Debt repayment / consolidation

[Reluctantadult]

Hi all, name changed for this. Dh and I are up to £27k of debt, and I'm hoping for tips on what to do with it all. It's from 2 loans for cars, one £5k with 2yrs to go, one £9k with 5yrs. We've got £7k left on a cm from when we bought our first house, which is on 10% interest for another 20yrs. We owe my mum £5k which we can gradually repay. We be about £700 on credit card. We could do with doing about £5k work to the house, which we don't have. Our major outgoings are £500 on debt, £600 childcare (free hrs next Sept), £500 mortgage. We could put an additional £10k on the mortgage, so I'm thinking of doing this, paying off the original house loan £7k and then having £3k to either get the roof done or pay some of the other debts. Is there anything I haven't considered about putting debts into the mortgage? Is there a better way?

That should have said, we've got £7k left on a house loan, from when we did a 125% mortgage about 12 yrs ago.

Debts on the mortgage can be a very bad idea, or not so bad. It entirely depends.

If you're likely to run debt up again, you'll be in bigger trouble, as you'll have a bigger mortgage and unmanageable debt again.

However, if you treat it as a one off last chance to get into a better place moneywise, and get a much better mortgage rate, plus review your spending, you might end up paying back less overall.

But really, it sounds like you should start from scratch with budgeting, because unless you have a good handle on that, you don't know what you can afford on repaying debts, mortgages etc and any unsecured debts should be paid after basic living costs, not before.

Have a look at this and do everything that is relevant to you. Once you've maximised your income, minimised utilities etc, you'll be in a position to know if you can put things on the mortgage or need more formal help with your debts, or just need to control your discretionary spending.

www.moneysavingexpert.com/family/money-help/

We are already good at budgeting and have a good handle on all our outgoings.

OK the £9k car loan is new, it was only approved yesterday. I can't decide whether to go ahead with this or cancel. I could take out a bigger loan and consolidate the original house loan with it, which would improve the interest rate but not really help our monthly outgoings, because the high interest rate loan is only costing £70 a month because of the long term.

Taking out more debt (the car loan) when you are already in significant debt is a really bad idea. I'm afraid I'm not convinced you are as good as budgeting as you think you are.

The danger with turning unsecured debt into secured debt (i.e. adding your debt to your mortgage) is that unless you address the underlying issue (why am I in debt) you will simply run up more debt.

We've got £7k left on a cm from when we bought our first house, which is on 10% interest for another 20yrs

10% interest on a 32 year? loan is incredibly expensive. This calculator suggests that, if the intial amount borrowed was £10k, then you'll pay back over £23k due to a combination of the very long term and very high interest rate by current standards.

Can you overpay this loan, transfer the balance to a 0% credit card, or even repay it from the £9k loan you've just taken out - what's the interest rate on that one - 'good' personal loans are about 3-4% these days, so you should save quite a bit and repay back quicker.

I agree that so many loans makes it look like you are far from 'good at budgeting'. If you were good at budgeting, you wouldn't have any loans at all, let alone so many, including expensive long term ones.

We are good at budgeting as in we have a spreadsheet with all our income and outgoings, regularly check against this, no lavish holidays etc. We have a good income. What we've never managed to do is save, because we got on a backfoot with our mortgage and loan 12 yrs ago and never recovered. So big life things like houses and cars have meant taking on more debt.

The reason that original house loan got left with the high interest rate was because if we swap it to another loan we would have a shorter repayment period and higher repayments. I will check if this is actually true!

But do you really need to spend £9k for the new car.....why not a cheaper one.

OP- I would respectively suggest that taking on more debt every time you want something is not being "good at budgeting". You need to focus on paying off the debt you already have and building up at least an emergency pot of savings.

Look at moving your current debts to lower interest rates, and come up with a plan to start paying them off. This may mean cutting down on luxuries and "wants" in the short term, but will give you way more disposable income in the long term when you're not servicing all those debt repayments!

@toomanycats I think this too. We need a large estate. They seem to start at £4000 for something that might last a couple of years. The type of driving we do would be best to get petrol. That puts us into £6000 territory. The £9000 one we're considering is one we could keep for 8yrs, like we have with our current one. So it's a hit in the short term, better in the long term.

@redsky yes that's what we are trying to do, and half the point of me checking my thinking by starting this thread. We don't have any monthly outgoings that are luxury or wants we can immediately cut, but we have probably been too quick to buy things in the past. We don't eat out or get takeaways, or spend lavishly on clothes. But have done some trips with the kids over the summer. Some of this mess comes from me actually overpaying on debts in the past, in hindsight I wish I'd built up some savings as a buffer.

I agree with @RedskyLastNight. Taking out loans at rates of interest you are doing is madness. I know you can justify the car to yourself, but you have a huge amount of debt. You might be good at tracking spending but I'm not sure your previous decisions and the car loan one you are now considering is wise at all.

£4000 for a car that might last a couple of years? Really, cars these days do last a good time. Is that what you are being told.

You need to really cut to the minimum and look hard at the car decision and start reducing debt faster. What will you do otherwise when the unplanned crisis hits?

Good luck with it

Would this be a better plan. Take out a new loan for £20k, APR on these looks to be for 5%. Consolidate the one that's currently at 10%, the existing car loan, buy a new car (we have 2 and need 2). We would the be paying £260 a month instead of £500. Put the difference in savings so this doesn't happen again!!!! Then when my youngest goes to school we will not be spending £500 a month on childcare, and can look to make overpayment on the debt.

OP (sorry I'm playing devil's advocate here) but do you really need a large estate? Can you not keep the car you already have for a bit longer? If you do need one, why spend £9000 over the "will do" £6000 (does anyone really need a £6000 car??)? You might be right (though this is far from sure) that the £9000 car will last you for longer, but the fact still remains that you don't have £9000 (or indeed £6000) now. You are not yet in the mindset that you have a lot of debt you need to pay off and you need to watch your spending (though you might be heading in that direction).

You might find it useful to post on the Debtfree Wannabe forum on Money Saving Expert. There are a lot of people on that forum who've been where you are, and will be able to provide support and words of wisdom.

@redsky I actually agree with you but my dh does not. We've done nothing but argue about cars for 3wks. We do definitely need a large estate. 2 kids and a big dog.

A lot of your problem is that you seem to see debt as a reasonable way of getting what you want / need without realising that you will pay over and over and over again.

This is fairly common - all university students are told debt is good to get an education. We are a nation obsessed with property so we celebrate when someone saddles themselves with 25 years of debt. So why not a little more debt?

Going through your debts:-

7k house loan - this is on a really high interest rate and you are paying it for another 20 years. 1.1^20 = 6.7. 6.7!!!!!!!! Generally people are advised against increasing their mortgage to consolidate debts as you end up paying interest on them for 20 years. But in this case you are already doing this. So probably a good idea to at least try add it to your mortgage.
5k car loan with 2 years to go - where is this car?
9k car loan with 5 years to go - do you have to take this out now? Can you not delay it a few months rather than saddling yourself with more debt. Or buy a cheaper car?
£5k owed to mum - how much was this originally? Where did the money go? How much have you paid off so far? How desperate (or otherwise) is your mum for the money? Is your mum. Charging you interest?
£700 on credit cards - this is likely to be the biggest interest payment at about 20%.You really need to focus on getting this gone ASAP as it is costing you a fortune every month.
£5k work to the house. How “need” is “need”? Is it likely to get more expensive if you leave it? Can you delay? Can you do it cheaper or just some of it?

As of today you are in £18k of debt. If you add the car loan on that makes £27k. Add on the house work and that puts you at £32k.

That is a terrifying amount. You will be paying it forever. You really really need to think hard before you practically double your debt.

We are good at budgeting as in we have a spreadsheet with all our income and outgoings, regularly check against this,

This reminds me of my mother who thought she would lose weight because she counted calories. She didn’t actually eat less, she just counted the calories.

OK you lot no sniping please, the reason I'm here is I realise things are not in a good way. I'm asking advice.

I'll try to answer all the questions.

What sort of car is a large estate ?

I agree that the loan we're paying 10% on needs swapping. We've got £6-7k left, we started off with £15k as part of a 125% mortgage. The issue we've had is the repayments are really low, £78, because the term is so long. However, yes, totally agree, needs moving. Mortgage or a consolidating type of loan are options.

5k car loan with 2 years to go - where is this car?
We still have this car. We need 2 cars. We had to buy it when DH changed jobs and train was no longer an option. We didn't have the cash upfront because we'd been overpaying on the 10% loan rather than saving.

9k car loan with 5 years to go - do you have to take this out now? Can you not delay it a few months rather than saddling yourself with more debt. Or buy a cheaper car?
Our main car has been given 1000 max before it needs a new clutch and 2 new wheels. It's 12yrs old with 108k on the clock so it's false economy to fix it. I would be prepared to buy an older car or higher miles but they are still £6k. That seems to be what a large petrol estate costs.

£5k owed to mum - how much was this originally? Where did the money go? How much have you paid off so far? How desperate (or otherwise) is your mum for the money? Is your mum. Charging you interest?

It was £9k, it went on a new kitchen and bathroom when we moved into our house 2yrs ago, which was essential to make it liveable. We are not paying interest and my mum is very flexible about how much we repay every month, but would prefer us to have 'a plan' for paying it back even if it's just £10 a month at the mo.

£700 on credit cards - this is likely to be the biggest interest payment at about 20%.You really need to focus on getting this gone ASAP as it is costing you a fortune every month.
It's on a brand new 0% interest card, we move it regularly to keep it 0%. This has a £9k limit which we could use to help. I'm not keen on that option though.

The roof should be ok to wait a year which would allow us to save for it, if we reduce our outgoings on debt.

A large estate for £9k is a skoda octavia Estate, a large estate for £6k is an astra. Fabias are too small. Petrol is best for our use and this pushes the cost up because 5+yrs ago the government was pushing diesel, so finding petrol has meant getting something newer.

One other thing to consider is the kids both have ISA's which we have paid £50 a month into each since they were born. Would people pause this for a year?

Where I'm at with this now is, looking at consolidating everything I can onto a new loan with as low an APR as I can find, spreading it over day 10yrs to keep payments down, religiously saving to give us a buffer. And then overpaying on that loan once ds who is 2 is at school. I'd really value thoughts on if this is a better plan?

I would speak to Step Change

It would depend on whether you could get a large unsecured loan for a good interest rate. But a low rate over 10 years could quite easily be more expensive than a higher rate over a shorter period (those 2 and 5 year car loans).

You really don't need to pay £9k for a second hand Octavia estate and I'd seriously consider having your existing car repaired and keeping going with it for another couple of years at least, so you can use the £9k loan to pay off the expensive secured loan instead.