In the press over the last few months you may have noticed that personal debt in the UK is at an all time high, so lets explore some of the implications and options available.
If you incorporate this personal debt into your mortgage are you actually doing the right thing?
The implications of not being able to maintain the payments are exactly what they say 'your home will be repossessed if you do not keep up repayments on your mortgage or other debt secured on it'
By securing debt to your property you are effectively saying if I can't or don't pay, the lender can take away your home.
By adding these debts to your mortgage you may find that the monthly payments are lower, however this debt may now be repaid over a longer period of time. This means you end up paying a lot more interest over the term of the loan.
You may think that we are stating the obvious, but sometimes its needed.
Debt incurred by home improvements or an extension can add value to your home, so often it is more cost effective to add this on to your mortgage, rather than start a personal loan. Particularly as these are more often than not larger amounts in excess of £25,000 which will also keep the payments lower and more affordable.
Mortgage products are a lot more flexible than they used to be. You don't necessarily have to take the extra borrowing over the same period as your original mortgage. Many lenders will allow further borrowing (further advance) over a shorter period of time, and by reducing the term of the loan, you are reducing the amount of interest you pay. Flexible deals will allow you to overpay, so you can reduce the extra debt even quicker.
Products with no early repayment charges will allow you to pay off the debt whenever you wish, offering greater flexibility than many personal loans.
Sarah. Ive made quite a few changes to here. I will let you have another look to see what you think of the changes I have made. Have a good read through & we can have a chat about our two different styles of writing editorials – no right or wrong.
Two really important tips I learnt are as follows:
write as if you are writing on behalf of a company (we would…) as the adviser as well as writing a personal letter (the journal should be addresses to as you, or the client).
always check that you have explained in depth what yu are about to go in to. i.e. if readers don't fully understand what you are talking about & why, they will be lost.
If you are looking into it due to affordability then another option you should consider is renegotiating the debt with those companies. They have an obligation to discuss this with you and may be able to extend the term of the loan or offer lower payments for a short period of time if your cash flow problem is short term.
If you are self employed then you also need to consider whether or not the debt you are consolidating attracts tax relief. If you do put all your debts in one pot you may be causing a major head ache for your accountant.
Do you have credit card or store debt that you are just making the minimum payment on each month? Look at moving this to a 0% balance transfer rate. If this is not possible you may be better off looking into a personal loan. Rates are about the 8% mark rather than 15% on credit cards. This will reduce the interest paid and put a structure to the repayments rather than you just paying the minimum each month. Personal loans can be taken up to amounts of £25,000. Just remember to cut the cards up afterwards!
So is Debt consolidation a good or a bad thing?
As long as you are fully aware of the implications and providing you have the equity in your property then debt consolidation can be a useful tool. It can save money in the short term enabling you to live financially easier.