Secured Loan to pay off credit card debt?

CreditDevil

Hi Guys...

Could use some advice if you dont mind as I have spent the last couple of days going over my debt which is essentially loans and credit / store cards...

My loans finish in approx 18mnths with one finishing in May... so its mainly the credit / store cards I wish to sort out... so thought would do the credit card shuffle - the problem is my credit is only 'fair' therefore I dont think I will be able to get any 0% free interest cards to move balances around.

I am starting to struggle with minimum payments and have been offered a Barclays Secured Homeloaner loan... I am worried about early repayment settlement and securing on my house.

I'm of the firm believer that you should NEVER secure unsecured debt but I cant see a way out at present...

Here is the damage:

Total Credit Owed £ 31,699.05

Highest rate card is 31.1%... lowest is 17.9%

What is your opinion on going the secured loan option?

Any help appreciated :beer:

Rafter

Credit Devil,

You seem to have your eyes open about your situation which is great.

Putting your home at risk or postponing the date you will be mortgage free just to reduce your short term monthly outgoings is not to be encouraged but might be your only option with that much debt.

I suggest you are tough on yourself and maybe secure £15,000 over no more than 10 years to ease your current situation.

You then need to come up with a tough budget to work out how you are going to repay the remaining £15,000 over no more than 5 years, prioritising your highest rate debt first.

Paying around £6000 a year or £500 a month just to line the pockets of the banks and store card companies is just not sustainable.

I'm a firm believer that good debt is ok. That is debt that is backed by something valuable like a house or car. Debt problems occur when you have loads of debts for holidays, clothes, living expenses with nothing to show for it because you are basically mortgaging your future quality of life.

Hope that doesn't sound too harsh. It isn't meant to be. But getting your debt under control and not borrowing just because you are offered it makes life a lot easier.

Please don't make the worst mistake of all which is to take out a secured loan, re-fill your credit cards and then find your house is being repossessed.

Good luck

R.

CreditDevil

Rafter wrote: »

Credit Devil,

You seem to have your eyes open about your situation which is great.

Putting your home at risk or postponing the date you will be mortgage free just to reduce your short term monthly outgoings is not to be encouraged but might be your only option with that much debt.

I suggest you are tough on yourself and maybe secure £15,000 over no more than 10 years to ease your current situation.

You then need to come up with a tough budget to work out how you are going to repay the remaining £15,000 over no more than 5 years, prioritising your highest rate debt first.

Paying around £6000 a year or £500 a month just to line the pockets of the banks and store card companies is just not sustainable.

I'm a firm believer that good debt is ok. That is debt that is backed by something valuable like a house or car. Debt problems occur when you have loads of debts for holidays, clothes, living expenses with nothing to show for it because you are basically mortgaging your future quality of life.

Hope that doesn't sound too harsh. It isn't meant to be. But getting your debt under control and not borrowing just because you are offered it makes life a lot easier.

Please don't make the worst mistake of all which is to take out a secured loan, re-fill your credit cards and then find your house is being repossessed.

Good luck

R.

Many thanks for the advice... that really helps!

Thankfully this figure is both the Wife and I so between us we can start paying it off ... this debt has come as a result of getting married in NY and several holidays along the way.

We both earn good salaries so there should be no excuse for this debt really not with a mortgage of just £68k

We were managing the minimum payments fine on all accounts and are just about doing so but three lenders have increased their interest rates substancially (MBNA) and as a result we are effectively only paying interest off now which is madness... hence we know its time something pro-active was done about the debt...

I am currently in the middle of doing a detailed SOA to see where my money goes and plan to start hammering this debt hard in some cases paying off £1000 per month will be possible depending on how much money I can raise from my 2nd job :T

With this information in mind would you still go down the secured route?

I have written to MBNA this week asking them to freeze / close the accounts ... whether this will work or not I dont know...

IF it does then I will not bother with the secured loan ... IF it doesnt then I will take a secured loan to pay off the three MBNA accounts (£20k @ 25%+) then concentrate on paying rest of debt off myself via savings I make from SOA and 2nd job...

Does that sound ok?

Rafter

MBNA! Having worked for a credit card company in the past I can see exactly what they are doing. They have identified you as a good credit risk, but know you will have trouble moving that much unsecured debt elsewhere in the current climate. So they have whacked your interest rate up to make as much profit from you as possible. Don't let them get away with it!

Ok, so your mortgage is £68k, what is the property worth and what kind of mortgage deal are you on?

It might be you can get a 'further advance' from your current lender, rather than taking a secured loan. That way when your mortgage deal ends you can refinance the whole lot and not be paying a punitive rate of interest on a secured loan, or the arrangement fees and other costs that tend to go with one.

The main thing is not to secure the debt and then forget about it. You really don't still want to be paying your wedding off in 25 years time.

I'm getting married in 3 months time so may be after some advice from you after honeymoon in Canada!!!

Good luck.

R.

CreditDevil

Rafter wrote: »

MBNA! Having worked for a credit card company in the past I can see exactly what they are doing. They have identified you as a good credit risk, but know you will have trouble moving that much unsecured debt elsewhere in the current climate. So they have whacked your interest rate up to make as much profit from you as possible. Don't let them get away with it!

Ok, so your mortgage is £68k, what is the property worth and what kind of mortgage deal are you on?

It might be you can get a 'further advance' from your current lender, rather than taking a secured loan. That way when your mortgage deal ends you can refinance the whole lot and not be paying a punitive rate of interest on a secured loan, or the arrangement fees and other costs that tend to go with one.

The main thing is not to secure the debt and then forget about it. You really don't still want to be paying your wedding off in 25 years time.

I'm getting married in 3 months time so may be after some advice from you after honeymoon in Canada!!!

Good luck.

R.

Ahhhh... so thats why they have done it - they wont be getting away with it... we'll see what they have to say to my letters.

If they are reasonable then I will postpone the claim for credit card charges for a couple of months - if not then I hit them with everything :rotfl:

Property is worth circa £110k going by prices on the road but will be worth £120k + once finished as we bought it as a dump... (DIY also responsible for debts) ... its on a variable rate mortgage at present.

Not sure how current lender will look upon us favourably with a advanced with current debt ... I'd like to move the mortgage to be honest but with current debt think that would be very difficult?

I've started to manage my money more effectively already by saving £200 per month that I was spending on canteen lunches and the like ... :eek:

I'm still not entirely convinced by the secure route at present...

Do you think its possible MBNA will do as I ask? - I have asked them to either reduce their interest rates on the cards substancially or freeze / close the accounts and accept reduced payments?

My theory is doing either will allow my money to pay the balances not just the interest

Rafter

Well, the expected reduction in base rates should give you reduced mortgage rates in the months ahead.

With that much equity I'd be surprised if your current lender wouldn't advance you more. Probably at a higher rate, but certainly nowhere near the 20% you are being charged by MBNA.

Do you have some nasty early redemption penalty on your current mortgage? It may be worth switching now and simply borrowing more?

Would your bank offer you say a £15k loan at <10% to start you off. That way at least you can pay off most of MBNA, close one or more cards and then get a 0% credit card to transfer the rest?

It is all about getting on the treadmill and making sure you are in control rather than MBNA.

You really don't want MBNA to freeze interest or accept reduced payments as this will effect your ability to get credit elsewhere.

You have assets (your house), you have a solid income and a manageable amount of debt. You are just being ripped off to pay for it at the moment and need to restructure it to work for you rather than the banks!

R.

CreditDevil

Rafter wrote: »

Well, the expected reduction in base rates should give you reduced mortgage rates in the months ahead.

With that much equity I'd be surprised if your current lender wouldn't advance you more. Probably at a higher rate, but certainly nowhere near the 20% you are being charged by MBNA.

Do you have some nasty early redemption penalty on your current mortgage? It may be worth switching now and simply borrowing more?

Would your bank offer you say a £15k loan at <10% to start you off. That way at least you can pay off most of MBNA, close one or more cards and then get a 0% credit card to transfer the rest?

It is all about getting on the treadmill and making sure you are in control rather than MBNA.

You really don't want MBNA to freeze interest or accept reduced payments as this will effect your ability to get credit elsewhere.

You have assets (your house), you have a solid income and a manageable amount of debt. You are just being ripped off to pay for it at the moment and need to restructure it to work for you rather than the banks!

R.

I will give you benefit of doubt and speak to my mortgage lender (HSBC) and see what they have to say... I reckon they'll probably offer secured loan as well though which I am trying to avoid...

I'd consider switching the mortgage if we can but the problem I have is that I'm self employed and dont yet have two years accounts so think that could be a big pain...

CreditDevil

Off down the Bank tommorrow - Wish me luck!!!

Feeling paranoid I did a credit check using Credit Expert and other than a couple of (1) late payments its fine!!! ... strange...