Credit Card Debt – how this painful problem had a happy ending

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Credit cards can be a very helpful source of credit when managed correctly. They are also a unique kind of debt in that there is never a structured payment system in place to ensure that the borrower can eventually clear that debt in an affordable way. It’s far from uncommon for people to accumulate large credit card balances that they find themselves unable to clear. So they end up only making the minimum monthly payment which is mostly just interest. The result of that being that people are often just paying large amounts of interest each month in an attempt to stay afloat with no real reduction in the level of debt they have. Credit card debt can become a big problem.

So how can we help?

As an advisor one of the things I enjoy the most is when you help people that are in extreme financial difficulty. To be able to provide them with a solution to get their lives back on track is very rewarding. 

My favourite mortgage offer this week has to be for a couple I’m helping in Manchester. They were referred to me by another client of mine who suggested they have a chat with me to discuss their options. They had a number of existing credit agreements that included 5 credit cards with a substantial total balance. The whole situation had started to get a bit out of control and it was becoming a struggle just maintaining their payments to service these debts. Their feeling was that they were on the verge of a financial meltdown. We had a good chat about how they had got to the point that they were in. As I’m sure a lot of people can appreciate, sometimes life throws you a few curve balls. Things can spiral out of control quite quickly if you’re not careful. They had a good level of equity in their home so I looked at the possibility of remortgaging their house to release a chunk of that equity. This would allow them to pay off all of the outstanding credit agreements, leaving them with one single monthly payment. That would be the new mortgage.

What did we do?

A mortgage offer for £189,000 has now been agreed to release £52,000 of equity to pay off their existing debts. Their monthly outgoings on the credit agreements along with their existing mortgage was around £2,400 per month (£533 of that was the mortgage). The new monthly mortgage payment that will take care of all of those loans and credit cards will be £777*. Needless to say this will have an enormous positive impact on their day to day lives financially. We had to consider the fact that taking the debts over the period of the mortgage may ultimately result in them paying more interest. This is due to the time scale of the borrowing. But the immediate financial relief that new mortgage brings them means they can get their lives back on track. 

They no longer have the worries that they were experiencing. As an extra bonus we have also reduced their existing mortgage term down from 28 to 26 years. Something they weren’t expecting and were also really pleased 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% fixed for 2 years. 26 year mortgage term.

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