One of the big personal finance stories of the week concerned a study by the charity Shelter, which suggested that over a million people in the UK have payed for their mortgage on their credit card in the past year. The survey questioned over a thousand people, of which 6% said they had put their home loan on plastic. Even more worryingly, nearly 8% of 18-24 year olds surveyed said they had used their card to pay for their mortgage.
Using a credit card to pay for a mortgage is an extremely worrying situation to be in for most people – it tends to suggest that people are living well above their means, and also points towards them getting into a downward spiral of debt.
The problem is caused by the high interest rates that credit cards charge – if you’re not paying off the balance in full each month, then you’re likely to be seeing interest of 15% or higher (and significantly higher for those with bad credit history). Compare this with the average interest rates currently charged on mortgages, around 6%-8%, which is a relatively cheap way of borrowing money.
Many would lay the blame at the door of the lenders for giving loans to those who couldn’t afford them, but borrowers have to be held responsible for taking on mortgages that they could barely afford.
So what should you do if you’ve been using your credit card to pay for your mortgage?
Firstly, you should take a look at your spending and see where you can start to save money. Earlier this week I talked about tracking your spending, which will help you to identify where there is waste, which is money that can be put to better use.
You could also look to find another source of income, even if it is only for a short time to help you get back on track.
Your lender might also be able to help you out – if your mortgage allows for mortgage holidays, you could organise to take these. You could also consider moving to an interest-only mortgage, if you’re on a repayment plan. This will lower the monthly payment, but you must remember that you ideally need some sort of investment in place to cover the capital of the mortgage. Another option is to remortgage and increase the term to lower the monthly payments – all of these options will have to be discussed with your lender, and you’ll have to be aware of any charges that you may incur from changing your mortgage.
Although it feels a little wrong to suggest taking on more borrowing in this situation, it may also be an option to take out a personal loan, as it could be a cheaper way of financing your other borrowing. But this is a decision that needs a lot of thought and some careful calculations.