What to do before redeveloping your debts
Before starting a restructuring operation intended to lengthen the duration of current loans , we advise you to follow the following steps.
Negotiate with creditors
It all depends of course on the nature and size of the debts, but experience proves that it is possible in many cases to negotiate some of them out of court.
- Tax debts : contrary to popular belief, the administration is generally conciliatory towards taxpayers in difficulty. Propose a reasonable spread of debts over 6 or 12 months for example.
- Real estate loans : they often allow the maturities to be adjusted downwards, or to suspend them for one year.
- Unpaid invoices : when they come from national companies (gas, electricity, water …) try to propose a repayment schedule over several months. You can also do the late rents even though it will be more difficult if you are dealing with a private landlord.
- Bank overdrafts : try to talk to your advisor to extend the duration of the bank overdraft authorized and try to lower the rate of the agios.
Set up an over-indebtedness file at the Banque de France
The support of the Banque de France’s over-indebtedness commission can prove very useful for negotiating a staggering of debts with your creditors. Even if filing a file automatically leads to registration with the FICP, you will receive valuable assistance, provided that your application is considered admissible.
Figures on sprawl over 10, 12 and 15 years
If no solution is found, it is time to consider a more radical measure. The following analyzes will show you the double impact of a long-term credit buyback.
- On monthly payments and purchasing power.
- On the final cost of renegotiated loans.
For that, we will study a concrete case and take as an example a household in situation of overindebtedness after the chain of several credits. The couple earns a living with income of € 3,000 per month (including family allowances) and has three dependent children. They have owned their homes since May 2010.
The household situation before any intervention
Before the couple plans to buy all the loans over a long period of time, their financial situation was as follows:
(1): if the household fills the overdraft authorized for a period of 24 months by paying the agios monthly to the bank.
(2): Concerning the invoices to be paid, it is assumed that the creditors do not charge interest for late payment. The charge is calculated with a spread over 12 months.
Evolution of the household situation
We note that from 2011, the household situation has continued to deteriorate, the couple chaining loans for the purchase of a vehicle first and then with two revolving credits. Despite the fact that incomes remained stable, the debt ratio is double that allowed to more than 63%, while the rest to live has been halved, from € 2038 to € 1087. Without cash, the household is forced to opt for repurchase of loans over a long period.
We imagine that they realize the operation on May 1, 2012.
We will measure the impact of the transaction on terms of 10, 12 and 15 years. The first line includes the immo loan in the operation. In the second, only consumer loans are renegotiated
(1): outstanding capital of all loans in progress + penalties on the mortgage on the basis of 3% on the KRD, ie: € 90,138 * 3% = € 2704
The three hypotheses show that the integration of the mortgage into a restructuring operation is not interesting. Indeed, the rates of repurchase of credit over long periods of 10 to 15 years are particularly high while in our example the difference between the remaining term (10 years) and the new is not significant.
- The gain in purchasing power is better in the first two examples by renegotiating only consumer loans. On the third, the duration of 15 years allows a slight gain if the mortgage is reinstated but for a very significant credit cost.
- The impact on the debt ratio is satisfactory over 15 years, although above the maximum allowed of 33%.
- On the other hand, the total cost of borrowing literally explodes in the hypothesis where the immo loan is reinstated. Over 15 years, one can even imagine that institutions would refuse to do this grouping.
A more advantageous solution is to renegotiate the terms of the mortgage loan outside of the buy-back transaction over a period of 144 months, which provides the following results:
- Renegotiated amount, penalties included: € 92,932
- Duration: 12 years
- Rate of 3.36% with insurance
The new monthly payment (including 182 € renegotiated consumer loans): 797 € per month, a gain in purchasing power of 934 € and a credit cost lower than the original one is 135 936 €
Simulate your buyout of long-term credit
If you are considering a restructuring operation, feel free to apply and compare all offers. It only takes a few minutes to complete your request.