Some advice on debt management and secured loan

Millsandovis

Hi all,

hope this is the correct place to post.

I am looking for some advice on what to do before making a decision.

I work as a self employed handyman and have had a tumultuous few years. I lost my mum in 2020 and was left with some inheritance that I didn’t really use wisely, I then sold my house in London which again left me with a bit of leftover money. Again I didn’t use this money wisely and spent most of it. It’s not an excuse but I have since been diagnosed with ADD/ADHD and impulsivity is one of the major factors of this. I also cared for my mum for years before her death so didn’t really ever have a proper job or learn financial maturity. Even though I’m now 35 I’ve probably only worked full time since she passed in 2020. I also lost my dad in childhood so am pretty much on my own with no one to turn to for guidance or advice. In hindsight I can see why I blew through the money but it is what it is and I’m not going to punish myself further over it.

After getting to a point that I realised there was a real risk of losing everything I have got my finances and spending under control since around November last year. I have really locked in with work and earning money while not spending it frivolously.

I had a pick up truck I was paying 500 a month for plus 150 on insurance and sent that back early to try and get my monthly payments down. I had to pay 2k as an early settlement fee but thought this was worth it to bring the outgoings down. I put this on an interest free card I have listed below:

I currently have around 25k in debt which is broken down as:

10k Monzo loan which is 14k over the full term at: £249 a month

5.5k on a credit card that is costing me interest and £250 a month minimum payment

3k on an interest free credit card that works out at £250 a month if paid off within the interest free period

3k on another interest free card that I’m currently paying the minimum amount on of around £25. This would be around 350 a month if I wanted to pay it off before the interest free period ends

2k on Very of which I’m paying the minimum amount of around 100 quid a month.

and I have 10k left on my van finance that I use for work that is around 210 a month. I would probably keep this as an outgoing rather than borrow more to pay it off as it’s quite manageable.

I am in a fortunate position that I own my house outright after inheriting and was half considering getting a secured loan of around 25k to pay off all of my debts into one monthly payment. We are looking at doing some renovations in the near future so I could pay off my debts & bring my monthly costs down which would give me more money for works in the house.

I could then overpay the loan back as and when I have some excess money which I will quite often with lower monthly payments. My credit score is currently Good but verging on Fair with Experian and quite low with Equifax for some reason so I can’t get any more loans or interest free cards.

I live with my partner who has no stake or ownership of the house and my monthly bills without any of the debt are around 600 at most. The way the minimum payments are with the debts they are around 1.5k a month. If I got this loan I’d be looking at monthly bills of around 900 for everything which would allow me to really crack on with working and not feel like I’m constantly paying out on things and not seeing the balances reduce.

I understand secured loans aren’t advised on here and I’d essentially be turning a 25k loan into a 40k+ loan but at this point I just want to get my monthly outgoings down so I can concentrate on earning money without thinking everything is going to go wrong if there’s an unexpected problem or bill. I don’t have anyone to turn to to ask for help and that security would give me a major boost.

i’m not thrilled about the idea of a ‘backwards step’ and adding a secured loan onto my property but part of me thinks that most people have a mortgage and it would also give me a sense of accountability that I didn’t get with money that was inherited. It probably doesn’t really make sense to people but it never really felt like my money and I’d just been given it when I’d rather have had my mum back. At least this would be my decision and my problem if it went wrong.

So basically, is a secured loan a complete no go? If it isn’t, is it wise to spread it over 15 years or would a lower term be better? Or is there a better way to go about all of this? I fully understand I could just knuckle down and pay off my debts while working which I get and appreciate but it’s just the fact that if anything was to go wrong or I faced an unexpected bill I wouldn’t be able to pay it off quickly and the interest would build anyway. There’s clearly a big road block in my head with regards to thinking things are going to go wrong due to my past experiences both financially and with personal loss.

My house is worth around 650k and is mortgage free with no charges at the land registry. I basically just need a bit of time and space basically to bring my monthly payments down so I can really knuckle down with working and start building back some funds and I would look for a loan that I’d be allowed to overpay with no penalties.

is it worth it going down this route in my position or am I better trying a different method first? I can earn good money in my job and took in around 4.5k in February even with a week off due to illness but it felt like I didn’t really see much of it due to my outgoings and paying off various stuff. I also had to payout nearly £900 for some remedial work on my house and a service on my van.

Genuinely thanks in advance for any advice, I’m in this pickle because I was never really taught what and what not to do so am learning as I go along!

Brie

I'd say no to get a secured loan as if you continue to have problems with your budgeting and payments then you potentially could lose the house. Better to figure out how to sort of the budget and find a way to help you manage your money. 35 isn't too old by any means to get a grip on this.

It would help us if you were able to fill out a Statement of Accounts (SOA, template is below in my signature) and paste that back here so we can see if there's things that we can advise better on. I'd suggest that if your finances are really mixed in with your partner then don't include their income and reduce any bills you pay by the appropriate amount but include a note to explain this - otherwise people will ask questions about why things are so low.

One thing I'd say up front is that if you've been diagnosed with ADD/ADHD then it might help if you get your medical professional (whomever did the diagnosis might be best) to complete a Debt and Mental Health Evidence Form. If you are in England they can't charge for doing this according to the BMA. Once done copies can be sent to your various creditors so that they take this into account with dealing with you. For some it may mean that interest is no longer charged, others may cancel the debt, it will depend on how they manage these things. More info on - Debt and mental health | National Debtline

Sounds like you've been through the grind a bit but hopefully you can get it sorted and begin to enjoy the money you earn.

Millsandovis

https://forums.moneysavingexpert.com/discussion/comment/81920246#Comment_81920246

thanks for the reply.

My partner has only just officially moved in with me and she is about to start a new job so it’s a bit difficult to include her accurately in the SOA. Is it worth adding her if we’re not that intertwined financially?

In regards to the ADHD and the debt and mental health form, is that an option at this stage when I’m making payments every month or would I have to be struggling to make them for that to be considered? I never really considered this to be an option but it is definitely playing a part and contributing to my problems. Would a private diagnosis change this? I couldn’t wait any longer for the NHS and went private around a year ago

thanks for your kind words, I’m trying my best to get ahead of it now before it really starts to effect my life in a negative way. I appreciate your advice!

Brie

If you've been handling the finance on your own then just use those numbers and ignore her (so to speak).

The DMHEF might help if you shouldn't have take the credit. You say the ADHD creates impulses to spend which are becoming unaffordable when the purchases should not have happened at all. To allow credit to someone may be considered bad practice on the part of the bank. It may not be needed now if you have things under control for now and there are other tools that might be considered first - them not being able provide credit agreements thus making the debt unenforceable or simply the timing of the credit being taken when affordability checks weren't done.

But let's start with the SOA and we can take it one step at a time.

sourcrates

The one thing that makes a secured loan a very bad idea, is that most come with a variable interest rate, which means you are at the mercy of the lender and whether it chooses to hike up the rate or not, its a very risky strategy that I for one would not ever repeat.

ManyWays

In addition to @sourcrates good point about variable rate, the other thing to place NO reliance on is the lender or broker saying you will be able to easily remortgage to include the secured loan when your fix ends.

This depends on your situation and the mortgage market at the time. There have been long periods (2010-14 and 2020-24) over the least 15 years when anyone in financial difficulty has had their mortgage lender simply say No to a larger mortgage.

Lenders and brokers can say anything they want in this situation, it will be hedged with some weasel words which means you will not be able to get compensation for having been lied to about this, even though you were left with a highly misleading impression.

gizmo111

if you are going to pay the debt with equity, then I wouldn’t go down the secured loan route, they have high fees and interest. Speak to a broker about getting a small mortgage with a high street lender.

MillQueen

Might you consider having one or two lodgers if you have the space, to bring in some extra income? It's tax free up to £7,500 with the rent a room scheme. If you can use your house as an asset that brings in money, even for a couple of years, it may help make your repayments or fund your repairs.