & throw anything extra you can afford toward it too, it could be gone even quicker!

It would take some change in thought process, teamwork & "cash only" from now on for life hicups, but it can be done.

DonFog

MrRichTea said:

Turning unsecured credit, into secured against your home, is rarely a good idea, unless you find the underlying reason for so much debt in the first place, with 8 credit cards, what's to stop you adding to them again once cleared? this is reason why debt consolidation isn't the answer / doesn't work in most cases. proven by many a poster on here over the years.

You have a healthy family income (esp without debt repayments) a DMP might be your best option, if you let them default to stop intrest (& start a savings fund from all the saved payments not going out) putting a stop to using credit i/e cut them up, you could then use your full amount of debt repayment in your SOA to pay all of it off in around 52 months / 4.3 years! debt free.....

Ok thank you, so a DMP now and then remortgage for best possible rate in November without additional borrowing. Maybe do this for 5 years so the next time we remortgage the debt plan is completed?

Does the DMP affect our ability to remortgage in the near or far future?

DonFog

stymied said:

“I have spoken to HSBC and First Direct who would only provide up to £50k in debt consolidation as part of additional borrowing when remortgaging. This plus the current unsecured debts takes us to a high LTV which also means our affordability tests fail.”

If I understand correctly this means the negative cash flow situation extends beyond November since the debt can’t all be consolidated even if you wanted to.

You already have a high mortgage on your house with rising interest rates and who knows what else as potential future risks (redundancy, illness etc.). Fatbelly is a very wise advisor on these forums - locking in your next fixed rate and DMP (do you really need to borrow more in the next 6 years anyway?) should be seriously considered.

1 & 3 year olds barely need any expenditure in the way of presents although I understand with your incomes you may be being expected to splash out for your wider family if you haven’t apprised them of your current cash flow issues.

Yes I am starting to understand now that even solving the cashflow problem now by consolidating doesn't put us in a position to remortgage in November to remove this consolidation debt.

I had assumed when we did the extension works that we could borrow against the increased value to tidy everything up.

We don't need to borrow again, we just pushed to get the forever home sorted we as have 30 years or work left in us to pay off a high LTV mortgage whilst making good contributions to pensions. Nursery childcare at this time is also a major expense that will not last forever

MrRichTea

DonFog said:

MrRichTea said:

Turning unsecured credit, into secured against your home, is rarely a good idea, unless you find the underlying reason for so much debt in the first place, with 8 credit cards, what's to stop you adding to them again once cleared? this is reason why debt consolidation isn't the answer / doesn't work in most cases. proven by many a poster on here over the years.

You have a healthy family income (esp without debt repayments) a DMP might be your best option, if you let them default to stop intrest (& start a savings fund from all the saved payments not going out) putting a stop to using credit i/e cut them up, you could then use your full amount of debt repayment in your SOA to pay all of it off in around 52 months / 4.3 years! debt free.....

Ok thank you, so a DMP now and then remortgage for best possible rate in November without additional borrowing. Maybe do this for 5 years so the next time we remortgage the debt plan is completed?

Does the DMP affect our ability to remortgage in the near or far future?

Do you have any savings? these are must if you loose your access to credit, an emergency fund for house, car repair, boiler breaking etc.

But you'd be surprised how quickly it'll add up once your credit payments stop, these can be useful for full and final offers to creditors too (discounts on paying off your debt in lump sums)

You can remortage with your current provider on a DMP, there is no credit check.

Do you feel like you've had a lightbulb moment that something needs to change? it'll take dedication, but a DMP is one of the best things you can do, just make sure you DEFAULT on accounts first, to avoid AP markers & your credit file will heal good as new after 6 years, you'll need to ignore / block phone calls / file computer-letters and hold your nerve, I found writing to them & telling them to only contact you by letter saves alot of stress and sleepless nights!

enthusiasticsaver

I do  not think you need a DMP and if you approach a debt charity like stepchange with that soa they will probably say they cannot help you as you can meet minimums.  There is a lot of room for cutting back on your budget which may not be pleasant and on your income you are probably not used to having to watch your outgoings closely but honestly I would not trash your record by defaulting when simply cutting down on holidays, entertaining, hair and beauty treatments etc would see you able to meet repayments.  Consolidating debts never works and certainly not at 11% and I would not add to your mortgage either especially as it is already fairly high. 

I would scrutinize your spending and cut back as far as possible and target the debts in order of the most expensive first. 

DonFog

MrRichTea said:

DonFog said:

MrRichTea said:

Turning unsecured credit, into secured against your home, is rarely a good idea, unless you find the underlying reason for so much debt in the first place, with 8 credit cards, what's to stop you adding to them again once cleared? this is reason why debt consolidation isn't the answer / doesn't work in most cases. proven by many a poster on here over the years.

You have a healthy family income (esp without debt repayments) a DMP might be your best option, if you let them default to stop intrest (& start a savings fund from all the saved payments not going out) putting a stop to using credit i/e cut them up, you could then use your full amount of debt repayment in your SOA to pay all of it off in around 52 months / 4.3 years! debt free.....

Ok thank you, so a DMP now and then remortgage for best possible rate in November without additional borrowing. Maybe do this for 5 years so the next time we remortgage the debt plan is completed?

Does the DMP affect our ability to remortgage in the near or far future?

Do you have any savings? these are must if you loose your access to credit, an emergency fund for house, car repair, boiler breaking etc.

But you'd be surprised how quickly it'll add up once your credit payments stop, these can be useful for full and final offers to creditors too (discounts on paying off your debt in lump sums)

You can remortage with your current provider on a DMP, there is no credit check.

Do you feel like you've had a lightbulb moment that something needs to change? it'll take dedication, but a DMP is one of the best things you can do, just make sure you DEFAULT on accounts first, to avoid AP markers & your credit file will heal good as new after 6 years, you'll need to ignore / block phone calls / file computer-letters and hold your nerve, I found writing to them & telling them to only contact you by letter saves alot of stress and sleepless nights!

No savings.

Not sure I'd call it a lightbulb moment. I still think we should talk to a broker who might find a lender willing to give us close to an additional £100k as part of remortgaging. That payment plus a balance transfer for 0% for a while might allow us to manage this down without taking what feels like an extreme step.

I'm also wondering if any lenders would allow us to take a holiday to build up some savings and clear some of the debts in full to get our monthly commitments down.

We can also afford the original consolidation amount and could go for a longer fixed term period. The rate and fee are high but a DMP does feel quite damaging and long-term.

EssexHebridean

Honestly? I don’t think you need a DMP - I think you need to start budgeting properly, and to cut back on your expenditure in a fair few areas. I can’t even begin to imagine what a household would spend over £100 on in the way of personal grooming in a month - so I think right now you need to understand that you don’t have a high-maintenance budget. Holidays too - aspirational it may be but you need to aspire to not spending £6k a year on trips away - and all the more so if in fact it’s not being budgeted for! Presents can be cut by half easily - more than that if you are determined to get the debt gone. Even your grocery bill can take a cut - with meal planning and things like the “downshift challenge” you can knock that back by £100 with a little effort - and probably more than that with a bit more work.  Clothing can come down too - just a basic “socks and pants” budget for adults - older child can hand clothes down to younger, and check out charity shops and even eBay for clothing bundles for children too - there’s a lot of people on here who find that works really well.

Your situation is eminently fixable without any structured “solution” - get as much debt as you can onto 0%, then start creating surplus income by budgeting, and throwing that surplus at the debts in the order of highest interest rate first. It will be a fairly long haul - but you do st least have a very decent income, and plenty of scope for cutting back - and that is a great place to come from when it comes to clearing debt.

Other areas I would be looking at - is your council tax currently paid over 10 months, or 12? If 10, then get your budget in place from the beginning of next month and hey presto, there is your first £200 ready to throw at a debt!  Check your gas and electric bills against readings to make sure they are accurate as your DDs there seem pretty high. You may be being billed on estimates - particularly if you don’t yet have smart meters.  When contracts finish there are savings to be made on mobiles - look at sub £10 sim only deals - and broadband - you can probably knock at least £20 a month off what you are paying currently. 

I’m also going to suggest a spending diary - noting everything you spend - because if you haven’t been budgeting until now, then I suspect there is a lot more spending happening that you have your finger on! 

Hoenir

DonFog said:

stymied said:

“I have spoken to HSBC and First Direct who would only provide up to £50k in debt consolidation as part of additional borrowing when remortgaging. This plus the current unsecured debts takes us to a high LTV which also means our affordability tests fail.”

If I understand correctly this means the negative cash flow situation extends beyond November since the debt can’t all be consolidated even if you wanted to.

You already have a high mortgage on your house with rising interest rates and who knows what else as potential future risks (redundancy, illness etc.). Fatbelly is a very wise advisor on these forums - locking in your next fixed rate and DMP (do you really need to borrow more in the next 6 years anyway?) should be seriously considered.

1 & 3 year olds barely need any expenditure in the way of presents although I understand with your incomes you may be being expected to splash out for your wider family if you haven’t apprised them of your current cash flow issues.

Yes I am starting to understand now that even solving the cashflow problem now by consolidating doesn't put us in a position to remortgage in November to remove this consolidation debt.

I had assumed when we did the extension works that we could borrow against the increased value to tidy everything up.

We don't need to borrow again, we just pushed to get the forever home sorted we as have 30 years or work left in us to pay off a high LTV mortgage whilst making good contributions to pensions. Nursery childcare at this time is also a major expense that will not last forever

Whilst you might lose some tax relief in the short term. Feeing up cash to accelerate repayment of debt for a period would help. 

The world has changed. Days of low interest rates are over. House prices are not rocketing in value as a consequence. Lenders are tightening their criteria accordingly. To minimise the risk of defaults/bad debts. 

While you might it is a loss of face to the outside world. To admit being in temporary short term financial difficulty. The alternatives such as second mortgages and DMP's are likely to be with you for far longer. Come back to bite you hard  when you least expecting it. 

enthusiasticsaver

DonFog said:

EssexHebridean said:

OK - firstly - the loans you are are all unsecured I assume? The credit cards certainly will be. If you are unable to pay those debts, then you will get a few letters, some uncomfortable phone calls, perhaps a threat or two of legal action which is highly likely to ever materialise. Then the debts default, the interest stops, and you can make headway into clearing them off. 
If you load that currently unaffordable debt onto your mortgage however, and then find yourself unable to pay TAT, then what happens is you get some rather MORE nasty letters, and eventually the bank repossess your home.  Now, call me bold, but given those two options, I know which I prefer the sound of? (Clue - not the second one). 

The consolidation loan sounds exceptionally horrible - and regardless, consolidation rarely works in any event. It's seen as a way of fixing a problem, but it fixes nothing in most cases - it just shifts a problem, and makes it cost more. 

You've already been given the link above to the SOA calculator we recommend, so the first step it to sit down and complete that. Make it open and honest - it needs to reflect the situation you are in right now, not what you think you should be spending. Don't guess figures either - check. You might find a years worth of bank and card statements handy. 

If you can't afford your debt payments on the unsecured stuff now, having paid all your priority bills, then stop paying it. Don't leave yourself using more borrowing to cover priority bills because you are paying debt first. 

[font=courier new][b]Statement of Affairs and Personal Balance Sheet[/b][b]

Household Information[/b]

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

Number of children in household......... 2

Number of cars owned.................... 1[b]

Monthly Income Details[/b]

Monthly income after tax................ 5600

Partners monthly income after tax....... 2900

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

Other income............................ 0[b]

Total monthly income.................... 8500[/b][b]

Monthly Expense Details[/b]

Mortgage................................ 2014

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

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

Management charge (leasehold property).. 0

Council tax............................. 203

Electricity............................. 115

Gas..................................... 115

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

Water rates............................. 57

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

Mobile phone............................ 70   Is this in contract? If not you can get it cheaper. 

TV Licence.............................. 13

Satellite/Cable TV...................... 90  Again cancel if out of contract

Internet Services....................... 55 This is expensive. 

Groceries etc. ......................... 450  Given your children are very young this looks high.  Do you meal plan and use a budget supermarket? 

Clothing................................ 100  This can be cut down considerably too.  A clothes embargo for you and your partner and clothes off ebay or supermarkets for children

Petrol/diesel........................... 70

Road tax................................ 14

Car Insurance........................... 70  Are you paying annually as it is much cheaper to do that? 

Car maintenance (including MOT)......... 5  This is too low.  

Car parking............................. 10

Other travel............................ 400  Can this be cut back? 

Childcare/nursery....................... 1350  Have you checked if you can get free hours yet and are you using tax free childcare account? 

Other child related expenses............ 200  What is this for? 

Medical (prescriptions, dentist etc).... 20

Pet insurance/vet bills................. 0

Buildings insurance..................... 45  This is high.  Do you use comparison sites? 

Contents insurance...................... 0

Life assurance ......................... 73 Again this is high so check if you can get it lower unless you have a health issue. 

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

Presents (birthday, christmas etc)...... 167  Way too high especially as your children are essentially still babies. 

Haircuts................................ 133  This is huge.  Can it be cut back? 

Entertainment........................... 167  You cannot afford this 

Holiday................................. 500  You cannot afford this. Can you reduce? 

Emergency fund.......................... 0  You need something in here. 

Cleaner................................. 140[b]  You cannot afford this. 

Total monthly expenses.................. 6646[/b]

[b]

Assets[/b]

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

House value (Gross)..................... 735000

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

Car(s).................................. 8000

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

Total Assets............................ 743000[/b]

[b]

Secured & HP Debts[/b]

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

Mortgage...................... 498800...(2014).....3[b]

Total secured & HP debts...... 498800....-.........-   [/b]

[b]Unsecured Debts[/b]

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

Tesco Loan.....................25961.....365.......5.75

Monzo Loan.....................18183.....350.......15.4

AMEX...........................5858......300.......35.2  Can this be moved to a 0% card? 

Overdraft......................2000......0.........0  This is almost definitely not 0%.  Most overdrafts charge 40% 

MBNA Credit Card...............5954......158.......0

MBNA Credit Card...............7810......200.......0

Lloyds Credit Card.............14997.....375.......0

HSBC Credit Card...............7739......200.......0

Paypal Credit Card.............2421......60........0

Virgin Credit Card.............2973......30........24.1  Can this be moved to 0% 

JohnLewis Credit Card..........2368......100.......25.9[b]  Can this be moved to 0%

Total unsecured debts..........96264.....2138......-  [/b]

[b]

Monthly Budget Summary[/b]

Total monthly income.................... 8,500

Expenses (including HP & secured debts). 6,646

Available for debt repayments........... 1,854

Monthly UNsecured debt repayments....... 2,138[b]

Amount short for making debt repayments. -284[/b]  I reckon there is scope in that soa for you to cut back by at least £500 

[b]Personal Balance Sheet Summary[/b]

Total assets (things you own)........... 743,000

Total HP & Secured debt................. -498,800

Total Unsecured debt.................... -96,264[b]

Net Assets.............................. 147,936[/b]

[i]Created using the SOA calculator at www.LemonFool.co.uk.

Reproduced on Moneysavingexpert with permission, using other browser.[/i][/font]

There is a lot of scope in that soa for you to cut back but that will mean lifestyle adjustments.  The debt is high but you have a good income and if you can cut back on your expenditure you can repay it without resorting to risking your home or taking on an unaffordable consolidation loan.  In a few years your childcare costs hopefully will come down so that will help a bit. A lot of that debt is at 0% so it makes no sense to put it on a loan at 11%. 

kimwp

I think you still need that lightbulb moment of realising your lifestyle needs changes if you are going to pay off your debt. It's not necessary to spend £133 on hair and "other places" - most people don't. £2000 a year on presents and £6000 a year on holidays when you are £96k in debt doesn't make sense. If you feel that some things are non - optional, then you will need to cut back elsewhere. 

The fact is that you can afford to pay off these debts without a dmp and not having a dmp will mean you have the option of moving your mortgage to a provider with a better deal when you come off your fixed rate.