23 May 2015

A question about : Secured loan to clear credit card debt????

I would really appreciate some advice cos I haven slept in weeks.........my husband and I owe Ј46500 on credit cards/ car loans. They are currently on 0% deals! however are due to come to an end soon. Our current mortgage is Ј166,000 and our house is worth Ј400,000, so there is plenty of equity.
We have been trying to pay the credit cards off, however not getting very far and realising that the 0% rates are coming to an end we approached our mtg lender who said not at the moment.
The company who arranged our mtg has suggested a secured loan. They put us in touch with a company called V Loans who suggested Prestige Finance, however because my husbands wage is not straight forward turned us down (even through he earns Ј33000 per year and has p60s and wage slips for 5 years to prove this !) They then suggested Nemo finance. We have been approved as long as we take the loan over 23 years instead of 20 years. We are all set to send the paperwork back to them, but we have been reading some terrible things about secured loans and Nemo finance about once you have the loan they then hike up the rate.......we only intend on having this secured loan for 4 year until we can remortgage and understand it is a very expensive way of doing things but it also means we can live now!!
Can anyone please give me some much needed advice or thoughts on our situation or Nemo finance.....we've been so stupid and got ourselves in such a mess.......please help!!!title=Frown

Best answers:

  • Don't turn unsecured debt into secure debt.
    You want to owe 46k over 20 years and put your home in jeopardy.
    Do not even consider this.
    Besides, you're simply shifting the debt from A to B, not paying it off.
  • I agree with Antimoron, you need to meet your debt head on and get it paid off asap. Refinancing is a short term solution with long term implications.
    Post a soa http://www.stoozing.com/calculator/soa.php
    this is the worst option - if you dont pay these unsecured loans what is the worst that can happen?
    if you cant pay a secured loan what is the worst that can happen?
    option 2 is much worse
    get in touch with one of the free debt charities - stepchange or payplan and discuss options with them
  • I can only echo what's been said above.
    Your credit cards are unsecured debts; there is nothing tied to those accounts. The collections process is a long process before it becomes more serious (i.e. County Court Judgement). If you fall behind on CC payments, it's not the end of the world.
    If you fall behind on a secured loan payments, they can potentially force a sale of your home. This can't be done by defaulting on your credit cards (unless extreme circumstances)
    Speak to a debt management company, that will be far cheaper and safer to do!
  • OP, I know the temptation is there to do this, as you see it as a way out of your spiralling debt problem, but believe me this is not the way to do it.
    A secured loan (or second mortgage) has a variable interest rate (alarm bells are already ringing as you seemed surprised that interest is variable) the lender can increase this to what ever level they choose, and if you get into arrears, then you can easily lose your house.
    A better option, may be to sell the house, move somewhere smaller, pay off all your debts with the proceeds, and start again with a clean slate.
    Or, seek advice from one of the free debt charities :
    There advise is free, and there are numerous debt solutions that do not involve added borrowing.
    Transfering unsecured debt to secured debt, is very rarely a wise thing to do, get some proper advise before you return those papers, I speak as some one who did exactly as you are doing now, thinking it was the right thing to do, but the interest rate almost doubled within 2 years, and it was just impossible to meet the payment.
    Result ? .......lost house.
    Don't do it !!!!!!!
  • OP
    Firstly welcome to MSE.
    Secondly as others have said, do not pay off your Credit Cards by transferring it to a secured loan - default on that and you could become homeless.
    Not only that but you will have then available credit and there will always be the temptation just to put something on the card and the rot will start again but this time you'll be in a much worse position.
    You may not have had time to look at the advice for new posters but if can post your budget people will be able to suggest ways of reducing your expenditure so that you can throw that money at the debt. .....btw what will be the new interest rates once the 0% deals come to an end??
  • Transferring to a secured loan really should be a last resort.
    I had debts spread over 4x cards until this summer, when % deals were ending I took it as incentive to try and pay as much off as possible and transfer the rest to a new 0% deal. By scrimping and saving over a couple of months I paid off one Ј1K card entirely, leaving myself with a figure I feel far more comfortable with and didn't mind switching to new deals to address over the next couple of years.
    Are more 0% deals going to be available? I am bombarded with leaflets about them, if you could throw any spare cash you have now at the ones which finish soonest this could really help and might buy an extra month or two. Do you have any savings? If these are easy-access you're probably not earning much on them, so consider using some towards paying them off and transferring the rest.
  • Hi
    Thank you for for all your replies and advice.
    Today we rang Stepchange and spoke to a lovely guy who put us at ease straight away and calmed me down(I haven't stopped crying all weekend with worry and stress!) anyhoooo he has gone through a budget with us and emailed his suggestions. We qualify for a dmp.
    We will be paying Ј300 for 12 years.
    I have been reading some reviews online and some people have said that stepchange allow dmp run for a few years but then stop them and we will have to sell the house anyway.
    My question is does anyone know or have experience of their dmp running for 12years or more.......
    Thank you........the people that replied to my first posting stopped us making a massive mistake. We are truly grateful xxxxxx
  • Thanks for the info....we will try to clear it sooner but it it a relief to know that no one can force us to sell the house and that a dmp is defiantly the right way to go xxx
  • Did you discuss an IVA?