Stupidly in debt and need help to find best way out please!

stupidlyindebt

I have read the threads on this board with interest and would be very grateful for any help you can give to me.

After a previous good credit history, I have spiralled into debt quickly after a 4 month illness during which I stupidly put my head in the sand where my money was concerned.

My position is not the worst in the world and I feel ashamed for being here after reading stories of so many others worse off than me. But the problem is acute and I would be so pleased to receive your opinions on what my best next course of action is.

My monthly net income is £2100. I am single with no dependendents and so have few outgoings.

My bank has filed a default on my credit card balance of £4900 after 4 failures to make payments.

The same bank has also withdrawn my overdraft facility and returned all my standing orders so although my salary only went into my account last Friday, I am £1100 into an unauthorised overdraft with no means to pay my bills or reinstate my direct debits. I do not get paid again until 31 August and am being urged to repay the debts now.

I already have a mortgage (worth 90,000 on a 125,000 property) and an unsecured loan outstanding at £17500 at a rate of 6.9% APR with the same bank . The bank has made sure that all payments to its own accounts, ie the mortgage, insurance and loan have been paid, so I am in no danger of losing my home.

I asked the bank for a further unconsolidated loan of £8000 to cover the overdraft/credit card/unpaid bills and living expenses til the end of the month. Although this would mean a lot of unsecured debt, my income is high enough to cover repayments. However, all the bank is willing to offer is to consolidate all of my debt into one consolidated loan at a premium rate of 11.25%. That means that not only would interest on the new debt of £8000be 11.25%, but that the rate on the old debt of £17,500 would increase from 6.9% to 11.25%.

I have a full time permanent job with a monthly net income of £2100. (I know – there is no reason to have ever got into this position in the first place. In these circumstances I don't know if I should be afraid of secured debt.

Although my unsecured debt is high (Currently £17000 outstanding on an original £21500 loan) I took the loan to renovate a house and before my illness was comfortable making the repayments. I would still be comfortable to make repayments, but have made this mistake and ruined my credit record and now just want to get the best deal possible to get out of this mess.

I made an application to a mainstream lender yesterday but was declined. I then spoke to moneysupermarket.com who have passed me to a secured loan company, recommending that, since I should have no problem making repayments, that this would be my best bet.

The only options I can see are:

1 Take a consolidated loan with my bank which would mean a total debt of £25000 at a rate of 11.25%

2 Retain my current unsecured loan with the bank (£17000 outstanding at APR 6.9%) alongside a secured loan for £8000 at an as yet unknown APR – I don’t want to process the application before getting your advice.

I wonder if I have any other options – eg the option of negotiating with my bank/creditors to find another way of making the repayments on the money I owe? However, this would not help me to pay the bills and direct debits that are now already in arrears for this month.

I have a headache and am shaking thinking about all this. I would be very very grateful for any help.

kathfisch

First things first, ((hugs)) to you! You've taken the first (and hardest step) by taking your head out of the sand and posting here so well done :T

I'm not sure what to advise about your situation, it does seem that you only need something to get you out of this downward spiral of overdraft/non-payment/charges. You say that you will be able to afford the repayments on a loan to consolidate the whole lot but I'd urge you to be very sure about this before you do take out a loan (which obviously you're having trouble doing anyway).

Are you fully back at work now and expect to be earning that amount for the forseeable future (i.e. are you in good health now and not anticpating any replapses)? Because you may choose the consolidation route but if you become ill again you'll be back to the same situation if not worse.

Did you have payment protection insurance or anything similar on the loans you took out or through any other route? If so, have you tried to claim for the time you were off ill?

We don't normally advise consolidation loans when people are struggling, it is often best to call payplan, CCCS or the CAB and negotiate lower repayments with your creditors, on a long term basis. It doesn't sound like you need that long term though, so I'm not sure what to advise. Someone will hopefully be along with some suggestions.

Having said that, all the organisations above (they're the free ones!) won't charge you anything for their advice... it can sometimes be a long wait to get to speak to them but it can't hurt to give them a call. They're very understanding and will be able to point you in the right direction.

Sorry this has been a bit waffly and not much help!

Good luck to you and keep posting!

Kath x

Queen.Bess

Hi! Welcome to MSE! You WILL be helped here, so you have come to the right place. Read SouthernScouser's 'sticky' about First Time Posters, including details of how to create a Statement of Affairs - a breakdown of all your income and expenditure. This will then give otehrs on here a chance to see where you could be saving money and helping you get debt free.

Don't worry, please don't stress, you have now started the road to being a DFW!!

stupidlyindebt

Thanks so much for your kind response.

Although I was ill I took no time off from work and no one really knows how run-down I was feeling. I am able to work from home, and I got very wrapped up in work, at the expense of my health and everything else. My job is safe and I have learned my lesson and booked some leave to get myself straight. In any case I have income protection cover, which would kick in in the event of illness.

Although my debts are comparable with others who have gone down the Paypal/CCSS route, my circumstances are different in that I earn a good salary and I took the initial loan to renovate a house - I have increased the value of the house by more than the loan, so I do not feel 'hard done by' or that anything has crept up on me.

I have simply reacted very badly to a difficult personal time and have created an acute problem for myself.

To be honest, I am so angry with myself and if this situation teaches me to be more vigilant in future then I think it might be no bad thing. But I want to make the best and most moneysavin g decision I can, to move forward.

One thing that I have thought might be helpful is to get a fixed payment loan that I am comfortable with and then, once the shock is over, work on my SOA and cut costs wherever possible and whack extra payments on my mortgage whenever I can, in order to try to make good the situation...

But that is for later. Now I just need to decide the best next step.

Thanks again for your help and I hope others will offer advice too.

xx

kathfisch

I was just thinking that actually... it might seem bad to take a rise in interest rate to get the consolidated loan but if it would help you to get back on your feet then perhaps you could cut back your expenses as much as possible and save up any extra... for your mortgage as you say or as a lump to pay off the loan early.

You sound very self aware and level-headed, I'm sure you will make the right decision and get yourself out of this situation.

Please don't hate yourself... if we never made mistakes we'd never learn anything. You're resolving the situation you've created and hopefully some time off will really help you.

Best wishes

Kath x

EagerLearner

Hi Stupidlyindebt - I hope this spreadsheet will help you out - designed to work in addition to Martin's excellent budget planner:

http://forums.moneysavingexpert.com/showthread.html?t=238575

Money Pots will become easier, as will 'frills' spending - easier to keep track of when you have a spreadsheet to log everything in...

stupidlyindebt

Thank you all so much.

Am feeling rightly cross with myself but trying to be pragmatic and avoid self-loathing.

I guess that the future is looking manageable, I just need to decide which option - (1) consolidation of all debt into one unsecured loan, or (2) taking one secured loan alongside my existing lower interest one?

Queen.Bess

As you will read elsewhere on this site, consolidating your loans are not recommended. You would have to be so careful if you were to go down that route. I am hoping that Sourthernscouser or Lynzpower et al will be around soon to give you more advice

duncans-mum_2

Hi and welcome.

Firstly, do not beat yourself up about this. If I have read your post correctly, you have only got in some difficulty over the past four months. Some of us on here have had these issues for years before actually confronting them, so well done for having your lightbulb moment so soon.

As a previous poster suggested contacting payplan/ccs for their advice would not hurt. I personally would try and avoid consolidating, especially to a higher interest rate. To make sure you have control over your own wages, perhaps try opening another current account ready for your next wage, even if its just a basic one that will allow standing orders just to get you over the initially spiralling. If you have been charged by your existing bank for failed standing orders/direct debits, claim these bank (look on martins homepage on reclaiming bank charges) and this will help a little to your towards your arrears.

If you contact your creditors to explain the situation they may be able o help in the shorterm. perhaps continue with the monthly payment and then a bit extra to clear the arrears over the next few months. You may be have to tighten your belt a bit for the short term but if you post your SOA, we may be able to help you with that.

stupidlyindebt

Thank you. I'm just scared of what will happen if I don't get money into my account to cover this month's bills. Eg, my car insurance is no longer valid, and if I don't sort that out quickly I won't be able to get to work. I just can't see another way out than to get some money into the account so that I can pick up my payments again.

The situation is so ridiculous that I don't even have sufficient credit to pay to see my credit report online and see how much of a hit I have taken! I have some cash in my purse, so am not about to starve, but need to take some pretty urgent action

Oh dear, if ever I felt like sticking my head back under the covers then the time is now.... I am so glad for your support and can hardly believe that complete strangers would do this! (If only you all worked for my bank...)

stupidlyindebt

Sorry to keep posting so frequently but my mind is spinning.

What I want out of all this is to resolve my problem as quickly as possible and with the least impact for my future credit record.

This may sound a trivial thing - but would it be worth asking the credit card services people whether they would be willing to remove any default from my credit file as part of a deal to make full payment?

What I mean by this is that, it might feel more worthwhile going down the secured loan route, if it meant that at the same time, I might 'repair' my credit rating and so be eligible sooner for better//alternative forms of credit, eg future mortgage switches etc.