Debt action - second opinions pls.

Own_Feet

I would really appreciate your second opinions, as I don't know what to do for the best. Basically, I've got £19,000 of debt - £15,000 on credit cards, £2,500 on loan (taken to pay tax bill ) and £1,500 overdraft. I had a telephone interview with CCCS yesterday. They suggested the route of them contacting my creditors and taking over the whole debt, with me paying it off to them (CCCS) for the next 6 or so years, by which time I would be clear. No mention was made of asking creditors if I could make reduced payments, and seeing how that went. Does this sound like the best way forward? Also, I wouldn't be able to get any credit for the 6 years, and I would appreciate thoughts on how important this is, in case there are implications I haven't thought of. I'm in privately rented accommodation but had hopes (probably pipedreams) of owning my own place one day, but I guess that would be very difficult if I end up with a bad credit rating. Are there any other major implications? The other thing is that I share with a relative who has the same surname and I'm worried about the impact on his credit rating if I go down the route suggested by the CCCS - the relative doesn't have a credit card (has never wanted one) but doesn't have any financial problems, unlike me - could he end up being penalised by my bad money management? I really don't want to tell him about my situation but feel I may have to if he's likely to be affected.

Hope that's not too much of a jumble of questions! I'm so grateful to have found this site - I think Martin's book may end up having saved my life.

Own Feet

Joe_Bloggs

The weather has been fantastic today. I'm not surprised that nobody has replied.

Quite a few members have beaten of their debts with a radical change of lifestyle and the sale of unused assets.

I think you will have to create a budget plan to figure out where the debt built up from ? Where are you spending more than you can afford at the moment? How you are going to put things right ?

The tax loan was most disturbing!

If the interest rates on your credit cards are extortionate
then somebody is going to have to get them down.

I don't think you will lose face by trying to negotiate yourself. The CCCS makes a useful fallback option if creditors fail to agree. However I am not an expert in these matters and I urge caution.

Martins Online Budget planner.
http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1089226742,17582,

Your relative can unlink his name if it is ever entangled with yours by writing to the credit reference agencies such as Experian and Equifax.
J_B.

DiggingOut

If you list your debts individually, including interest rates, minimum payments, and credit limits on your different credit cards, we can look it over.

The thing about debt is it takes money to clear (brilliant statement there, right? ). So the big question is, how much money is coming in, and how much is going out each month?

Leaving ALL your debt payments out of the picture, how much money is left after you have finished paying for everything else? Enough to make the payments? Anything more than that?

What can you do to increase your income or reduce your expenses? Time to think radically here.

Yes, CCCS is good, and a good fallback if you can't handle it yourself. It will be better if you can take control and get it sorted, but you may be beyond that point. But it is worth looking at to see if you can do it.

Can you sell stuff on ebay or at a car boot sale to get a little more money to pay off debt?

Lots of people have been worse off than you, and got it sorted in less than six years.

If your relative has the same address and the same surname it could affect him. One more reason to try to get it sorted out on your own.

Own_Feet

Thank you very much for replying - it's such a relief to be able to talk about this.

Joe_Bloggs: Yes, I agree about the tax loan, but I'm self-employed and simply didn't have the money to pay the bill. I knew I shouldn't take out a loan to pay a debt but couldn't see any other way out. I thought it was either that or prison!

I freely admit that I'm in this mess due to bad money management and that there's nobody to blame but myself. But I do feel I've finally woken up and am determined to get out of the mess.

Doing the CCCS interview meant I had to go through my income and outgoings, so I've now got something resembling a budget. The biggest area where I should be able to save is on my supermarket bill, which I expect to be able to halve.

I've also made small savings by, for example, cancelling the papers a couple of weeks ago - was spending £26 p.m. and not really reading the things anyway!

DiggingOut: Thank you so much for offering to look over my credit card situation. Here are the gory details:

Sainsburys's Bank visa: balance £3030, min. £91, interest rate 20.9% apr.
Tesco Visa: balance £4711, min. £279, interest rate 1.67% monthly (don't know apr).
Capital One Platinum Plus: balance £7630, min £153, interest rate: 0.482% pm (= balance transfer interest; I never spend on this card).

I'm paying £60 in payment protection to Capital One and £33 to Tesco per month - how necessary do you think this is generally?

After talking to the CCCS, I'm also wondering about my overdraft (£1500) as it's with the same people I have my loan with. The CCCS said that overdrafts are technically repayable on demand, so it was advisable to switch my current account. She may have meant this only if I took up the debt management plan, though - I don't know.

The ebay idea is a good one. I don't have many assets that I could sell, but I do have a stack of books, and I had been thinking about maybe selling them on Amazon.

I would certainly prefer to try and sort this problem out myself - I chose the name Own Feet because I've finally realised I've got to start standing on my own two feet when it comes to my finances. I just really went to the CCCS because I wasn't able to meet my minimum payments for the first time last month (someone hadn't paid a bill on time and I had nothing to fall back on) and saw from Martin's book that that could be the start of a much more serious situation - my way of starting to take charge! In the last couple of weeks, I've also opened a couple of savings accounts to try and start putting money aside for things like tax.

Thanks in advance for any input on the above.

Own Feet

Joe_Bloggs

@Own_feet
What interest are you paying on your loan and your overdraft ? What is your credit limit on your Capital One card.

Those Sainsbury's and Tesco cards are a disgrace.
Perhaps these rates can be beaten down by skilled negotiation.

Had you saved your repayment insurance for a year you would not be in this situation now. Easier said than done however.
Whatever business you are in, it does not appear to pay that well. You are running into cashflow and tax problems. You are your own boss. You might consider giving yourself the sack or changing the nature of your business. Maybe the recent experiences you have gained will help your business suceed in the future.

Lets hope Digging Out has something more construtive to say.
Regards J_B

Own_Feet

Joe_Bloggs: The limit on the Capital One card is £11,500, so I've got about £3,800 available on that. The interest rate on the loan is 17.0 apr, and I've still got 18 months to run on it.

Regarding my self-employment, the 'norm' in what I do is to be self-employed, and it's actually not particularly badly paid. It's not viable to change. It'd be fine if I wasn't in all this debt! The problem with cash flow is that I get payments at (in most cases) unpredictable times each month and the amounts vary. Tax is a predictable expense, of course, but I've got into difficulties there because my income is pretty much spoken for every month, without much (or certainly not enough) spare to set aside for tax.

Own Feet

Joe_Bloggs

That 17% rate loan is not that generous if it is from your own bank. They have exploited your situation to their advantage. Name them and shame them if it makes you feel better. I bet they don't advertise 17% interest rate loans.
I am out of my depth here but have you claimed all you can for business expenses.
J_B

Leia_Stephens

Hi Own_Feet

I am a little out of my depth with giving you advice on this myself, but I do have a suggestion: transfer your Sainsbury's Bank balance to Capital One, then you should only have a debt on 2 credit cards and you will have paid off a high-interest credit card . Once the Sainsbury's Bank card is completely paid off I suggest you cancel it.

Hope this helps.

Leia

DiggingOut

OK, there's a little room to work here.

First, Leia is right about transferring Sainsbury balance to Capital One, if they will allow it (they should, unless you missed your payment to them last month). This helps in two ways.

First, it gets debt from a 20.9% card to a 5.9% card. This is always good. Second, it will reduce your payments -- Sainsbury wanted 3% a month, Capital One is only taking 2% of your balance a month. So your Sainsbury payment of £90 / month will go away, while your Capital One payment will increase by £60 / month. That doesn't mean you have £30 to spend! It means we have £30 / month more to work with.

Next, don't cancel the card. Call Sainsburys Bank and tell them you are considering cancelling the card, but you wanted to know if they had anything better to offer you than what you currently have, a 0% on purchases or a good balance transfer, for instance. They may offer 0% on purchases for 12 months (they have that going currently for new customers, I think) or a good balance transfer deal. If they offer either of those, take them up on it. If not, be polite (politeness costs nothing) and thank for their time, but don't close your account with them.

If they offer you a balance transfer at anything less than 15%, tell them you have £4700 on Tesco and ask if they would increase your limit to take that much.

If they offer you 0% on purchases for a time, or even if they don't offer you anything, use that credit card for everything you buy. HOWEVER, don't buy anything with it unless you already have the money to do so. When you buy something, get the money out of your current account immediately so you don't forget that it is spent.

Put the money in a savings account, so that you have it available when needed to make payments on the card.

If you don't get 0% on purchases, pay the balance in full each month (you'll have the money in savings to do that).

If you do get 0% on purchases, keep 1/4 of the cost of purchases in savings to handle monthly payments for a while, and use 3/4 as extra payments on the Tesco card. You will be moving debt from 20% to 0% (at least until the 0% period runs out) by doing this. Note I said EXTRA payments on Tesco -- this is in addition to the other payments you would be making.

You also have that £30 / month I mentioned above that you can use as an extra payment on the Tesco card.

None of this solves the problem -- but it certainly helps. The big problem is finding ways to increase income or reduce expenses. You are self-employed -- can you work more?

Now regarding your £93 / month in payment protection. What exactly does it cover, and what does it provide? I would be willing to guess that part of the cost of that cover is because you are buying insurance against redundancy -- and that it will not cover you because you are self-employed. So if you lose your work, you probably won't be covered. The only thing it is likely to cover you for is illness/injury which makes it impossible to work.

Now, I hate bankruptcy, and never ever want to see anyone go that way, but if you have an illness or injury that makes it impossible for you to work, I suspect with your debt you will end up in bankruptcy, whether you have these two payment protection plans in place or not.

In other words, I think they are a waste of money in your case. Now that is only my opinion, and I could be very wrong. But without knowing the exact details of your protection, I would be strongly inclined to cancel them and use the £93 / month against the Tesco card.

J_B is right, your loan rate is very high, but the Sainsbury and Tesco cards are worse. Until you can get them sorted, the loan is just something you are going to have to live with.

I've been focused on the Tesco card here, but the overdraft is important, too. Are you paying interest on it? If so, some of the extra payments I suggested putting towards Tesco could go towards reducing the overdraft instead.

Did you actually miss payments last month on all your cards? Has your credit rating been good up to this point?

Own_Feet

Thank you all for your suggestions J_B, Leia and DiggingOut!

DiggingOut, it was really good of you to work all that out! I'm *extremely* grateful to you. I managed to transfer the Sainsbury's balance to the Capital One card today, so that's a start. Haven't had time to phone Sainsbury's yet to negotiate, but I will do.

I didn't cancel the payment protection in the end, because, after talking to someone at Capital One, it seems that it covers not only redundancy (which, OK, wouldn't apply to me), but also sickness/critical illness, etc - in those situations, it not only covers your minimum payment but also pays you BACK 10% of your outstanding balance per month, apparently. The chap seemed to think it was *particularly* important for self-employed people and especially with that size of balance. This was what swung it for me, because I couldn't bear anyone else being saddled with this on my behalf. It's a little peace of mind in a scary situation.

Was there any reason why you didn't suggest trying to transfer the Tesco balance to a 0% card?

I'm not sure off-hand what the interest rate on my overdraft is but it is supposedly "preferential" (a pretty meaningless term, probably!) - I pay about £6 interest a month, anyway.

Yes, I may be able to take on more work, and I will also be putting my charges up - that's overdue.

Best wishes

Joe_Bloggs

It might be tricky getting a new 0% card with the debt you have and recent credit history. You may be able to turn you now cleared Sainsbury's card into a 0% deal or one better than Tescos. Then you can transfer the Tescos debt to the Sainsbury's card and then negotiate a better deal with Tesco.

Digging Out might have other ideas and insights.
J_B.