Over the last few years, unsecured debt in the UK has risen significantly. By February 2011, Credit Action reports that total UK personal debt was £1,454 billion. Individuals currently owe more than the entire country produced during the whole of 2010. And, much of this borrowing is at high interest rates. Brits pay £182 million in personal interest every single day.
So, if you have credit cards or personal loans, it could be time that you considered consolidating your debt with a remortgage. A remortgage allows you to switch your home loan without moving house and you can often borrow additional funds as part of the process to pay off other debts. Here are five reasons that you should consider remortgaging to consolidate your debts.
Lower interest rate: One of the main reasons that many people remortgage is to benefit from a lower interest rate. Not only can you reduce the interest rate on your mortgage, but you can also reduce the amount you’re paying on your other debt. You can often also take advantage of fixing your payments of benefiting from a discounted variable or tracker rate.
Moneyfacts recently found that the average credit card interest rate in the UK was 18.9 per cent. However, a remortgage can often allow you to borrow at around 4-5 per cent. Borrowing extra on your mortgage to repay your unsecured borrowing could save you a considerable sum in interest charges.
Spread payments over a longer period: Personal loans generally have a maximum term of around 5-7 years whilst credit cards are designed for short term borrowing. If you remortgage your home to repay your unsecured debts, you can benefit from taking the loan over a longer period. Remember that whilst this may help spread your repayments over a longer term, you may end up paying more interest in total in the long run.
Save time by dealing with one creditor: One of the main problems with having multiple credit cards or personal loans is that you end up having to deal with multiple creditors. If you ever need to change your address or bank account details you might spend hours dealing with a number of different companies.
By consolidating your unsecured debts with a remortgage, it means that you end up with just one creditor – your mortgage company. It makes your finances a whole lot easier to manage and you don’t have to spend hours dealing with multiple lenders in future.
One direct debit: In addition, rather than paying direct debits to a number of companies (for personal loans or for the minimum payment on your credit card), consolidating your debts with a remortgage means you will have just one payment going out of your bank account every month.
Lower repayments: Remortgages typically allow you to borrow money at a lower interest rate than unsecured loans over a longer period of time. The major effect of this is that it can make your monthly debt repayments much lower.
If you are looking to reduce your monthly outgoings or to consolidate your debts into a monthly payment that is more affordable, a remortgage could be the perfect way to do this. Just remember that by securing a previously unsecured debt, it means that your home will now be at risk if you fail to keep up your repayments.
James McHeggins writes for JustRemortgages.com one of the UK’s top sites for the latest remortgage rates and best remortgage deals.