We have debt up to our ears - not from irresponsible spending but from a catalogue of bad luck with the sale of a former business.

Wife - house in her name (from previous marriage) worth about £120K and £27k left to pay til 2016 Excellent credit history. Earnings £13805 gross plus £200 per month child maintenance. 2 kids 14 and 16

Husband - director of a limited company. Earnings £17175 gross and pays out £300 per month child maintenance.

Alliance and Leicester loan £7758 left 7.4%

Loan to family £18500 currently allowing us at nil interest but was 2% above base

Britannia mortgage 5.7% rate £335 monthly payments to 2016

Credit card debt £35515 between us average rate of 6.27% over about 10 cards (many on life of balance rates)

The credit card debt we keep paying about £1000 off per month but never seems to reduce much which is puzzling??

So to summarise £35515 on credit card, £7758 A/L loan and £18500 other loan so total owed £61773.

No CCJ bad debt or missed payments either of us and we do not want IVA or bankruptcy we want to pay our debts in full.

What is the best option - remortgage in joint names? consolidation? we really are struggling and all the money is tied up in the house.

From Rescueme

Hi...just as an example consolidating all the debt over 10 years repayment would mean around 1000 p.m, this example is given as you only 8 years left on your mortgage and it is unwise to extend the term unnecessarily. How much is affordable monthly???

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Regards

Ian

Hi Rescueme,

The long excrutiating option:

Make a list of all the debts, putting the highest interest at the top, going all the way down to the lowest. You then make the minimum payments to them all, barring the one with the highest interest rate. Whatever you have left over, you work out how much you can afford extra a month to pay towards it instead of just meeting the minimum payments. That way, you clear out the one you're paying more for the money you borrowed, quicker, saving you money in the long run. Once the highest interest rate is paid off, you move on to the next one.

You also have a couple of options with regards to the credit cards. 10 is a LOT, and would be much easier to manage with less. Apply for a couple of 0% interest for 14-15 months credit cards, see what credit limit they'll offer you, then consolodate as many of those 10 cards down into the 0% interest rate ones. That way, you buy yourself a little time, and will have more money each month to pay off the loan charging the highest interest rate, meaning you'll get rid of it that much quicker. But make sure you cut those credit cards up, I'm sure you've already done that though.

Even longer option, but safer & more secure (Depending on which way you look at it):

If you're both secure in your jobs, and you're ok with the idea of staying in your home for a few more years, I would release some of the equity in your wifes home. Atleast enough to pay off the largest of the loans. Doesn't have to be all of the debt, but that is an option, depending on what interest rate you're offered for releasing the equity/length of extension. Remember to look at the list, and place the equity release into it accordingly and remove the ones that it would possibly get rid of.

Also remember, these are very long term options, make sure you've planned them out and stick to them religiously, even if it's not one of the above mentioned. As they say, time heals all wounds, and it's certainly the case when it comes to debt, you just have to plan it, and execute it surgically.

I would also suggest once you've made your list, popping along to the local CAB and asking them about consolidation loans. Remember, weigh up all of your options before you commit to anything, and make sure you fully understand what needs to be done, what sacrafices need to be made, and come to a decision together.

I wish you all the best!

Go to the C.A.B - they should be able to advise you

Hi completefinance -Thanks for taking trouble to reply - to be realistic about £800 -900 per month

Credit limit

Tesco card 7.9% life of balance £3325 o/s £3500

Egg 6.9% for life £3017 £3500

Capital One 6.7% for life £1299 £6000

Halifax 6.4% for life £3821 £4250

Mint 5.9% for life £5299 £6150

Sainsburys 5.94% for life £5930 £6100

Nat West 3.9% for life £3705 £4550

Abbey 0% exp June 08 £129 £10100

Husband Sky 0% till Sept 08 £199 £7000

Wife Sky 0% till Nov 08 £4474 £8000

MBNA 0% till Dec 08 £4317 £4700

Total Avge in 6.27%? £35515 Pay roughly £1000 per month

Available overdraft on current account £5000 never used

We opted for the rare opportunities to get life of balance transfers rather than the 0% because felt that while they are available to us could not risk not being able to get 0% card in future.

We have other cards with credit limits eg Morgan Stanley open so that when they offer us a good rate for transfers we can use them, never used for purchases but have had to draw down money to current account occasionally to top up money needed to pay them off. If we apply for new cards we are usually knocked back because we probably already have one of their cards anyway.

Rescueme

Hi FriendlyAdvice,

Cannot thank you enough for taking the time to give our predicament some real thought. I wanted to set out our credit card situation in full for you as below:-

Tesco card 7.9% life of balance £3325 o/s £3500

Egg 6.9% for life £3017 £3500

Capital One 6.7% for life £1299 £6000

Halifax 6.4% for life £3821 £4250

Mint 5.9% for life £5299 £6150

Sainsburys 5.94% for life £5930 £6100

Nat West 3.9% for life £3705 £4550

Abbey 0% exp June 08 £129 £10100

Husband Sky 0% till Sept 08 £199 £7000

Wife Sky 0% till Nov 08 £4474 £8000

MBNA 0% till Dec 08 £4317 £4700

Total Avge in 6.27%? £35515 Pay roughly £1000 per month

Available overdraft on current account £5000 never used

We opted for the rare opportunities to get life of balance transfers rather than the 0% because felt that while they are available to us could not risk not being able to get 0% card in future and when 0% deals expire being stuck with high interest rates we could not keep up. Do you not think this is a good idea and I should keep chasing the 0% deals?

We have other cards with credit limits eg Morgan Stanley open so that when they offer us a good rate for transfers we can use them, never used for purchases but have had to draw down money to current account occasionally to top up money needed to pay them off. If we apply for new cards we are usually knocked back because we probably already have one of their cards anyway.

We really are green when it comes to the best thing to do - would moving home getting new joint mortgage create a way of paying off the debt and making a new start with a bigger mortgage be a good option?

We have twice had independent financial advice and both occasions the guys turned out to be working for their own ends and not ours.

What would you do FriendlyAdvice?

Rescueme

Hi....whenever I talk with someone in these similar positions the course of action is decided by the clients attitude to whether they will voluntarily make the necessary payments to the creditors and their willpower to make these payments over and above the required minimum payment. 0% offers tend to put off payments are are rarely used to the extent of their capabilities. There are 4 courses of action that you can take:

1. Adhere to your own payment plan, if it is unaffordable due to lack of income try the next 3 options.

2. Debt management....too expensive and long term and will ruin your credit score.

3.IVA....can reduce your debt by up to 50% either over a 3 month final settlement plan of a 5 year plan. Ruins your credit though.

4. Debt consolidation...you have the value in your property to allow this, and your credit rating will be maintained.

The estimate I gave earlier is based on good credit history and the valuation being reached. The example I used was for C&G because of rate and fees free options to reduce costs you. If you are looking for a payment of 850 p.m the term would need to be extended. How was the financial advice benefiting the IFA, the advice is always based on your current history and the inability to realistically clear this debt even though you have low interest on payments at present. These payments are going to go up and you will be in a worse situation. In short you won't be able to pay these debts off within their low rate period, DM will make it worse, an IVA is simple enough and will save you money if you don't need to worry about further credit for at least 3 years. Consolidation will reduce the stress and ensure that you have an affordable payment plan whilst retaining a clean record. I know what I would choose:)

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Regards

Ian

Hi,

I can tell you are serious because of the level of detail you have gone into, that's a good start!

I think you have two options. You can either remortgage and clear off your debts that way or you can start paying one card off at a time, starting with the highest interest charging card first. Both are viable options for you but I suspect this all hinges on how long that loan from relatives is good for.

To be honest, if I was in your position, I would just mortgage the house and clear everything off. You will then have no debts and you will be in a no worse financial situation than a large percentage of the country.

Dear axisme

A while ago on this Forum I said I had never been in debt. Some time later I realised ths was an unintended lie because I have had a mortgage and that is debt. Unfortunately the attitude that unsecured loans are debt and secured loans aren't is very dangerous territory and the route cause of many people's pain now, having been encouraged to use their homes (see the statenent on Welcome's site if it's still there) in the property boom as 'cash cows' for consumer spending - eg monster tv, expensive holiday, new monster vehicle etc.

axisme: To be honest, if I was in your position, I would just mortgage the house and clear everything off. You will then have no debts and you will be in a no worse financial situation than a large percentage of the country.

Been in the situation myself and cleared all debts eventually - took nearly 10 years though!!!

Could have opted for bankruptcy at the start and that way all debts would have been written off three years later - many people choose that option nowadays and it's extremely frustrating for those like me that struggle to try to pay it off honestly. But I wanted to do that and also maintain my credit rating - which interestingly has remained high despite my situation.

Thing not to do - do NOT consolidate loans. All this does is add extra interest on to your existing debts and because you've struggled in the past you will end up struggling again and next time have this extra payment to make as well!

The problem with consolditating is that you then get complacent and carry on with the same lifestyle that got you in the situation to start with.

You have to be totally honest with yourself - which you've done remarkably well with already - and then be frugal.

The CAB will go through things with you but more importantly either write or show you how to write to your creditors and agree a long term payment plan with them which you can afford. This is then reviewed every 6 months. With a bit of real luck you may even get them to agree an interest freeze.

Don't be afraid of being threatened by being passed to a debt collection agency - I had a real nightmare with Capital One who kept piling on late payment and interest charges so that my debt to them grew despite not using my card at all and paying off as much as I could afford. Despite their promises to help anyone in difficulty they were exactly the opposite. However when I wrote to them saying they were going to force me into bankruptcy they immediately sold my debt to a debt agency who then tured out to be extremely nice and helpful and after paying for two or three years they offered a settlement figure of about 2/3 rds of tha amount, which I gladly accepted.

So, it can be done - best wishes and don't despair!

Hi,

I can agree to that. For the vast majority of the population a mortgage is a needed and manageable debt. I simply wanted to point out, if they remortgaged their home, they would be in the same situation as someone taking out a medium sized mortgage today. That's one payment a month and is manageable. Many people would he happy to be able to be in that situation. No debt other than a medium sized mortgage.

Hi axisme and fellow advisers,

I am tending to agree that remortgaging the house seems like best idea although I will go to CAB and another IFA just to get max advice possible before taking the right road. It is making our unsecured debt into secured debt but it will be a manageable debt which we will see reducing with light at the end of the tunnel. The credit cards just seem to be like throwing the money into the fire and are a constant worry, bills dropping through the letterbox nearly every day it seems.

What would you say to the Building Society our reasons for remortgage? - surely if we tell them it is to clear approx £63K of debt they probably wont let us have remortgage?

How do I find out best remortgage deal available to us do you have any recommendations?

Reason for mistrust of IFA's first told wife when due to give birth that week that "if the baby and you should die when you are giving birth you will need to consider......... .." which really upset her and the second told wife before she met me that she was a good catch for having £12000 of savings and a house and tried to get her to go out with him!!!! Dodgy!!

Hi....first bit of advice is to see a "mortgage broker" not an IFA as we call them, they are more interested in life assurance and it seems "other things"??? When you make the application it is advised to state that the consolidation is because of separation issues and the credit was to see you through this as well as some home improvements. If you say that it is for business debt some lenders won't allow this. A broker will be able to advise and is the best way to apply.

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Regards

Ian

Hi Rescueme,

Sorry for the delayed response, just got in from work. It is great to see that you have accepted the debts for what they are, and are being honest with yourself, and others that would like to help. That's the first enormous hurdle to get over, so well done, you should be proud of yourself, it takes a lot of courage to ask for help.

I'll be honest, when I read your post last night, the first thought was to suggest releasing the equity in your wifes' house. But as you know, there's always options, and it's down to you to make the final choice. Which it appears you have done, and I personally think you've made the right one.

I would have to agree with completefinance with regards to IFA's. Steer clear of them as best you can, they're independent for a reason, they have dollar signs in their eyes and their own interests at heart, they're more likely to find the best deal for their pockets, than they are for YOU, which your wife from the sounds of things has already experienced first hand. Granted, mortgage brokers work on commission too, but they're more inclined to find you the best deal they can, whilst they still make a tidy sum, and are more in tune with that sector of the market than an IFA. It's worth looking around, and remember, don't take the first offer you're given, go away and talk about it with the wife and think long term, plan out what you can for the future.

I wish you all the best, good luck!

This forum was the best thing I ever did, the debt has been like a horrible secret we have been keeping and not wanting to own up to and despite leading a frugal lifestyle for 3 years with no holidays etc I would recommend to anyone in the same position to bring it out in the open and seek advice and not try to fight the fire yourself thinking that you will eventually come good and be able sort it all out.

I have been to my existing lender Britannia and have been offered a drawdown of £65000 11yrs and 2 months extra £598 per month. This is on top of the £335 for next 8 yrs and 1 month on the remaining £27000 of existing mortgage. Only need valuation fee £65 and thats all.

So summing up will be paying £933 per month (reducing in 8 years) repayment mortgage £65K + £27K as opposed to the current mortgage and debt payment of £1983 per month which we struggled to keep up .This way will be mortgage and debt free in 11 years 2 months and light at the end of the tunnel.

The mortgage adviser I saw said I will never top this 0.95% above base and also get about £80 per year loyalty bonus with them.

Wanted to thank you all for helping to rescue me greatly appreciated.