There is a term bandied about which I think muddies the waters for some people who may not fully understand debt. That term is “second mortgage.” A second mortgage is an old fashioned term for a secured loan. And, secured loans do what they say on the tin- they are loans secured on property.If you default, you stand the risk of loosing that property in repossession proceedings.
How Do They Work?
Basically it works like this; you have a mortgage which you pay interest on and now you have a second loan which you also pay interest on. A second mortgage or secured loan for use to pay off other debts is a really bad idea. They often call this a ‘consolidation’ loan too. It’s a very expensive way to pay off a debt.
The rate you would get today would probably be very high, much higher than a regular mortgage interest rate. Generally you can use the funds for any purpose including paying off other debts. Which to me is just ridiculous. To get another debt to pay of an existing debt is just prolonging the agony AND starting a new debt all over again, keeping you trapped in debt for many years, if not for life.
Many secured loan companies can be utterly ruthless too when it comes to chasing a debt from this kind of loan. Years ago we bought a house from a lady who had got herself into big difficulties with a secured loan. She had a low mortgage on the property and proceeded to get a second secured loan to do essential repairs, to the tune of £50k. When her job and health problems forced her into difficulty the loan company were fierce at attempting to recover the debt. ( The secured loan was at a massive 15% interest too- OUCH!) She was left with no option but to sell quickly at a lower than market value, and move into rented accommodation.
Mounting debts can affect anyone, irrespective of status or background. They can be crippling and make your life miserable if it is not dealt with properly.Debt collectors chasing your case can be very aggressive indeed with multiple daily phone calls, letters and general harassment. Debt collectors can even add additional fees to the loan.
If you have got yourself into this kind of pickle with your debts then there are some debt management companies who can help you through the mess. The professional ones don’t charge any upfront fees, but will offer free, confidential advice on managing the debts. Mostly though they would only deal with unsecured debts.
Debt Management Plans
What is meant by debt management then? Well, putting in place a “debt management plan” which can change as your circumstances change, means that the company handles all the negotiations and correspondence with your creditors. In return for that they set up one lower affordable payment. As long as you continue to keep your side of the agreement by paying then they will keep creditors off your back. Their money is made in a percentage
If you do get into trouble then it’s essential that a freeze all interest and charges is applied as soon as possible, this will stop the debt growing with unnecessary fees and charges slapped on by the loan companies. You would just agree a monthly payment with each creditor which is then distributed to them on your behalf. If you have large unsecured debts then they could reduce it by about 50% or more in terms of the amount paid each month and the final amount due.
We can recommend a company that can help you. Just send us a message and we will forward their details to you.