Take control over debt

Sue Ellis lends a helping hand when it comes to explaining manageable options if you're in debt

"My wife and I have been struggling with debt recently - partly due to ill health and in all honesty, living beyond our means. We desperately need something to put our finances back in order so that things just don’t carry on getting worse over time?"

Well firstly, you are not alone. There have been several articles recently in the national press stating that personal debt is increasing due to the rise in ‘pay day loans’ and particularly a surge in consumers buying vehicles via the ‘Personal Contract Purchase’ option (with monthly payments to a credit provider, with an option to complete the purchase at a future minimum value or otherwise to hand back the vehicle at the end of the agreed term). With an increasing number of credit and store cards too, some commentators predict that we could be heading for another credit crisis - something that the Government is keen to put a halt to, of course. 

The first (and biggest) step is to seek help now. If you are already behind with your payments to your various debtors and if have accrued serious arrears then I would recommend contacting either The Citizens Advice Bureau or the Money Advice Service. These both offer free, unbiased help and will do their best to help you find a solution. If you are behind with mortgage payments then contact your lender as soon as possible. However, if payments are up-to-date and it’s just a case of wanting to consolidate everything into one manageable payment, if you own a property with sufficient equity and have a good credit history, the first option may be to consider additional borrowing with your existing lender. 

Any lending against your home will be subject to underwriting by the lender, requiring income details plus a full breakdown of your debts and regular household outgoings, to assess whether consolidating is an affordable solution. The advantage of borrowing this way is that you are able to benefit from a low interest rate, spreading the debt over a longer period of time. The disadvantage is that the lender has the security of your property, it could cost far more in the end than short-term borrowing, and falling behind with payments could ultimately mean losing your home.

If your current lender will not consider the required additional borrowing, you might try what is known as a ‘second charge lender’ instead. These companies will often help when the original lender won’t, but do remember their legal charge ranking is behind that of the original lender, potentially creating a bigger risk for them in the event of default on payments and, as a result, rates and fees tend to be higher than those of a standard lender.

If you are uncomfortable with borrowing against your home (or indeed if you don’t own your own home) then firstly approach your bank to establish whether they will consider a personal loan.  Providing you have a good, established financial relationship you may be able to benefit from a competitive rate for a consolidated loan sufficient to repay all existing debts and of course, the sum is repaid over a shorter period of time so could potentially cost less overall than borrowing against your home.

Alternatively, you can take a look at money comparison websites giving likely interest rates for ‘unsecured’ loans from various companies. However, do remember these are purely indicative of general lending rates - ultimately the rate you receive will be dependent upon your credit history and score.

Of course every case is individual, and I have had to generalise here, but as I’ve already mentioned the most important thing is to seek help and not to despair - things will just get worse if you bury your head in the sand. If you don’t take steps to get things under control then bankruptcy is the ultimate outcome, to be avoided at all costs as it can have far- reaching consequences. Just remember that all lenders have a duty of care to be sympathetic to their debtors but they can’t help if they don’t know you’re struggling! 

Sue Ellis works alongside Johnny Magee as a Mortgage Broker at JEM Financial Planning. The team has over 50 years’ experience in investment, retirement and inheritance planning, mortgages, protection and general insurance. To speak to Sue or Johnny, telephone 01386 840777 or visit www.jemfinancial.com