Thursday, 8 September 2011

Equity Release: Debt Solution

A debt charity has warned that over 55's are increasingly turning to equity release schemes in a bid to repay their credit card, personal loans and other debts which are unsecured. The CCCS found the average debt to be just under £23,000.

As personal budgets are squeezed ever tighter the outcome for consumers is bleak. Rising costs of electricity, gas, fuel and as expected an interest rate rise, are likely create a devastating strain on UK consumers.

The equity release scheme is one option to gain access to the capital tied up in an asset, such as a house. This option enables the person in debt to use the cash now and repay it within their mortgage. One benefit of the equity release scheme

Problems with Equity Release

There are problems with equity release, especially for people nearing retirement, as they will have a larger mortgage to repay and fewer working years to be able to manage the repayments. In the end, it could mean downsizing and selling the property with the potential future outcome of renting.

Also, whilst the equity release service from the CCCS is free to use, it requires a mortgage lender willing to provide the capital. The unsteady market conditions means releasing equity is very difficult, especially for people with defaults or arrears.

Be aware, with equity release schemes you are changing one debt which is unsecured (credit card, store cards, personal loans etc) for other secured debt (on your mortgage). You are not clearing the debt, just including it within your mortgage.

Full Debt Advice

It's essential people get full and honest debt advice before they take action and decide to release equity from their house. Planning for the future is essential. For example, somebody with a debt of £22,000 and a disposable income each month of £300 could be debt free in just over 6 years (if interest and charges were frozen, oh, and if they don't use a fee-charging debt management company!!). The decision is ultimately the consumers, but they could choose a debt management plan or an equity release option to resolve their debt problems.


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