Credit cards can be useful when managed correctly. They are a unique kind of debt. No structured payment system is in place to ensure that the borrower will clear that debt in a timely way. It’s quite common for people to accumulate large credit card balances that they find themselves unable to clear. They end up only making the minimum payments, which is mostly interest. The result of this is paying large amounts of interest each month in an attempt to stay above water.
So what can be done?
I always enjoy helping people who are financial difficulty find a way out. Providing a solution to get their lives back on track is rewarding.
My favourite case this week was a couple from Manchester. They were referred to me by an existing client of mine. They had a number of credit agreements, including five credit cards which totalled a large amount. The situation was getting out of control and maintaining their payments to service these debts was becoming a problem. They felt on the verge of a financial collapse. We had a conversation about how they reached this point. Sometimes life isn’t so straight forward. Things can get out of control fast. They had plenty of equity in their home. So we considered the possibility of remortgaging their house, using some equity. This could allow them to clear all outstanding debts, leaving them with one monthly payment to worry about.
A mortgage was agreed for £189,000. This meant £52,000 of equity would be available to clear debts.
Their monthly payments on the cards and loans with their current mortgage was circa £2,400 per month (£533 of which was mortgage).
The new monthly mortgage payment will be £777*. This will have a very positive impact on their lives, financially and mentally. We had to bare in mind that taking the debts over the term of the mortgage could result in paying more interest. But the immediate financial relief the new mortgage brings them was their absolute priority.
They no longer have the continued stress around affording to live. As an bonus we also managed to reduce the mortgage term by 2 years in the process. Something they were also very happy with.
If you have a financial situation you’d like to discuss get in touch. I’ll be more than happy to help.
*Mortgage details – £189,000 loan, 1.96% 2 year fixed rate. 26 year mortgage term.