Debt problems - questions about DMP and IVA

TooMuchDebt_2

Hi all,

I've read through countless posts on here and you all seem to offer a warm and wonderful support for all the people in similar situations to myself - in debt and scrambling like mad to get out of it.

Here is a bit of background about me... I am 24 and have been working full time in a software developer role for three years after graduating from university.

My problems started when I was at university. I took out a student loan and used it to buy a car to get me to and from university, in addition to funding other neccessities like food and accommodation. The student loan didn't need to be paid back until I started work, and at that point in my first year at university it seemed like a lifetime away. I was also encouraged to apply for a credit card to 'enhance my credit rating' for the day that I needed to apply for large credit i.e. a mortgage.

So away I went and applied for my first credit card - an Egg VISA. Everything was great - I didn't have to work as I could 'afford' things by buying on credit. It was stupid, but I didn't realise this until years later when I had amassed around £10,000 on credit during my time at university. Still, I didn't think it would be a problem as I would get a job and pay it all back. Unfortunately things aren't always this simple and once I had a job I wasn't able to pay enough off due to living costs that I wasn't aware of naively. In short, I was just getting by paying the minumum payment each month and essentially paying around 80% interest and 20% capital.

After that things didn't seem to matter so much, I ignored however much I owed and just concentrated on the monthly payments so I got another card, and then another etc. In the end I was paying off cards with other cards and loans and things were getting from bad to worse. I cut up all my credit cards months ago as I realised that I wasn't helping myself at all. My major lightbulb date was this Monday just gone when my debit card was refused due to insufficient funds. I haven't felt so ashamed in all my life, not being to afford *anything* and broke. It's only 2 days until pay day, but still it has brought home to me just how close to the wire I am.

I have to say that I didn't use credit for entirely reckless things; I also used it to pay for resources for my university course and also spent quite a bit on training for courses outside of university. I graduated with a 1st class degree in Computer Science, and I am also a Microsoft Certified Professional holding MCAD, MCDBA and MCSD certifications.

My monthly income is around £2000 and my outgoings are:

Rent 725
Council Tax 150
Electric 150
Sky 15
Food 200 (for 2 adults)
Home insurance 15
Mobile 15
BT line rental 10 (broadband is free)
Car finance 150
Diesel 200 (60 miles a day round trip to work)

The rent and council tax are too high and we will be looking for somewhere else to rent in February when our contract ends.

My current creditors and amounts are:

Loans

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Creditor | Current Balance | Interest Rate | Monthly Payment

Student Loan £9000 3.2% £150
Cahoot 11286.26 5.6% pa £172.21
Egg 8814.08 7.7% pa £151.04
AA 8275 7.4% pa £213

Credit Cards

---

American Express £5322.58 14.9% pa £134
MBNA £6315.58 15.9% pa (0% until January 2007) £106.84
Sainsbury's Bank £2500 15.9% pa (6.9% for life of balance) £100
Barclaycard £2905.65 22.9% pa (2.9% for life of balance) £65

Overdrafts

---

Barclays 5000
Smile 1400
Halifax 700
Royal Bank of Scotland 700

So in total I owe quite a bit and right now servicing this debt is proving to be quite difficult. I would like to pay back the whole amount, but I don't see an easy way to do so. I would welcome the debt management plan option, but I'm concerned that this isn't bound by law nor contract and the creditors could reel this in at any time.

I have read around on some other threads and saw the recommendation that you make token £1/£2 payments to all of your creditors.

If you pay credit cards and loans via direct debit, I assume that you would cancel the direct debits and manually make payments of £1/£2 to the credit cards. How would this work for loans?

What is the purpose of the token payments? Is it to prevent you defaulting on your monthly payments? If so, wouldn't you be doing this any way as you aren't meeting your minimum payment? In the T&C's of many credit cards it says if you don't meet their repayment terms then they can demand the full amount back from you in one go.

If you went down the route of a Debt Management Plan which has not binding contract, couldn't some creditors demand the full repayment and if it wasn't repaid then refer the debt to a debt collection agency which may in turn force you into bankruptcy? A DMP in this instance seems more risky than an IVA which is bound by a contract.

I have also seen people say that a creditor has agreed to freeze their interest on a DMP for 6 months. What use would this be in the general scheme of things if they reverted back to charging the interest payments after the 6 months?

After the IVA period has elapsed can the creditors chase you or sell your debt to a third party to chase up? I have read that if you go bankrupt then after the banktuptcy period (5 years) the creditors can start chasing you again. This seems completely against the point of being bankrupt in the first place. I was wondering if the same applied to an IVA? Does the entire debt get wiped out after the IVA period regardless of how much you have paid off in that time?

I am not keen to go down the bankruptcy route as it may impact my future career moves. The only options I see right now are a DMP and an IVA. I am favouring an IVA and it guarantees that I will be debt free after the IVA period. I really want a fresh start. I know I haven't budgeted well in the past and have had a lax attitude (always tomorrow..) with regards my finances, but I now know I have been stupid and know I can put it right if given the chance. As a start I have cut back on non essential items and am using Microsoft Money 2005 to budget for the month.

I don't want any form of credit ever again, apart from a mortgage. I want to be able to buy only what I can afford and what is within my budget. I can't see myself buying a house within 5 years due to the ridiculous prices, so I would likely apply for a mortgage after the IVA period (if I went down that route) if house prices became more reasonable. Once the IVA period has finshied, at what point is the IVA erased from my credit history? Will it be the day the IVA finishes, or a few years after the completion of the IVA? Will I likely have trouble getting a mortgage after this time?

Finally, having spoken to PayPlan tonight, they advised me that I might not be able to go down the IVA route as my partner is currently out of work. She has been temping since graduating last year because she can't find a permanent role related to her degree. Hopefully she will start another job soon, so I don't see why an IVA would be rejected for this? If I am not eligible for the IVA then I fear my only option would be bankruptcy as I can't possibly see the DMP working given the amount I owe.

As an aside, I have started my own software development business primarily aimed at creating database driven websites and other misc. software for businesses. Hopefully this will generate some extra income if I can do one website per month. I am also considering working weekends at a retail store if needbe.

Thanks for any help I'm trying to stay positive but sometimes it seems like there is no light at the end of the tunnel.

justruth

whoa go back one min, i'll read the rest in a min £150 a month for electric and £200 food for 2 adults?

CLAPTON

what is the total of your spending

what is the total of your debt
what is the total of your monthly debt repayments

there are two of you ...what is the other persons income?

justruth

OK so what are the actual APRs on the Barclay card and the sainsbury's card, do you have the lower rate?

Also whats the APR on the overdrafts and how much a month are they costing you in interest?

TooMuchDebt_2

justruth wrote:

whoa go back one min, i'll read the rest in a min £150 a month for electric and £200 food for 2 adults?

Yes, our fixed direct debit with Scottish Power is £143 however last month we only used £90. We schedule the dishwasher and washing machine to run when the cheap rate kicks in. We don't have any gas so everything is powered by electric - shower, hot water, heating etc.

The food is based on £50 per week, although this is an estimate. We are working on our shopping budget, so should be able to reduce this to around £30. I don't know what is reasonable here so any advice would be helpful.

TooMuchDebt_2

justruth wrote:

OK so what are the actual APRs on the Barclay card and the sainsbury's card, do you have the lower rate?

Also whats the APR on the overdrafts and how much a month are they costing you in interest?

Yes I am on the lower rate for the Sainsbury and Barclay cards.

The APR on the Barclays and Smile overdrafts is 9.9%. Halifax is 15.9%, RBoS is 9.4% (EAR)

TooMuchDebt_2

CLAPTON wrote:

what is the total of your spending

what is the total of your debt
what is the total of your monthly debt repayments

there are two of you ...what is the other persons income?

My partner is not earning anything at the moment as she finished a temping job 2 weeks ago. She is actively looking for other jobs right now but is not having much luck. She was earning £1000 per month after tax.

msmicawber

Hi,

Well done for posting your SOA, but it doesn't appear to be complete since you have included nothing for car servicing, tax or insurance, nor have you included anything for clothes, presents.

I make your total debt £62,219.15, and just paying the minimum payments on the credit cards, without even touching the overdrafts, £1,092.09 per month. What can you sell to try and reduce the debts? Could you get a second job? Your partner needs to get another job asap - doing anything no matter what degree she has - since you simply cannot afford to support her when you have this level of debt.

Why not contact CCCS and ask for their advice on how to deal with your situation. If they also tell you that an IVA is not possible, then you'll have to look at the alternatives. Provided you don't default on any of your debt repayments I cannot how anyone could call in the debt suddenly - it wouldn't stand up in Court, surely?

msmicawber

I'm sorry, I just re-read my post and it looks very businesslike and unsympathetic, which I definitely didn't intend.

TooMuchDebt_2

msmicawber wrote:

Hi,

Well done for posting your SOA, but it doesn't appear to be complete since you have included nothing for car servicing, tax or insurance, nor have you included anything for clothes, presents.

I make your total debt £62,219.15, and just paying the minimum payments on the credit cards, without even touching the overdrafts, £1,092.09 per month. What can you sell to try and reduce the debts? Could you get a second job? Your partner needs to get another job asap - doing anything no matter what degree she has - since you simply cannot afford to support her when you have this level of debt.

Why not contact CCCS and ask for their advice on how to deal with your situation. If they also tell you that an IVA is not possible, then you'll have to look at the alternatives. Provided you don't default on any of your debt repayments I cannot how anyone could call in the debt suddenly - it wouldn't stand up in Court, surely?

I've got together a number of things to sell on eBay which should raise enough to pay off one of the cards.

Clothes, shoes etc. aren't on the list because we very rarely buy them. I paid £600 for the car insurance in April, so that makes it £50 per month.

I have explained the situation to her and she is looking for any position right now regardless of what area it is in.

justruth

Rent 725
Council Tax 150
Electric 150 do the street lights come out of your supply??? Or is this an old debt to be paid off? Turn everything off at the plug when not in use, get energy saving light bulbs etc, also get an up to date meter reading and try uswitch (through one of the cashback sites)
Sky 15 Cancel this you can't afford it
Food 200 (for 2 adults)you can get his down!!!£100 would be a lot in my opinion
Home insurance 15
Mobile 15
BT line rental 10 (broadband is free)
Car finance 150
Diesel 200 (60 miles a day round trip to work) perhaps when you move you can move nearer to work

Total you currently pay out before debt is £1655

The rent and council tax are too high and we will be looking for somewhere else to rent in February when our contract ends.

My current creditors and amounts are:

Loans

---

Creditor | Current Balance | Interest Rate | Monthly Payment

Student Loan £9000 3.2% £150
Cahoot 11286.26 5.6% pa £172.21
Egg 8814.08 7.7% pa £151.04
AA 8275 7.4% pa £213

Total you currently pay out on loans is £686.25

Credit Cards

---

American Express £5322.58 14.9% pa £134
MBNA £6315.58 15.9% pa (0% until January 2007) £106.84
Sainsbury's Bank £2500 15.9% pa (6.9% for life of balance) £100
Barclaycard £2905.65 22.9% pa (2.9% for life of balance) £65

Total you currently pay out on credit cards is £405.84

Overdrafts

---

Barclays 5000 Assuming £70 in interest a month
Smile 1400 Assuming £19 in interest a month
Halifax 700 Assuming £10 in interest a month
Royal Bank of Scotland 700 Assuming £10 in interest a month

Total you pay out on over drafts a month 109

By my calculations you are overspending by £856.09 every month!

1. Get the spending down for a start.

2. Sell every single item that you don't use on ebay/amazon/the local paper.

3. Write to your crediters with your SOA, and offer a reasonable amount including a cheque with this amount.

4. See if you can move before February and tell the landlord that you're struggling to pay, they'd sooner let you out of a contract early than have a tennant who can't pay in my experience.

5. Well done on coming to tackle your debt!