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. However if a mortgage payment is missed the lender 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 allowing mortgage arrears to build up and increasing the risk of repossession. We explain how using a debt management solution can help to avoid this situation.

If you do not pay your mortgage you risk repossession

Paying your unsecured debt rather than your mortgage is absolutely the wrong thing to do. If you get into arrears with your mortgage you risk your home being repossessed. On the other hand if you miss payments to your credit cards and personal loans although the lenders will not be happy your house is not at risk.

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. Your disposable income is all you have available to pay your unsecured debts.

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What are the Debt Management options?

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.

One of the first solutions to consider is a Debt Management Plan (DMP). 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 next alternative as a home owner 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.