Should we downsize or increase the mortgage to pay off credut cards?

[CheeryCherry]

We are in a mess. Have about £10K debt . No pay increase for 3 years for either of us, but obviously everything going up. We are savvy with the credit cards, pay no interest, but cannot get the debt down. The DCs are not demanding but they obviously have their needs. We will need a newer car in next few months too. We could sell up and move to a smaller house, not so good area. Or could extend the mortgage/get a loan to pay off the debts, and work towards living a debt free budget. DH off with stress/depression so could probably not cope with a move. However it does leave me to try sort it as he is not coping in general. What would you do?

If downsizing lets you start with a clean slate & more disposable income I would go for it. A house is a house - you make it into a home. You never know, you may drop on something in a better area than you thought you could afford. How much equity do you think you would get once removal costs & house selling & buying costs are taken into account?

The downsizing wouldn't be free unfortunately. Last time i moved it cost me 16k in fees and stamp so that is money added to your debt. So that would be extra money you would be paying off.

Im in a similar position. Have thought about a loan but its would take many many years to pay back so not ideal plus the extra interest!

I would like to add it to the mortgage because it would hardly make any difference to the payments but the bank seem reluctant.

I'll be waiting to see what advice you get from people who actually know what they are talking about.

You need to work out, if you added the debt to your mortgage, can you actually afford the repayments? As you said, you aren't bringing the debts down, have other expenditure planned etc. Also, at the moment it is unsecured debt. If you couldn't make the repayments once it's on the mortgage your house may be repossessed.

How have the debts accumulated? That can go a long way towards deciding what is likely to be the better option for you. How much equity do you have in your current property? How long is DH paid sick leave for / how much longer is he likely to be off work? Do you earn enough to continue to repay debts if he goes onto SSP or ESA?

Thanks all. Our mortgage is about £50K now, so we could pay it off if we got a smaller house, or have just a 20k mortgage. Could probably buy something for 60k less than this house is worth, then need to factor in for 15k moving fees. We are having a major budget review this week to make some decisions. I am happy to move, but DH will find it hard, as will the DCs. Debt has caught up on us over the years, and recently had massive car repair bills and needed new central heating.

Fuckadoodle....why won't your bank let you increase your mortgage? We haven't asked yet...

That's a very small mortgage. Have you done a monthly income & expenditure review. Surely you could start to reduce your debt with both of you earning?

Hi CherryCherry,
Definitely continue with your expenditure review.
I would recommend you post the exact same question on the Moneysaving expert mortgage forum:
forums.moneysavingexpert.com/forumdisplay.php?f=15

Agreed that moving is both expensive and disruptive. I am not a mortgage broker so this is all "IMHO".

Do you have a repayment or an interest only mortgage? Are you on the lender's standard variable rate or a special rate? Lenders are getting a bit sensitive to offering interest only with no savings vehicle attached but you could speak to your lender, being a little circumspect with regards to all your reasons (unless your situation is more desperate than you have divulged) and ask if part of the loan can be placed on an interest only footing (there might be a fee involved). You could also see if they would offer a better rate - or increase the term slightly ie. a another 2-5 years, depending on your current mortgage. I think these conversations are easier to have over the phone rather than eyeball-to-eyeball! If they aren't interested, shop around and see if you can get a better deal. Martin Lewis' site (above) recommends using a mortgage broker which is fee-free (London County?)

If you have no joy, then moving is your Plan B (or C).

I hope that your DH is getting good care & treatment from your GP.

I am little confused; if you are not paying interest on credit cards how are you not managing to reduce them? Is it because you continue to use them every month?

Wow you have a tiny mortgage! Mines 4 times that!

Fuckadoodle....why won't your bank let you increase your mortgage? We haven't asked yet...

It seems that the banks are quite cautious at the moment and have introduced new rules. Each time we have seen the bank and come up with a solution to the last obstacle they put in our way, they then put another in our way! It was almost like they were making up the rules as they went just so that they could say no! Some really didn't make sense!

Lafykookoo my DH swaps and switches credit cards for get zero interest as frequently as possible. And yes we still use them, so it hardly reduces. Yes I realise we have a small mortgage but as our wages aren't unlikely to increase in the next few years but outgoings will, I can't see things getting any better. We are in a Fixed rate 2.99% mortgage but will ask to extend it to buy a bit of time. Babelange thank you, will post on that forum. x

We've done a strict budget which we try really hard to stick to. Because of that the last two months we haven't used the credit card at all and have reduced the debt by 1000. If we keep that up we could pay off 6k in a year!

That's what you need to do really, something like that. If you keep using them you'll never get anywhere.

fuckadoodle that's seriously impressive. And its what we must do-get a grip. Thanks for the advice.

Do not borrow to pay off debts, we did this and now have an unaffordable mortgage which resulted in us getting in more debts in order to cope, its a vicious circle and has caused so much stress.

If you cannot afford your credit card repayments you need to write to the companies and ask for the interest to be frozen and come up with a payment plan and stick to it, and DO NOT GET ANYMORE CREDIT FFS.

Do you really NEED a newer car? really? do you NEED to be using the credit cards? We don't have that option, we have NO credit because things got so bad we ended up with county court judgements against us. But you know what, we manage. It can be a bit hairy if things go tits up in the house etc, but i reckon between me and Dr Google, I can fix pretty much everything and have done, from dishwasher to the electrics on my DPs van. Our car is about 15 years old and i can't see us replacing it anytime soon - saying that it is a mercedes with relatively low mileage for its age. The van is ancient, we call it old trusty. My DP and I are both very techically minded so we do repairs ourselves. It is madness to pay out on a new car unless you really need one and your car is costing you more in repairs but if you keep them serviced and looked after they should, depending on the make last a fair few years, they are designed to do this! My DP is a builder, so he needs the van, we paid £300 which i bargained down from £500. Its an ex postoffice van so had been looked after, we have had it for two years now and yes we have had to spend out a bit on it but only things that normally need spending to get through MOTs. I would never ever get in debt for a car again.

We made a spreadsheet which we both update anytime we spend anything even if its just a couple of quid. It needs to be very detailed so everything you earn, tax credits etc that you have coming in.

Then all your direct debits, the amounts and dates they go out, then all your regular expenses such as travel, petrol, school lunches etc and then the things for that month only such as someone's birthday. Going out, takeaways. Also food! I find that one can be reduced quite easily but you need to play close attention to it.

The first month or so you put down everything and get a real look at what you are spending money on. You need to be really honest though, so if you buy yourself a few magazines whilst out shopping put in under magazines don't put it under the shopping.

Once you see what you really spend you can see what can be reduced and work towards that.

The goal has to be not to use the credit card otherwise you'll get no where.

Cheery having read further posts from you, I honestly think you wouldn't be wise to extend your mortgage to repay the credit cards. You are not currently living within your means, so you need to cut back quite drastically. What will happen when (as is inevitable) your DH is no longer accepted for an interest free credit card? You need to make some big changes and although it may be that you decide not to move house, some cutbacks will have to be made otherwise eventually you will get into a downward spiral with your debts.

Sorting out individuals with debt problems was a big part of my job pre DC's and I can't give you more specific advice without knowing more about your circumstances, but I can't stress enough - cut the credit cards up!!!

Oh and also put on it how much you are spending on debt repayment and how much they all add up to. Its very satisfying seeing it go down and it encourages you to keep going.

Its not enough to cut the credit cards up, believe me, you have to STOP them and if you write to the companies and show them you are in genuine hardship there is a certain level of obligation for them to freeze interest and accept a reasonable payment. I suspect you are paying more out on credit card debts than you are your mortgage just now. Please please please don't remortgage - we made this mistake. My DP was not getting any work, i was poorly and he was constantly havin to take time off work, we lived off credit cards, we used them to pay the mortgage FFS! So we stupidly remortgaged, got into the same situation again, having bought a car that we ended up having to sell (and lose £££s) becaues we couldn't afford to put petrol in it. Within two years we went from having a 40K mortgage to 110K, it makes me feel SICK to think of it. One bank advised us not to do this I wish with all our hearts that we listened to them. It has ruined our relationship, we have been through hell and it will never be the same again. Your DH needs to take responsibility for his spending, these 0% credit cards are a trap because eventually as someone up thread said, they will stop giving him them and then the interest is piled on. With 10k of debt your minimum payment will just about cover the interest and you will never pay it off, this is what they want!

Please contact the national debt line they have so many resources to help. We used them, we now have a debt management plan and we are paying off 15k of debts over 11 years, no interest added. We pay £100 a month but most importantly there is no more interest so every penny we pay goes towards paying off our debts.

Lucy. What actions do you think you should have taken instead of remortgaging?

With hindsight fuckadoodle we should have done then what we did more recently. We really didn't have the option of downsizing, our house is tiny, two bedrooms and we had two DDs at home, now just one (one 7 and one 22!). We should have contacted the national debt line and got out debts sorted out instead of borrowing more and more, i cannot believe it spiralled so quickly. We weren't living the life of riley, it wasn't a luxury car that we bought, far from it, it all got out of hand. Remortgaging was absolutely the worst thing we ever did.

What you need to do is:
Sort out priority debts:- Mortgage, Tax, Fuel, water, get arrangements in place to pay off any arrears.
Write to creditors and get them to agree to reduced payments if these are the cause of you getting into more debt. There is no point in paying off these debts if you are having to borrow to live day to day and pay the priority debts just so you can pay your credit cards off. They can basically, fuck off, so long as you are making SOME payments there is very little they can do.

If you have multiple creditors can afford £100 a month for non priority debts (debt management schemes wont deal with these) then try for a debt management program, this means you make one payment instead of loads of smaller ones. Yes, your credit score suffers but i don't give a flying fuck about my credit score i am never EVER borrowin another penny for as long as i live.

I woldnt mind, we weren't buying luxuries, we were using credit to live, week to week, we stuck our heads in the sand and didn't ask for help, big mistake :(

Lucy. Perhaps i could have your opinion. We have a lot of debt but are just able now (since being much more careful) to live within our means and make payments. We've never missed a payment on anything. My dh is keen to get a loan to pay off the 0% credit cards (which is where all the debt is) but i think we should carry on like we are which is paying as much as possible each month. We've also thought about adding it to the mortgage which i wouldn't mind so much.

Im not keen on the loan idea because of the extra interest we would end up paying. What do you think?

In your position I would shop around for a loan that offers a cheaper rate than the credit cards. Sainsbury's were offering 5.7% a while back. Work out what your monthly payments are on the card. I'm guessing around £200? A £10,000 loan over 5 years would be the same cost. If you do this then you do need to pay off the cards and cancel them. That way you do have an end in sight to the debts, whereas credit cards just seem to go on and on.

fuckadoodle (love the name BTW) there's no point taking something on 0% interest and putting it on a loan where you will start to pay interest, unless you can't afford to pay the amount you need to at present. Once your 0% deals run out then look into loan rates and see if that would work out better for you.

The thing with a loan is that you have to make the full payment each month, so there's no wiggle room if you get an unexpected bill one month. You need to find a balance between paying it off as quickly as possible (so that you pay back less interest) and having a bit of free income each month to put into an instant access savings account so you can afford to fix the car if it needs repairs, replace the boiler if needed etc.

Honestly, if you are managing each month then i wouldn't change what you are doing because you sound like you are making progress into clearing your debts. I take it you are not incurring any more?

The thing with a debt management plan is that it will fuck up your credit score, which if you are paying everything off on time will be ok at the moment, ours was fucked and we were on the verge of losing the house anyway so we had no chioce.

Also, you need to consider what you would do if you up your mortgage and there is a hike in interest rates, this is what i dread, will be screwed if this happens.

If i were you, i would
If you can afford to, and i mean really afford it, you can't live on bread and water! Carry on as you are, if you are making inroads and not paying any interest. Obviously cut the cards up! If you are struggling, consider a debt management plan - or at least contact one of the non profit making companies: National Debt line, CCCS, Payplan (we are with payplan, they are "ok" they do try and push other products like cheap loands, err, no ta!!, but they dont charge for the services). Where a debt management plan is useful is if you have multiple creditors like we did. So if we had a duff month (my DP is self empoyed, it happens) we were incurring loads of extra charges, if you only have one card it might be better to stay as you are, because i thnk you do "default" once you go into a DMP, im not sure on that though, you might want to check.

Please feel free to PM me if you want any more help, i think ive been through it all :( But as a result, i know my rights.

No not incurring any more debt. Its early days though. Will try to put some by for emergencies as that's what always trips us up.

Thanks for your advice.

Yep, emergencies are pretty OMFG in this house too! I have to remind myself what is important sometimes - we have each other, our dogs and our health, really, we are blessed.