Reducing the cost of debt (II)

Second part of Reducing the cost of debt post.
 

Tip 5: Re-mortgaging to pay off debt

Secured debt, such as a mortgage, tends to offer the cheapest form of borrowing. You could consider borrowing more on your mortgage to pay off expensive unsecured debt such as credit cards, unsecured loans, and overdrafts.

However, be warned. Turning unsecured debt into secured debt increases the risk to your home if you do not keep up repayments on your mortgage and you are also likely to repay more for the debt in the long run as you will be repaying it over a much longer period, even if it is at a much lower annual interest rate.
Nonetheless, for some people, remortgaging to clear debt makes sense and provides them with the opportunity to “wipe the slate clean”. Do keep in mind that lenders will look closely at affordability when it comes to extending a mortgage, and you will probably end up paying more each month for your mortgage. You will also need to have sufficient equity (the difference between the property’s value and how much you owe on your mortgage) for lenders to even consider the prospect of extending your mortgage to pay off your debt, but it may be worth considering.

Tip 6: Get an authorised overdraft

If you think you may become overdrawn, or go beyond your overdraft limit, speak with your bank as soon as possible to see if they will increase your interest-free overdraft. Having an unauthorised overdraft is notoriously expensive as they come with a whole host of extra charges. Extending your overdraft, even for a short period, could save you money and give you the breathing room to get your finances back on track.

Tip 7: Consider a credit union personal loan to replace other expensive debt

A credit union is a financial institution which is owned and controlled by its members.

They offer competitive rates of interest on personal loans of up to around £3,000, with interest charged on the balance of the loan, rather than on the amount you originally borrow. As a result, if you can repay the loan quickly (perhaps on a weekly basis), you should pay less interest overall than you would through a standard fixed term loan. Credit union loans are also usually cheaper than loans from other lenders and do not incur set-up fees, administration costs or early redemption fees, so they may be a suitable option to reduce the cost of your debt.

Tip 8: Talk to your lenders and get help

If you’re struggling with debt, it can be extremely stressful and it can seem like you’ll never get things back on track. However, you’re not alone and help is available.

If you think there is a danger you might miss a payment or default on a debt, then we urge you to contact your lender before it happens.

They may be able to offer you a repayment holiday whilst you get your finances back on track or work out a new repayment plan for you. They may also waive fees and charges that you would incur if you make a late payment or miss a payment all together. Whilst the thought of contacting your lender may fill you with dread, you won’t be the first person to have found themselves in this situation, and you won’t be the last. Lenders tend to be far more understanding and non-judgemental than you imagine and contacting them could make a huge difference.

There are also several independent, and impartial organisations and charities who provide free, confidential support and advice on debt matters and help many thousands of people deal with debt problems and get their finances back on track each year.

Unfortunately, debt doesn’t just go away. It grows until you start addressing it. If you are experiencing difficulties with debt, make that telephone call today and begin the process of getting your finances back on track.