Bit of a pickle

fruitbat_2 · 17 February 2005 at 5:25PM

I've been a silent observer of these boards for ages now and have saved many pounds and pennies thanks to everyone's helpful hints and tips.
Now I could do with some advice myself.

After working hard and saving hard we were down to just the mortgage on the 'debit' side. But we've recently been hit with a double whammy - husbands car is on its last legs much sooner than expected, but what's worse we suddenly need a LOT of work doing to our house, and no, it's not covered by the insurance. :mad:

I sort of have a plan which is roughly as follows: of the £14K I think we'll need for house and car (which will be second hand) we have:

£2K in our 'savings for holidays, house, car etc'
£6K in cash ISAs - offset by a £6K debt on 0% credit cards which I am paying off at the minimum and moving every 6-9 months.

Which leaves another £6K - I think we'll have to take out a loan and I know there are some 5.9% deals out there, but what I would like to ask is, is there any way we can pay back the £6K loan and the £6K to the credit card (and I'm getting a bit concerned over all the press about 'end to 0% deals) any cheaper or quicker ways?

We will of course pay it back in as large chunks as we can afford, and will be diverting the contributions to the holiday fund to pay back the debts.

I realise this isn't as serious as some cases of debt, I'm just rather ticked off that, having saved and saved to pay off student loans a wee bit early, do all the previous work on our house from money we save, and only using credit cards for earning interest we now have to go into debt to the tune of £12K to keep a roof over our heads and a car on the road.

So what I guess I'm after is where, if anywhere, could I move this rather large sum to have the smallest possible rate of interest?

Any advice appreciated

Debt_Free_Chick · 17 February 2005 at 9:32PM

Hello Fruitbat

You might want to post on the Loans Board too, as some clever folk on there don't always make it over here.

In response to your question though, the lowest APR for a loan is usually obtained from a fixed rate personal loan. Martin posted on the Loans Board that Barclays are to launch a loan tomorrow with a "typical" APR of (umm ....?) I think it was 5.5%. Be aware though that the typical rate is not offered to everyone, as it depends on a credit check. It looks like you would be in a good position though.

Whilst a fixed rate loan generally gives the lowest APR, there is no flexibility. So you can't pay off chunks when you want to.

In your situation I would consider adding to your mortgage. I don't normally suggest that to people in debt, but your situation is different ... you are not in debt. If you can put the loan on the mortgage, then you get a low APR (I hope you have a good mortgage!) and, if you have the right mortgage, you can normally overpay it. So this gives you the opportunity to pay off the loan quicker and, once you are in the habit of overpaying your mortgage, you can continue to do this and get your mortgage paid off even more quickly!

So ... look at your mortgage. What's the interest rate? Can you overpay? Should you remortgage to get an even better deal?

I hope this helps ... if I've not been clear, do post back.

Regards

zcaprd7 · 17 February 2005 at 9:48PM

What about a remortgage for the house repairs - they will be adding value I assume...

Maybe another angle is to look at the expenditure?

My Dad swears by his "Dog Car" philosophy of buying a 2nd-hand car each year for £500-1000, and not having to worry about it getting trashed or nicked...any hefty repair bills and he trades it in for the next dog.

His latest has been going for nearly two years now - so he's considering trading it in for the next dog but I think he secretly likes to run them into the ground!

Lorraine_Turner · 19 February 2005 at 9:51AM

Hi Fruitbat

Why not try looking at that £14K worth of pickle to see if you can cut it down ... or perhaps even clear it altogether, without having to borrow money?

Let's look at the car first. Cars are lousy investments: they lose their value really quickly, unless you buy a classic marque or collector's car that keeps its value over time. Do you really need a car? Have you looked at other ways of getting around, e.g. car shares, bicycles, etc? If you do need a car, why dish out thousands of pounds on a new or newish one? It'll depreciate in value like wildfire, and manufacturers have made sure that you can't even do simple repairs on it yourself because they've computerised everything. I liked zcaprd7's dog car idea (as long as the dog's reliable and doesn't need piles of money spending on it, which would defeat the object). My brother used to waste money on new cars: now he drives an old metro, which he bought for three hundred quid and is really reliable. He can also do some repairs on it himself, because it's not computerised. You could also try buying a car at auction at a much cheaper price – if you're like me and don't know a rubber flapper valve from a big end, take someone who does with you, to check out the car before you buy it. You might also be able to get your car repairs for free, by doing a skill swap with someone who's good with cars. What are you or your husband good at? Could you offer your services for free in exchange for some mechanical repairs?

This brings me on nicely to the house. Could you do a skill swap in return for some of the repairs? Also, where do you live? Are they operating an alternative money scheme in your area? These schemes are often known as LETS (Local Exchange and Trading System). They work a bit like a barter system. For example, (here's an excerpt from a book I wrote), "Cambridge has its own alternative currency, known locally as 'cams'. Whenever you perform a service for someone, you earn cams. Likewise, when someone performs a service for you, you pay for it in cams. So you could, for example, do some decorating for someone and get paid in cams, and then use those cams to pay someone else to do some plumbing work for you. In other words, you get things done for yourself by doing things for others... Around 300 towns and cities in the UK operate a system like this. For example, Manchester's currency is the 'bobbin', while Totnes uses the 'acorn'. In St. Neots they use 'saints', and in Brighton they use 'brights'." The icing on the cake with these schemes is that transactions are not taxable because they are classed as an 'occasional social favour' and not regular trading. You can often search out these schemes on the net, or try your local town hall or community centre. Perhaps all you moneysavers out there can help to track them down too?

After you've done all that, and whittled down what's left of the pickle to a fraction of the original amount, try borrowing what's left on a credit card and shove it around the 0% deals for a while, as you've already been doing, and pay lumps off the balance whenever you can. Alternatively, you could remortgage at a discounted rate for, say, a year or two – it'll tie you in for the period of the discount (watch out for early redemption penalties and whatever the rate will revert to at the end of the discount period), but it'll be much cheaper and you can pay off the extra you've borrowed when the discount period runs out. Shop around with different financial advisers to find the best deal, or perhaps this site can help?

Good luck!

moggins · 19 February 2005 at 10:39AM

I agree with Lorraine about the car, an old banger might not look good but they're frequently reliable and cost a lot less to buy.

You could also try shopping around on the internet first. Many local garages have websites now, we had a budget of 5K for a car but by shopping around we found an S reg Vauxhall Vectra for just under 2K, it was an ex fleet car with fairly high mileage but if it so much as coughed it had gone into the garage.

Since we bought it a year ago the only problem we've had has been a flat tyre! It has just gone through the MOT needing only £100 spent for new brakes and considering the way my husband drives that isn't surprising

zcaprd7 · 19 February 2005 at 12:56PM

My Dad's Dog Car strategy has only really started to be viable over the last few years as most production cars are of such a high quality (compared with 10-20 years ago) coupled with individuals recent propensity to buy a new car every three years...don't be misled into thinking you'll end up with an old banger, you can get some decent top-end cars with all the extras - they're just 10 years old.

He was lucky in that the local car dealer has a lot of stock (who also employs his own mechanic and makes sure they are all MOTed up before selling) who is happy to take then back and part-exchange them for the next car.

LETS link:

http://www.letslinkuk.net/

Lorraine_Turner · 20 February 2005 at 12:36PM

Thanks to zcaprd7 for the LETS link, and the further info on dog cars. Sounds like they've come a long way.

westernpromise · 20 February 2005 at 1:29PM

fruitbat wrote:

But we've recently been hit with a double whammy - husbands car is on its last legs much sooner than expected, but what's worse we suddenly need a LOT of work doing to our house, and no, it's not covered by the insurance.

I would treat this as 2 categories of cost here, capital and expense. The house stuff is capital outlay. The car is expense.

Basically capital is spending on long-lived assets you're going to use for a long time. A house is a capital item, and so are major works to it.

A car is an expense. You use it for a relatively few years, then chuck it away.

It's legitimate in either case to spread the cost involved over however long you expect to benefit from it. Taking 25 or 30 years to clear a mortgage is OK because you're using the house throughout. Adding the house repairs to the mortgage is also OK. The repairs will benefit you as long as you occupy a house (any house). You needn't rush to pay it all off in a hurry.

Adding the cost of a car to a mortgage is not good. You'll probably be paying for it long after you've got rid of it. Of course, if you've got 3 years left on the mortgage, this would not apply. But much of the bubble in consumer spending of late has come from people buying cars every 2 years and sticking it onto a 25 year mortgage. In 20 years' time, those people will find they still have large mortgages of which a large chunk is debt incurred buying cars 20 years earlier. Not smart.

I would therefore suggest you split the costs into two and think about them accordingly.

I'd fund the house repairs via the mortgage. They benefit you as long as having a house does.

I'd fund the car over however long I expect to keep it - 3 or 4 years probably.

I'd actually source the money from the mortgage, because it's the cheapest rate you'll get, but I would make sure of paying that element of the mortgage off early. If you have a flexible mortgage, it's easy, you just overpay.

Otherwise, you pay the normal mortgage amount back each month and deposit the extra, that relating to the car, in a savings account (eg Halifax at 7% gross). After 3 years or whenever you have a lumps sum in there which you use to pay off some of the mortgage when next you refinance the house.

Yes?

fruitbat_2 · 21 February 2005 at 10:27AM

Thanks for the ideas so far everyone.

As far as extending our mortgage goes, which seems like the most sensible suggestion, we're on a fixed rate, which is still a good deal, but we're tied in to this deal for another 2 years, when the fixed rate ends. I spoke to our lender about borrowing extra but they only mentioned 'additional borrowing' in the form of a separate secured loan at a higher rate than our current deal (and higher than the 'best buy' loans) with a £150 fee!
So it seems that we can't just 'stretch' our original mortgage.

As far as loans go we had one a few years ago through Natwest -realised what a bad deal it was and paid it off early - we almost avoided penalties by paying off almost all the loan, leaving a months' payment and a bit. Then because the loan was so small they recalculated the payments. When we cleared the loan the following month the extra interest payment that they charged as an early settlement 'penalty' was only a couple of pounds, and so not too punitive. Can you still do this with the AA/Barclays deals that are around at the moment?

Bit of a pickle

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free