Consolidating debts

[sam]

Our monthly outgoings are far too high and draining our income putting us overdrawn each month.

We are thinking of consolidating all loans under re-financing our mortgate. We currently owe about 85,000 on a property worth 250,000 - 300,000 with 15yrs left.
We need to borrow 150,000 over the same term which would clear everything. Is this the best thing to do or are there better options open to us ? The majority of our debt is made up of personal loans, credit cards and a car loan.

Many Thanks

 

[rainyday]

Loan consolidation may be advisable as a once-off exercise to lower the interest rates that you are paying on your debts. Mortgage rates are typically less than 4% at present, whereas personal loan rates are around 9% and credit card rates are aroun 18%.

However, it is really only putting off the inevitable - you will have to repay the money eventually, and by consolidation, you will be repaying over a longer period (resulting in more interest for the bank). In the worst case scenario, you could consolidate your loans, but find in a few years time that you have run up another pile of short-term/high-interest debts again.

As a first step, you need to adjust your monthly outgoings to match your income. Cut up the credit cards if necessary.
€65k is a pretty huge amount of short-term debt to be carrying.

 

[Spaham]

Another important bit

The consolodation idea is a one off opportunity and should be accompanied by the total cutting up of credit cards and the removal of current accounts and their replacement with deposit accounts , no more overdrafts . Otherwise I fear you could be back in the smelly sticky stuff with a big mortgage to boot. Continual overdrafts are a bad sign and should not be considered responsible long term behaviour. Tackle the root cause which is a current account.

When you get your mortgage you should get a slightly longer loan term than you may intend . There is normally no obstacle to paying it back early , no penalties or nothing. You just round up to the next €100 and pay them that every month. Its an overpayment that reduces the mortgage term. If under pressure at christmas stop the overpayments for a few months . Banks are nice to those who overpay when they can .

Try not to dog payment holidays if available

There is an option with a lender somewhere to make 11 payments a year and miss one, say christmas time. but it may be a false economy .

SpaHam

 

[WizardDr]

Re: Another important bit

The use of the principal residence to secure non house debt is a tool that many in the US use.

The main advatges are that 'secured debt' is cheaper than usnecured debt.

Problem is as a few posters have highlighted mainly:
- long term source with short term use;
- credit card build up is not unusual but the rate reflects that many do this;
- could use 'equity release facility' and reduce the term;
- regard the house as a financial planning tool to be used wisely;
- accept the point that money management is something to be looked at.