In recent years it has been very easy to borrow money with personal loans and credit cards and for various reasons some people have accumulated an uncomfortable amount of personal debt. Keeping up the repayments on debts can be restrictive and in some cases very difficult.
One solution can be to consolidate debt into your main mortgage. This can be done as part of a remortgage. This normally results in a significant reduction in your monthly outgoings for two main reasons.
- You are lengthening the term of your repayments on the debts
- You are being charged a lower interest rate
A word of caution
Because you will normally be spreading your loan repayments over a longer term it could mean that you will take longer to clear the debt and you may end up paying more interest than you would have done had you left the original loan intact. You can counteract this by having the flexibility to make overpayments in your mortgage.
The way forward
If your debts were caused by a problem such as redundancy, business failure, divorce or ill health you will need to assess whether the problem is likely to recur.
If it is unlikely to be a problem in the future then consolidating debt can be a great way of drawing a line under a difficult period and comfortably moving on.
If your debts were caused by poor budgeting or any other reason that could recur then it makes sense to look into matters more deeply otherwise you could find yourself in a similar position further down the line. We can help you assess this.
When should you not consolidate debt?
Consolidating debt onto your mortgage is a decision that needs to be considered carefully. If for example you would still be in financial difficulty after consolidating the debt it might be better not to do it but instead to negotiate separately with the loan companies. The reason for this is that it will normally be better to damage your credit rating by negotiating with loan companies than risk losing your home and damaging your credit rating by building up mortgage arrears.
