Advice

[jenny823]

I own my house without a mortgage but have around 6000 worth of different debt. I'm paying this off but was thinking about the best option, would possibly borrowing against my house say 10,000 then paying the debt off and then having one payment be best?

I would just get the lowest interest rate loan l could

Before you do anything you need to consider why you are in debt of £6000. I know you say you are paying this off but how are you budgeting? What interest rates are you paying? Why are you considering remortgaging for £10,000 to pay a debt of £6,000? etc.

Consolidating lots of debts into one debt can be a strategic move that helps you save time and money. However, borrowing against your home obviously puts your home at risk. You may also need to pay upfront fees. This would not be a step I would want to take in your position unless it was absolutely essential.

Why would you get a loan of £10k for £6k debt?

Consolidating is rarely a good idea. Turning unsecured debt into secured debt is never a good idea.

Can you move the CC debt to interest free cards?

Problem with extending your mortgage is that you risk giving yourself the 'headroom' to borrow another £6k and get in a rinse/repeat cycle. Been there got the t-shirt.

Do you need advice on debt and or budgeting?

I think I'm wondering if it's better to try and consolidate the debt and have one re-payment rather then have different debts, I have moved about my credit card onto 0 percent but it's coming to an end soon, I have 2 children and a single parent now

Can I ask why consolidating debt is not a good idea?

I can see your point here, I've put all my out goings and wage into a spreadsheet and can see where I can cut back, should I just make a huge effort to be very careful, budget better and carrying on paying my debt off rather than to faff about trying to consolidate?

It probably depends on your attitude to money in general. If you tend to manage your money well, your income is more than your outgoings, and consolidating the loans is an efficient way to manage repayments and possibly save money, it could be a good idea.

But if you tend to juggle debt, over-extend yourself and take a lot of risks, there's a possibility that you will get yourself into further trouble. You're talking about taking out a £10k loan to repay £6k of debts - is this because you're thinking about a mortgage and that's the least you can borrow? Or are you convincing yourself that consolidating is sensible, but actually using it as an excuse to get an extra £4k that you can spend on something you'd like but can't really afford?

You need to be really honest with yourself about your spending behaviours and history, and what is motivating you to do this.

Hi, it was due to thinking if it was remortgaging then 10,000 would be the least amount I could. However no im not brilliant with money so I fully appreciate your point of things to consider in how I am in general with money I have a tiny amount of savings which I'm also trying to build up

My income is more than my outgoings but not by alot although this is before cutting back on things like being more careful with the food shop etc

@jenny823 I think ultimately you need to decide what matters to you more. Do you want to pay off your debt and get that out of the way? if so then you need to make a sacrifice. And if that sacrifice is thinking on how you’re spending your money and being more careful with your money and that’s what you need to do. There’s no easy way around it, taking out another loan against your mortgage is not really fixing the problem.

It sounds like you have room to wiggle so you could save some money by reducing some bills and being careful on your food shopping,etc. So you just need to make up your mind and actually do that. Make a plan make a budget and stick to it.

It would probably be a good idea to look at your different debts and the cost of them and the minimum repayments and then the different ways of repaying them.

I think a savings habit is really valuable. It's worth keeping putting a small amount away just to keep going (I put £10 month in a savings account and £10 a month in a stocks and shares investment through my bank, to see how they compare. So far, the shares are significantly winning). It's there for emergencies - I like accounts where you get a higher interest rate in exchange for a limited number of withdrawals. So you canaccess your money if you need to but there's an incentive not to.

Then with the rest of your spare money, think about how you want to repay the debts. If you have loans with fixed monthly repayments, keep paying them off. In general, it's best to pay off the higher cost (higher interest) cards first as you will save money. But if you have some small debts which you could pay off easily, and those quick wins woupd give you a sense of achievement and motivation, that could be worth doing. When you clear a debt, the money you were using to pay it off goes towards overpaying your next high-cost debt. (I think this is called the snowball effect). When you've finished paying off the debts you can put most or all of the repayment money into your savings.

I think the benefit of doing it this way is that it builds better habits. If you take out a mortgage, you put your house at risk, and it just solves the problem without changing the behaviours which got you there in the first place.

If you secure the loan against your house, you are risking the house if your money management is poor.

With direct debits it doesn't make much difference how many payments your debts are over, also most people who consolidate go on to run up more debts as they've not addressed the budgeting and spending problems that have caused them to get into debt.

There's also a risk that the payments are unaffordable and will cause further struggle.

Strict budgeting and moving the debt to a 0% card is the way to go, you can keep transferring until the debt is paid off and it will cost much less than a loan or mortgage.

See if you can consolidate the debt into a single unsecured structured loan but absolutely don't risk your asset by securing against it!

Thankyou so so much for everyone's replies I am so pleased I came on here to ask!!!!

It's because most often, people who build up debt in several places - a number of credit cards - usually have done so partly because of poor money management.

When you add a history of poor money management + used to being skint + a sudden £6k or whatever of available funds on a credit card + the feeing of relief that consolidation (temporarily) brings...it's a recipe for disaster.

Many many people simply spend on the cards again and a year down the line you're in an even worse position. Of course everyone always says they won't do it - then life happens and the balances start to creep back.

If you have several lending products with the same bank and due to financial difficulties they offer to consolidate it all for you - a condition of doing so is usually to remove your other lending facilities. Cancel the credit cards and overdraft entirely.

There's a very good reason (responsible) banks enforce that. When people 'self consolidate' they often don't - they keep one empty card for emergencies. And that's often where disaster starts.