We have all watched as our government has bought a share in the Royal Bank of Scotland (RBS), Lloyds TSB, Halifax and then they privatised the Northern Rock and Bradford and Bingley. They have given these banks a life-line. But what life-line have they offered the rest of us? Some people are struggling more than others with high monthly mortgage payments, loans and credit cards and the uncertainty of knowing or understanding what’s really happening in the economy. At present every time we listen to the news all we hear is how bad things are and today Mervyn King the Governor of the Bank of England confirmed that we were going into a recession. Makes me wonder which rock they just climbed out of.
Most people just want to ease their monthly commitments whilst other people need more affordability each month to live. Some members of the public are being strangled by the increased mortgage payments, (as they come off a special rate and then go on to the banks Standard variable Rate or SVR) utility bills and living costs. These people are just looking to cut themselves some slack.
The concept of restructuring or reshuffling of debts comes with the usual financial warnings. Please discuss this financial advice with a professional debt adviser (like, Citizen’s Advice Bureau or the Consumer Credit Counselling Services) before contemplating this concept. It will cost you more money in interest payments and you will be paying the debt for longer. The results from restructuring your debts can make a big difference in your affordability each month if done properly and with the right advice.
Here is an example case I was involved with. My clients were spending £500 a month more than they earned and it was rising. This extra £500 of debt each month was being subsidised (that’s how the clients saw it!) by their flexible friendly credit cards (not so friendly really!). It was not rocket science to realise that they would run out of credit cards within six months. There debts were made up of a mortgage, four loans and five credit cards, the last two totalled +/- £90,000
Their mortgage had just come off a fixed rate mortgage deal and their mortgage payments had increased by £388 per month more (big mortgage). I was unable to find a remortgage lender willing to lend. This was due to the sharp drop in house property prices and the fact that they now had negative equity in their property. There were no lenders willing to lend to my clients. This is becoming more and more common. Most people would struggle on at this point and even miss payments and then end up messing up their ability to borrow again in the future.
I contacted their mortgage lender and found a 2 year mortgage scheme at 6.39% and this cost them an extra £76.66 on their old mortgage rate and saved them £311.34 on the lenders worst interest rate which they had originally been offered. What a result!
Next I phoned up all the companies that they had loans with and asked whether it was at all possible for my clients to increase the term of their loan. (not the best advice but much better than some of the alternatives around to day) All four loan companies agreed to the loan terms being increased to 60 months. Please note this is not something that all loan companies will do and they do not have to agree to this either.
I then explained to my clients what I was suggesting and how they should go about it, what they should say to their lenders and how long they should spread the debt over. By following my restructuring package they are now left with just £57 each month after paying all their debts and living costs each month. This is certainly a better position to the £500 that they were spending more than they earned each month. Over the next five years their wages will increase through pay increases and promotions, so they will end up having more money to spend in the future.
My clients are ordinary people who just happen to be living beyond their means as many other people do. They want to protect their credit history and there were not many other doors open to them. Had they approached a debt management company they would have said they should be in a Debt Management plan and this would probably have messed up their credit history. So what did I get out of providing this advice. Well nothing financially; but I did get a lot of kudos and personal satisfaction and I am sure they will recommend me in the future. You see these clients were referred to me originally.
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