Case study - couple - remortgaging
The problem for Jason & Julia was the high levels of interest on their credit card debts. They had never missed a minimum payment and they scarcely used the cards anymore but the debt was barely reducing. They felt something was wrong that such high interest rates could be charged and were shocked to work out one day that at the present rate it could take more than 25 years to clear the debt. They will have paid a small fortune in interest rates by then.
Good credit rating
One of the reasons for the debt was they found it relatively easy to get more credit because of their good credit rating. Because they were regular in making the minimum payments on their debts, lenders seemed only too happy to raise their credit limit, and other companies came along with more offers. When they were looking to set up home together they needed the money and the odd holiday and new car came in handy too.
Interest-free cards
For a number of years Jason & Julia became skilled in transferring balances to interest free deals. However for a while now the deals seemed to have dried up and the interest rates generally just kept going up.
Assets versus debts
It took their mortgage advisor to suggest they think about utilising the equity that they had in their property to help clear the unsecured debt. The interest rate on the remortgage would be much less than the credit cards and it would be better to make use of the asset they had than see money disappear in credit card interest at an alarming rate. Their initial reluctance at using much of their hard-earned equity soon disappeared when they saw the financial sense in releasing these funds.
Interest-only mortgage
In fact any way of releasing funds in order to settle high interest debts is worth exploring. A consolidation loan may be worth looking into. Or seeing if the mortgage can be switched to interest-only for a period in order to use the money saved to pay much more than the minimum payments on cards will often be a huge benefit. And of course if there happens to be someone somewhere who might be willing to lend some money to clear high-interest debts so much the better!
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