Paul McGerrigan, CEO of Loan.co.uk
| Ask the Expert

Ask the Expert: What options do I have if I feel my monthly outgoings are high?

Most of us have borrowings of some type whether it is a mortgage, a personal loan, credit cards, a car loan or another form of obtaining money. The use of debt to fund our lives is something that is very much accepted as a norm in UK culture.

Very few people are in a position to buy a property without a mortgage so for those of us who want to own a house a mortgage is almost a given. A mortgage is a type of loan. Similarly with cars many people use credit in order to pay for a car. Personal loans, credit cards and other more flexible means of borrowing money can also be used for many day-to-day purchases and lifestyle choices such as clothing, holidays, electronic equipment and other such things.

For some people however the total of the debt can start to become too much, either financially, emotionally or both. Juggling multiple debts with numerous lenders can be confusing, and it can also be very stressful if the debt begins to rise to a level that is too high and puts pressure on your monthly finances.

Unfortunately the level of debt can increase almost without people realising it is happening until suddenly it starts to be very noticeable and you want to take action. If you find yourself in this position you have a number of options.

Firstly don’t panic, you just need a plan. Write out all of your income and all of your outgoings for one month. Rank your outgoings starting with the essentials to live – your mortgage or any loan secured on your house, your utility bills, and your main food costs. Then start to look at your other outgoings, council tax, unsecond mortgages, credit cards, car loans and any other borrowings you have.

This will give you a starting point – a budget. You then have a number of things you can look at and ask yourself.

1. Check your mortgage. Have you got the best rate available? Are you on the best deal for you? Can you take action to reduce your monthly mortgage payments? If you can change, this can be a way of significantly reducing your monthly costs with the cost of mortgage borrowing at an all time low.

2. Can you restructure any of your unsecured debt? Are you on the best deal with your credit cards? Could you transfer a balance to 0 per cent and then try to start paying of some of the capital? A review of each of the loans or credit cards you have will answer these questions and allow you to take action if there is something available.

3. Can you restructure your outgoings by reducing what you are paying on non essentials such as eating out, clothes, nights out, gadgets etc? If you think you can reduce this to make your monthly budget more manageable, this is a must do. If you don’t have to borrow further to reduce your monthly debt level then absolutely don’t. It may be that a combination of changing your mortgage and reducing your outgoings can restructure your finances to a more manageable level.  

4. If you feel that option number one, two or three or any combination of them is not realistic or would not help then you might want to consider a consolidation or restructuring loan to take all of your monthly debt payments and put them into one payment. The loan can be either secured against your home or unsecured. The first and most important thing to be comfortable with, if this is an option you are considering, is that the monthly payment of the new loan will make a genuine and meaningful difference to your monthly financial position.

Taking an unsecond mortgage is preferable to a secured as long as the monthly payment would make a difference, because you do not have to offer your house as security and you will generally pay less interest because unsecond mortgages are over a shorted period. The challenge with this option however can be the size of the monthly repayment, which is generally much higher, due to the fact that unsecond mortgages can only be offered over a shorter term (typically 60 months max).

Regardless of which loan you look at, if you can find a monthly payment you would be comfortable with and you have a number of options available, you must then check the interest rate, the fees involved, and if there are any penalties should you wish to settle the loan early before you make the decision of how you want to proceed.

There are lots of options around for customers and the important thing is to make sure that you find an option that will genuinely be putting you in a better position.

Another important thing to remember if you do proceed with a consolidation or restructuring loan is once you have reduced the debt to one payment, STOP BORROWING unless you really feel it is necessary. The danger after obtaining a consolidation or restructuring loan is that people start to use credit cards and personal loans again and build up more debt. A consolidation loan should be considered ‘a line in the sand’ and a time to change your behaviour towards debt.

5. In some circumstances debt consolidation may not be the answer, if you have suffered a sharp fall in income or the debts are too large, even after you have looked at all the options above including consolidation.

At this stage you may need to speak with your creditors to discuss a repayment plan and relief, including offering a payment break, rescheduling payments or freezing interest on outstanding charges. You have to be aware that this will start to impair your credit rating for the future but if the debt has simply become unmanageable this is the best option.

You can also get free help and support to ensure you approach this correctly from organisations such as Citizen’s Advice http://bit.ly/1Ne6gLB or Stepchange http://bit.ly/1IRQhDo.

Debt can be a huge burden and it can get to a point where it starts to really impact on you from a financial and emotional perspective. The important thing is to take action and address it. Whether by consolidating your debt, reducing your spending or seeking debt advice. You will feel much more satisfied when you actually deal with it and in the long run your financial position and your well being will ultimately be better. 

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