Debts mean I am struggling to pay the mortgage - will debt management help?

If you are falling behind on your mortgage because money is being swallowed up by other debts, you need to reprioritise your payments or risk losing your home.

Homeowners with unsecured debt problems can often find that they get into arrears on their mortgage because they are focusing on paying credit cards and personal loans.

If a credit card payment is missed, the late payment charges and additional interest added to the account are immediately visible on receipt of the next statement. These companies are also often quick to follow up missed payments with a call from their collection departments

On the other hand, if a mortgage payment is missed, a statement will not be received at the end of the month detailing the financial effects.

Mortgage lenders can also be slower to react in terms of telephone calls and written payment demands.

The result is that the payment of unsecured debt is often prioritised over and above the mortgage.

Risk of repossession

Paying your unsecured debt rather than your mortgage is absolutely the wrong thing to do. If you get into arrears with your mortgage which cannot easily be repaid, you risk your home being repossessed.

If you miss payments to your credit cards and personal loans, your balances will increase and you may face a barrage of telephone calls and letters from the lender’s collections department.

However, the fundamental difference is that your house is not at risk.

Reprioritise your payments

If you find that you are paying your unsecured debt payments over your mortgage, you must change your payment priorities.

The starting point is to divide your monthly expenses into priority and non priority payments. Your essential household expenditures including your mortgage and any loans secured on your house should be included in the priority payments list.

All payments to unsecured debts like credit cards, store cards and bank loans should be left in the non priority category.

You then need to calculate the amount of money you have left over each month after all of your priority payments have been paid. This is known as disposable income.

You should use your disposable income to pay your unsecured debts.

Debt management

If your disposable income is less than the amount required each month to pay all of your unsecured creditors, you need to consider debt management.

A debt management plan is the first solution to consider. This will help you reduce the amount you pay to your unsecured creditors so that this fits into the disposable income budget that you have.

The alternative to a debt management plan is an individual voluntary arrangement (IVA).

This agreement has the advantage that debt is written off meaning you are debt free after five years.

Of course both of these solutions have side effects. For example using a debt management plan will significantly extend the time it takes you to repay this debt. An IVA will mean you may to release equity from your home.

For this reason, before deciding which debt management solution to choose, you should get expert advice.

Nevertheless, if you are struggling with debt and getting into arrears with your mortgage, you must take immediate action.

Using debt management will help you reprioritise your payments and will enable you to maintain your mortgage payments and protect your home from repossession.

If you are struggling with debt, visit www.BeatMyDebt.com

Our vibrant forum gives free access to industry experts and others who have suffered with debt problems.

Useful guides, calculators and information are also available designed to help you understand how to manage and resolve debt problems.

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