Add 65k debt to mortgage, dmp, or something else?

Kittymumof4

Hi, we have serious debt. Our credit score is good at the moment but we are struggling to make payments. We need to sit down and do a full SOA this week but I estimate our credit card debt (between us) to be around 65k and an overdraft of 1.5k on our joint account. 

Our mortgage is due for renewal very soon. Our house is worth approx £330k and we owe £180k with 20 years left, we are 47. 

We are contemplating applying for a higher mortgage to consolidate the debt to protect our credit rating and to make the payment more manageable. 

But I also know that this means moving unsecured debt to secured. 

Our family situation is complex. We have a teenage son with additional needs and are supporting our 20 year old who is in university (living at home)  who doesn't get a full maintenance loan due to my husbands wage. I have a physical disability. When we moved to this house 5 years ago, we didn't understand the complexity of our son's needs, he was in school full time so I was able to work part time self employed. Now his school attendance is sporadic and he needs a lot of support, meaning I have been unable to work since just after we moved here and my own health issues make it even more challenging. I'm paying out on things like professional registration but not earning. 

I am still registered as self employed in the hope of getting my small business back up and running to help us out of this mess, which means that step change won't support me with my debts, but would support my husband. If I close my HMRC sole trader account and we go onto a joint dmp, this stops me from being able to earn money while we're on it, if my circumstances change and I become able to work again. I do get carers allowance, my son is on DLA and I get PIP and we can't claim any other benefits as my husbands is on 60k p/a. 

On paper we should be okay! We don't go on lavish holidays, we eat out 2-4 times a month (usually takeaways) as I find it difficult to cook meals every day, my husband commutes and is out of the hours 12 hours a day, so we're living in a constant state of exhaustion. I pay for a cleaner from my PIP payment as I can't keep up with the cleaning myself due to health issues. I'm currently studying, I have a student loan for the course costs but extra costs are £140 a month and I'm not entitled to any financial support with this due to my husbands wages. We shop at Tesco and use club card points for eating out treats, we buy mainly their own brands and only buy branded products for our son who has a restricted diet. 

Our son brings high demands on our finances and going forward we will work to budget this so that the extra costs are covered by his DLA payment, but at the moment our finances are a mess and we're constantly fire fighting. 

Both of us have struggled with mental health and I hit a mental health crisis a couple of years ago, which has meant we've buried our heads. 

We are paying £1400 per month on debts, and this is rising, as most of our cc are 0% but we've started to pay interest on some of them now. Our overdraft means that when my husband is paid, we're back in the overdraft within a week or 2. Our mortgage is 1k per month and rising soon as we had a low interest fixed rate and rates have gone up so when we remortgage the cost of this will rise. 

We've started to look at subscriptions that we can cancel and have started to do this and we're looking at non essential spending. 

We don't know what to do. If we go onto a dmp it's going to mean phone contracts etc will be difficult and I don't relish the idea of telling our children about our struggles, especially as my son is currently in mental health crisis and anxiety is a huge part of this. We obviously have no savings so things like holidays (we go on a budget friendly UK holiday once or twice a year and before we woke up to the mess we're in, we planned but not booked a budget self catering holiday abroad as one of my sons special interests is planes and he's never flown) will be out of the window and days out will mean park visits instead of trips out to places which are important to my son. We also have a small dog and 4 cats and I'm worried that we will have to rehome them if we can't afford their food and vets bills/insurance on the dmp. Irresponsible I know, for having them, but as I said, we buried our heads for a long time. 

This is why adding the debt to our mortgage is appealing, because although our mortgage will go up, we will have no cc to pay, meaning that we will have some disposable income for building an emergency fund then to pay for holidays and days out each month, which in our circumstances with my son, would be very difficult to go without. And when I am able to work again, we can pay extra payments on our mortgage to pay it off earlier. And we plan to move house in approx 5 years, possibly downsizing, and I think dmp may make this harder. 

When I look at my husbands wage and add in my carers allowance and PIP, and my son's DLA, I feel like we should be living comfortably and I feel so guilty and ashamed as I know many people are on a much lower income and haven't spiralled into debt. I feel like I can get a handle on our spending and stick to it as although we're just about hanging in there, if I accept that I'm unable to work at the moment and we can manage to get the debt under some kind of control, I feel like I could manage budgeting. I think our issues have been that we've both been trying to work, on top of me studying and caring for my son, and my own health issues, and neither of us have time or energy to keep on top of things as our family life is so chaotic. 

Any advice is greatly appreciated. 

Kittymumof4

Also meant to add that another option we've thought about is transferring the credit cards we're paying interest on to another 0% card if we're accepted. Then budgeting to pay the debt off ourselves and not taking out any more credit. 

I'm thinking that if we go onto a dmp we'll probably be paying near to what we're paying now off the debt each month as on paper it looks like we have enough money coming in. So would it be best to keep moving the debt to interest free cards and work hard to pay it off? I just don't know. 

ManyWays

Dont remortgage, some of the rumours about disability cuts coming are unpleasant and this makes it important that you keep your options flexible in case this happens, not put your house at risk with a larger mortgage. In a DMP with Payplan or self-managed, you just reduce the DMP payments. 

I suggest your self-employment is a complicating red herring at the moment. You could give it up now and pick it up again later if your health changes. Put your health, family and easy life first at the moment.

Kittymumof4

@ManyWays thank you for this. 
So if we didn't go through stepchange, could we do our own DMP? I've not heard of Payplan, I'll have a look at that. 

I'm thinking that its time to accept that I can't manage work with everything else we have going on, I think my mental health may decline if I keep trying to get my business running again. And I know from experience that I won't be able to take care of anyone if that happens, and my husband needs to be able to stay in work, which was jeopardised when I hit rock bottom before and we feared we would lose everything.

So with the DMP, what does this look like? Would we be able to live okay? I feel so much guilt as I feel like my son is really going to suffer. I know that keeping a roof over his head and food on his plate is the most important thing. It's just very difficult when he doesn't have the understanding yet to understand why things would change dramatically and he's no longer able to do the things that are important to him, especially as he's currently at risk of sui*ide, I can't even think about how all of this might affect him. 

sourcrates

You are obviously aware of the pitfalls of turning unsecured debt into secured, consolidation of debt onto the mortgage is a common way to try and deal with unaffordable credit debt, however, its normally a one time deal, you won`t be able to do this again, so should you do, as many do, and find yourself in a similar position 5 years from now, what will your options be then?

The worst that can happen from not paying your credit card bill is a CCJ repayable by affordable monthly instalment's, if you find yourself in the position of not been able to pay your mortgage, you face being out on the street, a massive difference I`m sure you would agree.

65k is a lot to add to your mortgage, debt management would hold no risk to your home, re-mortgaging might.

You appear, on paper to have a reasonably good income, not yet seen the exact figures, but lets say you can get all interest stopped on the debts, and repay at something like £900 per month, saving you £500, its a 6/7 year DMP, less if you can save into a settlement fund, and pay some of it off early.

That would be a lot less risky than consolidating the debt on your already high mortgage.

And yes, a self managed DMP is an absolute possibility, many people do it themselves, they run the show, as its flexible, and you can increase or decrease payments as you see fit.

ManyWays

Could we see a Statement of Affairs of your spending as it is at the moment, not what you hope to be able to cut it to? https://www.stoozing.com/soa.php has a good format to use and copy into here.

You will find other ways to entertain your child. Plane mania may not last, and taking a neurodiverse child abroad can be fraught in many ways. RAF museums are good. Also:

• Heathrow has the Heathrow View observation deck in terminal 4 near Gates 15 and 16, offering a 270-degree view of the southern runway. For a family-friendly option, Heathrow Academy on North Perimeter Road has a covered viewing stand
• Manchester Airport (MAN): Manchester Airport has a dedicated Runway Visitor Park with covered viewing areas, and a fair with rides. 

Bristol Airport (BRS): The Bristol Airport Spotting website lists several spots. Birmingham Airport (BHX): Offers a free aircraft viewing area in Car Park 5. Gatwick Airport (LGW): Has a viewing area at the Gatwick Aviation Museum. 

Kittymumof4

Thank you both. I'm thinking that putting it onto the mortgage may seem attractive but not sensible long term.

My PIP review has just taken place and as long as there are no changes to my health, it will continue until 2028, my son's DLA will be reviewed in 2027 and will change to PIP, and I suspect he may lose it due to the changes, which will mean i lose my carers allowance. 

Our mortgage deal is up next month, should we keep trying to pay credit cards until we have a new deal secured? If we don't pay, this will affect our ability to get a new mortgage deal won't it? We are currently on a 1.7% interest deal and it will change to 7% next month so we are seeing a broker this week to look for other deals but with out other debt I'm not sure if we'll be accepted by anyone. 

If we do a DMP, how will this affect our ability to get a mortgage when our next fixed rate one ends ( if we can get one now)? 

If I declare that I am no longer self-employed, would it be best to go through stepchange or do a DMP ourselves? I wouldn't know where to start though to be honest. 

It feels so scary knowing that this will destroy our credit rating. I'm scared that something big will go wrong, like the boiler or car and we won't be able to afford to get it fixed. 

My husband has a company car which he can't do without as he commutes an hour each day and travels for his job. I have an old car which I rely on as I struggle to use public transport due to my health issues, i can't walk to bus stops and stand to wait for buses. I feel like many things that may seem a luxury to some are essentials for us, but I don't know how this will be viewed on a DMP and how much we will be expected to cut down on. 

Kittymumof4

Thank you @ManyWays. 
I didn't know about some of these, it's really helpful. 

I know it's unrealistic to take him abroad at the moment, it's just so hard when friends and family are going and he's desperate to visit specific attractions (It's hard to explain as I don't want to be identifiable from my posts) in other countries and he's not able to understand why we can't go. He can understand a bit about money but doesn't understand why we can't go just once when other people go every year. 

I'm going to sit with my husband and do a SOA this week. Thank you for the link, I'll post it once we've done it. 

RAS

I assume the 7% is your provider's SVR? If so, please log into their website now and check what the rates are for their other offers. You should be able to select the best of those (other than any designed for FTBs) and transfer to it without any credit check.

Much better than asking your broker to find someone prepared to accept your high debt situation. Cancel the broker conversation.

A DMP done with force will damage your credit rating (scores are irrelevant in the UK), for 6-7 years depending how fast your creditors issue defaults.

You need a new basic bank account (no credit checks) into which you transfer all income and manually set up new DDs. Do not use the switch mechanism. And set up an instant access ISA into which you send the money you would be paying towards debt in an DMP until the defaults happen. 

The one issue with Stepchange is that they start the DMP immediately, which damages your credit records longer and means you don't have an emergency fund.

I'd suggest that you look at the SOA, make sure you do make allowances for a some holiday etc. And in addition to looking at the budgeting, you take responsibility for doing some batch cooking once a month if possible, so there's something in freezer for days when you can't cook. Build the options up over time. Choose time when junior is attending school. You'd be saving almost as much as you might net doing self employment with less effort.

ManyWays

who is your mortgage with?

Kittymumof4

@ManyWays it's with Natwest