Fool News: The Credit Card Mortgage Trap

More than a million householders in Britain have used credit cards to pay their mortgage or rent in the last year, according to a survey published today by housing charity Shelter.

Six per cent of the 1,979 people polled admitted they relied on their plastic to make their mortgage payments - and in the 18-24 age bracket, the proportion was even higher (7.5%).

This means thousands of homeowners and renters are suffering from interest charges many times higher than those typically attached to mortgages.

Most credit companies charge interest at between 15 and 18 per cent - around three times as much as most mortgage lenders.

But for many of those least able to pay, the situation is even worse. For people with poor credit ratings, card companies can charge interest at up to 40 per cent - a whopping seven times above the average mortgage rate.

Heather Keates, director of Community Money Advice, said if people in this position don't pay their credit cards off each month, instead only paying off the minimum, "the debt starts to spiral".

Despite this, the organisation's Stuart Freeman claims that paying your mortgage or rent by credit card, then paying that card with another card, "is becoming the norm for many people". He warned that juggling debt in this way can lead to "an ever-spiralling maze of debt, and eventually the credit simply runs out".

Recent interest rate hikes and unaffordable housing costs have pushed many householders to their financial limit. Figures from the Council of Mortgage Lenders suggest that repossessions rose by 65 per cent during 2006.

However, the picture isn't entirely gloomy. According to credit analysis service Experian, there are several things you can do to manage your mortgage and keep a roof over your head - without falling into the credit card trap:

Speak to your mortgage lender - who may well be able to come up with a more affordable method of payment. For example, if you have a repayment mortgage, you could switch to an interest-only plan temporarily. If you are already repaying only interest, then you may be able to arrange a mortgage holiday. If none of these are an option, you could remortgage and spread your debt over a longer term, reducing your monthly payments. Check out the Motley Fool Mortgage Service if you need advice and bear in mind that you may have to pay penalties and fees for remortgaging early, and it could lead to larger debts in the long term. To find out about one Fool's experience, read How Remortgaging Saved Me Money.

Get free advice - several specialist charities and organisations, such as Citizens Advice, are on hand to help - so there is not always necessary to pay for the services of an independent mortgage advisor.

Work out a budget - factor in essential bills like utilities, council, insurance and food and try to cut down on extras. A budget calculator can be found on the Financial Services Authority (FSA) website, and lots of useful budgeting tips can be found in 76 Foolish Ways To Save Money.

Pay what you can - even if you can't manage the full amount of the mortgage payment, try and pay as much as possible. This shows your lender that you are making an effort, and may increase your chances of negotiating an affordable deal.

Supplement your income. This could be done by taking in a lodger, looking for a second job or even renting out your garage. Have a look at Five Ways To Increase Your Income for more tips.

Fool research recently found that many people would rather talk about their religious beliefs or political leanings than the `taboo' subject of money. However, it seems that however bleak your mortgage situation looks, it can be improved by talking to professionals and asking for advice.