The dangers of paying the mortgage with plastic

Recent research by Shelter threw up a shocking statistic; one million householders have used their credit cards to pay their mortgage or rent over the past 12 months. This represents 6% of all the homes in the UK, and one in 12 Londoners.

At a time when the government is offering several schemes to help people keep a roof over their heads, the fact that so many people are resorting to using credit cards, often paying around 19% interest, to meet their financial commitments is total madness.

According to Shelter, the problem is affecting all social groups, from those on low incomes to the middle class and other more affluent households.

People who resort to paying the mortgage or rent on plastic are desperate to ward off the threat of repossession – but, in fact, they could be putting their homes further at risk by doing so.

This is because credit card providers can apply to the County Court to have the credit card debt secured on the property if the borrower falls behind with repayments. Therefore, failing to pay your credit card bill could end up with your providers forcing you to sell your home so it can recover its money.

Mortgage lenders have agreed to work with borrowers to ensure that repossession is a last resort for most people, so if you are concerned about paying the mortgage, the lender should be your first port of call.

Be completely honest about your financial situation and see what options are available to help you cope.

All mortgages taken out on or after 31 October 2004 are regulated by the Financial Services Authority, so lenders are obliged to treat you fairly and send you regular statements to keep you informed about your current arrears position. There are also rules covering what the lender must do if it intends to repossess your home - see the FSA website for more information.

There are also three government schemes that could help people who fall behind on their mortgage payments. These are:

1. Mortgage Rescue Scheme
2. Homeowners Mortgage Support
3. Support for Mortgage Interest

You can find out more about these schemes on the DirectGov website, and from organisations such as Shelter and Citizens Advice.

I’m behind with my rent...

If your rent is not paid, the money owed is called 'rent arrears'. Rent arrears are 'priority debts', which means the consequences of not dealing with them are serious - there is a risk of eviction.

Read more about what rights renters have against repossession

Remember - repossession might not clear your debts

Mortgage lender may continue to pursue borrowers for any shortfall following repossession for up to 12 years after the sale of the house.

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Your Comments

Most of us are unaware of their financial situation. Overspending during holiday season can lead to holiday debt trouble. Now that the holiday season is over, the addressing of holiday debt begins. What I usually do, is budget for it – I stop using credit cards or any credit, including payday loans or anything, after the holidays. That way, I can save the most I can to pay off those gifts as quickly as possible – that's what the finance experts recommend, and it works pretty well. You just have to be willing to sacrifice a few things until you're paid up.