Debt consolidation/remortgaging advice needed.

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Hello I have nanechanged for this but could really do with some advice. I’ll just lay out all the financial facts for full information.

Single parent, 2 kids, net monthly salary of £2500. Also receive rent on second property which amounts to around £400 month after management expenses, sometimes less due to repairs/maintenance.

No child maintenance despite attempts.

I’m lucky to have a good salary however I’m struggling to remain employed full time due to various disabilities and not sure how long I can maintain this. I need to sort out my finances and clear debts. All advice appreciated.

I owe £121k on my mortgage and pay £850 month capital repayment. I do have about 100k equity. (I know I am fortunate to have any equity). No possibility to downsize as house small already. Don’t want to uproot the children and move to a cheaper area as my support is here.

Also owe £70k on the Buy to Let and pay £150 interest only. House is worth less than I paid, in an area that’s not selling. Had planned to keep hold of it until it increased in value. Probably 40k equity. (Buy to Let is hundreds of miles away so cannot move into that).

Owe 16k to my bank in loans/overdraft. This costs £575 month in repayments/interest.

Owe 8k on credit cards - I’m paying interest. This costs about £200 month repayments.

Owe 4K to parents interest free. Pay £100/month.

I am embarrassed even writing this down but trying to face it all.

I have shopped around for all utilities etc, for example I only pay £9/month for my mobile. I do have commuting costs. Never anything much left at end of month after servicing debts, paying bills, food, kids clubs/childcare etc.

I was looking to remortgage the buy to let for as much as possible and using that money to pay off credit cards, overdraft and as much off the bank loans as possible.

Plan b is to sell other house at a loss just to get rid of it. Feel guilty on the tenant who is very happy there. Use the money to pay off debts.

Friend suggested option c, sell buy to let, pay off all equity off residential mortgage and then I’ll have more money to pay towards debts and could potentially seek lower repayment plans if need to reduce work hours. Said not to secure unsecured debts onto my home.

I would appreciate any suggestions. Thank you for reading.

Owe 16k to my bank in loans/overdraft. This costs £575 month in repayments/interest.

Loans can be at a reasonable interest rate. The overdraft may not be... so can you split that down to what is owed on the overdraft? How fast could you repay the overdraft?

I think you need advice from other landlords about the buy to let.

I would be concerned about it being far away, thus you have less income from it due to using managing agent. There are tax implications of buy to lets - if you sold it, will there be any tax liability if you don't make any profit? It's in negative equity in an area where properties are not selling - so you may need to hang on to it until the market picks up. The rent you get is covering the interest only mortgage at the moment, so it's not draining you of money, it's making money sort of but may not really be due to the market where it is.

Kids Clubs - swimming, karate, or do you mean after-school childcare? Reducing very costly activities may be something to look at.

Are you tracking all expenditure? Do you budget in advance, so you have a plan for what you will be spending money on this month?

I would start with the overdraft - trying to get to a point where you don't have that, then you know that all money going into your bank account you have available to spend.

The houses I don't think are a huge issue right now. Long term they may be, your main home payment represents quite a high percentage of your income. The buy-to-let sounds like it is covering it's costs, but keep an eye on that.

Attacking the overdraft by reducing outgoings, selling unused stuff, any overtime/additional income. Then I would look at paying back your parents as whilst it is interest free it is not guilt free - do they remind you of the debt every time you talk to them?

Are you receiving DLA or PIP for your disabilities? Are you getting the discount on your council tax for being a single adult? When did you last review the rent on the buy to let? have you looked at extending the term of your mortgage?

Hi both, thanks for responses. I will try and answer questions.

The buy to let ticks over nicely. Haven’t had to worry about voids . The rent was increased slightly last year, it’s getting market value. The house is situated in a city I used to live in, I never became a landlord intentionally, I just couldn’t sell it. House is in a good state of repair as recently did all the repairs (on finance).

It’s not in negative equity. I’ve had it quite a while and used to make capital repayments. It does have equity in but just happens to be worth less than I paid and the market is flat where it is.

I hadn’t considered extending mortgage terms, no. I will look at that. Just concerned that in the long run I will pay more interest,

Parents are unconcerned about the money owed to them as long as I make regular repayments. They don’t mention it.

I already get single person reduction for council tax. Do not qualify for PIP (I think I scored low as still working full time, health is generally poor and impacts quality of life but the criteria is harsh).

No expensive hobbies, use after school clubs, earn too much for working tax credits etc.

I’ve already shopped around for cheaper energy companies, only have basic tv and internet.

I do food shopping online too, to stick to the budget. It’s just been one thing after another, the boiler, the car, the washing machine have all needed replacing.

I owe 4000 on the overdraft due to needing new boiler/central heating. I left an abusive relationship and was left with various debts in my name plus needed furniture. I was also self employed and had periods unable to work and without pay. Ive kind of had my head in the sand. I’m now employed and if I’m ill there is company sick pay which provides some security.

I feel guilty posting when I know some familys are in dire financial straits when I do have the means to get rid of debt, just not sure which way is best.

Best? Just start doing it.
First have an emergency fund so if something breaks you have some money to pay for it.

Have you heard of DaveRamsey. Look it up on Youtube or a Podcast app. Sounds like you need HOPE, you need to know that you can do it, so hearing debt free screams may help motivate you.

I think I would start with building an emergency fund of say £1000. Then paying off the overdraft as fast as you can.

Make sure you are paying above minimum on credit cards using the standing order trick. See the spreadsheets from Talknpeace.

Good luck, it's really hard to get out of debt, can be a slow and bumpy journey but you will be so much happier without the debt.

The best thing to do is sit down with a mortgage adviser. Based on the figures you have provided you could look at increasing but to let debt but not by enough to cover all other debt. You also need to work out where the debt has come from and make steps to avoid it happening again. Are you tied into a rate in either mortgage? Are credit cards on 0% for example?

Unable to save an emergency fund whilst paying all these debts/childcare.

I have been to a mortgage adviser. I can borrow an additional 25k on the buy to let as no longer tied in. That would clear overdraft, credit cards and reduce what i owe on the loans. 2 of the credit cards are no longer interest free.

The debt has primarily come from ending a relationship and starting over plus having no occupational sick pay when Ill. Added to that house repairs and new car. We are settled in the new house now, house is fully furnished and fully maintained. Car will last for years

So do I remortgage to raise funds to clear as much debt as possible, as above? Or do I sell BTL and pay every penny off my residential mortgage and avoid consolidating unsecured into secured debt? Then use every spare penny paying off debts? No capital gains to pay as house has decreased in value.

80-90 % of people who remortgage to pay off debt get into debt again.

Another fan of Dave Ramsey here. He would tell you to sell the buy to let (to clear debt, but also because it’s miles away). Clear all your debt and then start building an emergency fund of 3-6 months.

I think just writing it down as really helped. My gut is to remortgage the buy to let. Looking at the figures I could pay off all debts apart from my parents. I wanted to pay them off before the credit cards as I’m mortified about owing them money.

However the sensible thing would be to pay everything else and then increase the amount I pay to them as they don’t charge interest. They would be horrified if they knew the state of my finances.

I will google those podcasts mentioned. I do have some hope as once these are cleared I will still have equity and also now have the luxury of a decent job with company benefits (pension/sick pay). Children are getting older so childcare costs will soon be finished. My main worry is about my health deteriorating further but i guess worrying about it doesn’t help. I do need to accrue some savings once these debts have gone.

Thank you for responses. I don’t feel as bad now. I thought I was going to be slated. Thank you.

I would clear the unsecured debts by adding to buy to let mortgage, this will allow you to reduce your outgoings and enable you to save up the emergency funds. If affordable you could look to reduce the term of your residential mortgage with some of the funds not being used on loans and credit cards anymore. So maybe increase monthly payment to £950. I would check though that having the buy to let won’t have a negative impact on any future benefit claims if you are not able to work in the future.

Haven’t looked at the residential yet as still tied in for a few months but that’s a good idea.

I’m employed full time and hoping I’ll be able to maintain working by reducing my hours when absolutely necessary and by that time I shouldn’t be paying any childcare costs plus my salary goes up yearly in increments. If and when my health does force me to reduce hours then I may then become eligible for PIP. Trying to stay positive.

Oh and I would imagine the other house would stop me claiming anything. I will check all of that out once I’ve cleared these debts and can think straight. Thank you.

NEVER borrow on a property to pay off credit card/loan debts. NEVER.

What is your credit rating like? Could you apply for some 0% credit cards and transfer the debt to them?

If you go on MSE then there is a soft check which will tell you which cards you are likely to be accepted for.

If you can do this you may be able to reduce the amount you add to your BTL mortgage. Whilst I do think it's a reasonable solution, over the long term it will be a very expensive loan (especially as this mortgage is interest only) so I would minimise the amount you add to it if you can make the figures work.

Get rid of the BtL it makes no sense to be in that level of debt and have two properties.

Sell the BTL, you’re not in negative equity so stop thinking of it as a ‘loss’

Pay off all the unsecured high debts.

Anything left over emergency fund.

Pay resi mortgage as usual.

Have you been throughout CMS for mintanance?

if you sold it, will there be any tax liability if you don't make any profit?

Of course there is no capital gain liability if you don’t make a capital gain!

I never became a landlord intentionally, I just couldn’t sell it.

So can it be sold now? If you sold it, would you get enough money out to then pay off all your debts except for your home mortgage?

NEVER borrow on a property to pay off credit card/loan debts. NEVER.

This, a hundred times. You're not paying off debt, you're borrowing more. Turning unsecured debt into secured is never the answer.

Get the credit card onto a standing order so that its paid off in two years

If the BTL will not give you a CGT charge then sell it even for a loss and clear your debts and save yourself loads every month