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Homeowners: Managing Debt.
We all know that phenomenal house prices and a six-year high on interest rates are making it extremely difficult to get on the property ladder.
The Citizens Advice Bureau (CAB), who dealt with 1.4 million debt problems last year, said that 13 per cent of young homeowners had missed a mortgage payment in the last 12 months, showing that many new homeowners are getting into financial difficulties as soon as they enter the property market (CAB, 2007).
Debt problems are becoming increasingly common for homeowners - and not just young newcomers. Many people have tied themselves into variable rate mortgages only to find that they can no longer afford the ever-increasing bills, mortgage repayments and living expenses.
Others have saved money by going for a fixed mortgage that will end this year and they could struggle with the upcoming higher repayments. Since homeowners receive far less Government help than those renting, solving your money problems without selling your home can be difficult.
Rather than taking out yet more debt, and run the risk of losing your home, there are other ways of freeing up some extra cash or cutting your costs.
Budget
Before you implement any plan of action to get you out of that difficult financial situation and keep up with your mortgage repayments you need to know where your money is going. Learning to write up a good budget and stick to it is a very important lesson to learn too. And once you’ve gathered where all your money goes, you can work on a debt solution.
Cut down
More people today are living in excess of their earnings, simply borrowing more and sinking further into debt to fund their lifestyles. If, once you’ve done your budget, you see that this is what you’re doing, you need to stop and cut down. This doesn’t mean that you need to live on Tesco Value food for the next year and never see your friends again, but if you’ll never solve your money problems without reassessing your lifestyle too.
Move your mortgage
Moving your mortgage to a better offer - with even a quarter-point difference - can save you thousands of pounds over the course of your mortgage and is one of the biggest money savers out there.
Switch
After mortgage repayments, a vast chunk of your earnings will be going out to gas and electricity providers and paying for other “amenities” like broadband, home phone and digital TV. And if, like many of us today, you also have a credit card, store card or bank loan then you’re probably paying out interest on these too.
Switching providers can save you a huge amount of money - over £700 in fact, and that can make a real difference to your finances as well as getting you onto cheaper, better deals.
Another way of saving money is by making small changes around your home like turning your thermostat down, installing a water meter and lagging your boiler. Collectively these changes can save you more than £800. Click here to read about more ways of Saving in Your Home.
Ensuring that your home is energy efficient will also help if you want to sell-up at some point as it will make it much easier to complete your Home Information Pack.
Don’t get into more debt
This is an obvious sounding piece of advice, but people are often tempted into taking out loans, spending on their credit cards and using debt consolidation to make things easier, but if you’re already having difficulties meeting your mortgage repayments, more borrowing is not likely to provide the solution.
Put your money in the right place
Many people pride themselves on their saving accounts but are paying high rates of interest on credit card debt at the same time. Even if you have the best saving account available, any interest you pay on debt will overshadow what you make on your savings. So as painful as it might be, use your savings to pay off your cards. You’ll have less to pay out each month and can then start to save again with a clear conscience.
The first thing to do if you’re really struggling to keep up your repayments is to talk to your mortgage provider and explain the situation. They will be able to advise you on the best course of action and if you’ve previously had a good record of repayments it will look far better that you took the initiative to come forward before you fell too far behind.
The same goes for your other creditors. If you owe money that you’re unable to repay, be honest about it. Most creditors will be willing to work out a payment plan that you can afford rather than getting bailiffs involved.
Debt consolidation
This should be a last option, but if you’ve got a whole host of debts hanging around then it might be time to take out a debt consolidation loan. These cover all, or the vast majority of your debts, so that you only have one, lower payment each month.
However, these types of loans massively extend the length of time that you’ll be in debt and while they are the answer for some people, many debt problems are the result of poor money management, so taking out more credit doesn’t solve the problem and can leave people in an even worse situation.
If you take out a debt consolidation loan it will be secured against your home so think very carefully before signing up for one.
Get professional advice
If you can’t work out a payment plan that you can afford, and don’t want to risk a debt consolidation loan, its time to get professional help. You can talk to the Citizens Advice Bureau, National Debtline or the Consumer Credit Counselling Service (see useful links). All specialise in helping people with financial problems and will be able to advise you on the best course of action.
