Debt consolidation with a mortgage

Debt consolidation with a mortgage

A debt consolidation loan can make your finances much easier to manage – and could even lower the amount of money you’re required to spend each month. It does this by ‘consolidating’ your existing debts into just one.

There are other ways of consolidating your debts than taking out a new loan. If you’re a homeowner, for example, one of the ways you could consolidate your debts is by using your mortgage – assuming you have enough equity in your home, that is.

By combining your existing debts ‘into’ your mortgage, you’ll be able to reduce the number of individual debts you have to keep track of… and you may be able to save money on a short-term basis too.

Consolidating your debts with a mortgage

Consolidating your debts with your mortgage will involve increasing the size of your home loan, enabling you to repay your existing unsecured debts with the money you’ve ‘freed up’ from your house. You may find that this is easier to do when you’re already remortgaging – because if you choose to do this during an existing mortgage agreement, you may well be charged extra for it.

An example

To provide an example, let’s assume you’ve got a mortgage of £140,000 and unsecured debts totalling £15,000 that you’d like to consolidate. In this situation, you could take out a further £15,000 on your mortgage (by taking out a new mortgage for £155,000) and repay your unsecured debts. If there aren’t any other charges involved, you wouldn’t actually increase the amount of money you owe, but you’d be left with one debt (your mortgage) instead of several.

Let’s imagine that before you decided to consolidate your debts, it would have taken you five years to repay them (costing you £3,000 per year, plus interest). If you consolidated this debt into a typical 25-year mortgage, it means your payments would be spread out over a much longer period of time – which would lower the amount you’d need to pay (towards that portion of your debt) to just £600 a year, plus interest.

You would, however, be paying interest on it for longer, so it could well cost you more in interest in the long run (although the actual interest rate on a mortgage should be much lower than on most forms of unsecured debt).

This is just a simplified example, but it does show you the basics of how it works.

For more information on debt consolidation in the UK the following pages may be useful:

• Debt consolidation @ ThinkMoney
• Consolidating debts @ Direct.gov
• Debt management @ DWP

Choosing the right insurance policy for your cat

Choosing the right insurance policy for your cat

Cats are significant members of many UK households and for this reason deserve to be looked after and protected. Felines are notoriously independent and love to explore their surroundings, so it is important that you have a suitable cat insurance policy to keep yours safe should he fall ill, get injured in an accident, or require care in your absence. However, in your search for the perfect insurance for your furry friend you should bear in mind some precautions and check for:

Any exclusions

If your cat suffers from a medical condition before you take out the insurance policy, vet fees are likely to be excluded from the cover. The same applies to any treatments required for pregnant kitties or the birthing process. Therefore it is important that you go through any policies you are considering thoroughly, checking for any gaps in what your cat is covered for. If you don’t have sufficient cover this could backfire down the line, hitting your pockets hard and unexpectedly. Be sure to read the small-print and choose a tailor-made policy, such as cat insurance from Pets at Home that allows you to choose from a range of insurance policies.

Any limits

In policy terms the limitation is the total amount that your insurance provider would pay out if you need to make a claim. For example, any veterinary fees covered by a cat insurance policy are usually limited to a fixed amount per year. If your cat requires any more treatment or operations at the vets once the maximum agreed limit is reached, you will be expected to meet the costs out of your own pocket.

Excess

‘Excess’ refers to the amount of money you need to contribute if you make a claim. The amount of excess that you need to pay will vary depending on the insurance provider, so before signing up for a policy make sure you read the small print and excess details. Weigh up the cost of each policy, what you get for your money, and how much excess you need to pay to guarantee the best deal for you.

Consumer Debt in America

Some debt management studies or surveys reveal that the average American carries 4-5 credit cards. Others say that it’s more than that, that the average American carries up to 9 or more cards; and Cardweb.com went more specific with the number and type of cards. According to them, on average, an American consumer carries 2.7 bank credit cards, 3.8 retail credit cards and 1.1 debit cards, which totals to 7.6 cards per cardholder. In a way, it’s pretty close to the other studies, and though no one can actually come up with the exact figure, we at least, get a picture of just how much Americans rely on their cards or credit in general.

A clearer picture, based on those studies, shows:

-that about 43% of American households spend more than they earn each year.

-that each household holds an average of $8,000 in credit card debt.

-the personal bankruptcy filing has doubled in the past decade.

-the number of consumers enrolling in credit card debt relief programs has increased.

And although those figures are only considered as a trend and not a conclusion, it certainly says a lot about the United States economy in the 21st century. Credit card debts are considered “revolving debts” and in the last 5 years, a 31% increase was seen, according to the Federal Reserve. Some credit this boom with an influx of capital from countries with budget surpluses, specifically China, while others point to the advent of the internet or an increasingly materialistic American consumer.

It would be amiss to leave out perhaps the main culprit of this increased reliance on credit – the credit card companies themselves. They are not only open to extending credit to those formerly they’d considered as “high risks” but they are actually quite aggressive in pursuing them. “High risks” are those consumers with bad or poor credit scores, who some credit card companies, notably HSBC and Capital One, target because they can charge higher interest.

What is a poor credit score and how to improve it

This is by no means the standard answer at it depends on the lender or creditor, what they think is a bad credit score, but generally, a score below 620 is consider poor. A score above 720 is considered excellent and the vast majority of consumers have scores between 660 and 720. The mean score is 680.

Your credit score is made up of five main parts: your payment history (35%), your amounts owed (30%), the length of your credit history (15%), new credit (10%), and the types of credit used (10%). This being the case, the fastest way to improve poor credit is to make on time payments and keep your balances low.

James Randolph is a guest blogger and debt professional for www.hamiltondebtrelief.com.

Bank of England base rate vote split three ways

Two members of the Monetary Policy Committee (MPC) voted for an increase in the base rate this month, minutes from the most recent MPC meeting show.

Andrew Sentence and Martin Weale voted for an increase to 0.75%, while six of the remaining seven members voted for no change whatsoever. The final member, Adam Posen, voted for no change in the base rate but a £50 billion increase in the asset purchase programme (more commonly known as ‘quantitative easing’).

The votes will add further to speculation that the Bank of England could increase its base rate sooner than previously expected, especially after it was confirmed that inflation reached 3.7% in December – almost double the 2% target.

Economic theory dictates that when inflation is high, the base rate can be increased to encourage higher levels of saving (as interest rates on savings are influenced by the base rate). This in turn can lead to lower spending levels, which subsequently forces down consumer prices and ‘corrects’ inflation.

However, the Bank is reluctant to raise rates while consumer lending and house prices remain relatively low, partly because of the negative impact a base rate rise could have in these areas – and on the wider economy.

But there would be some other advantages to increasing the base rate. Interest rates on savings and bank accounts would rise, which would be good news for the many savers who have been unable to get good returns on their deposits since the base rate dropped to 0.5%.

Thisismoney.co.uk says the general consensus amongst economists is that the last quarter of this year could see a base rate rise, but there could be a ‘token’ increase before then. It’s possible that the latest developments could encourage them to make a more significant move before the final quarter.

More information on how the base rate could affect your finances can be found at http://www.thinkmoney.com/mortgage/remortgage/what-is-going-to-happen-to-the-base-rate-and-how-will-it-affect-remortgages-0-3059.htm.

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