Some advice please

devilonmyshoulder

Hi guys,

I've struggled to get out of debt for some time, and would greatly appreciate some advice before my next move.

I am about to write to my bank following advice from Payplan and tell them to freeze the interest on my credit card and accept what I offer them, which will be an appropriately low digit, as my situation has changed to being unemployed. I also have two loans which will suffer the same fate. The card is the main priority, same old story of paying the interest and not touching the balance. It's maxed out at about £6750, I've paid them between £150-200 a month for years. I have tried three times to extend my loan to pay it but they really smugly wouldn't play ball, I was also rejected other lower interest credit cards. The reason is I have too much credit/finance (there is a lot, two vehicles and the two loans - on all of which I have never missed the payment I might add). The loans are at £4095 costing £135 p/m and £3180 costing £125 p/m. They are at least going down, albeit slowly!

So my thinking is this - I open a different account somewhere else so I control my dough, write the letter, accepting that my too much credit turns (temporarily?) to bad credit in return for being able to save up and pay them off, with the interest frozen. I don't have any assets they can come and take, and will be earning enough to be chipping away at all three nicely very soon.

But am I underestimating having a poor credit rating? For example will it affect me renting somewhere with my girlfriend (she has flawless credit)?

Also does my credit go back up once I've cleared the debts - how soon?

And would I be best just applying this method to the card alone and keep the loans clean? If so, why? Remember I'm already out of credit.

It seems too good to be true to me (hence the post!), like I'm finally playing the bank at their own game. Any advice would be greatly appreciated, I'm determined to get out of this mess, it's been controlling my life for far too long and it's truly liberating even to have a plan at this stage. I'm remaining positive from now on!

Props to you guys who give out advice and put this site together, it's excellent.

Thanks!

rugbymum

Hi
It's very late/early and I'm a bit addle brained at the moment, but I didn't want to read and run!
I think the first thing to do is post a full SOA (there is a link at the top), there are many great minds on here who will offer advice & suggestions.
Secondly, are you sure you've had your "lightbulb" moment? Wanting to bite the bullet, sort out the debt completely, rather than trying to play one-upmanship with the bank?

rugbymum

Answers to your questions......
If you write to all your creditors offering pro rata token payments, your credit rating will be stuffed for six years from date of default. Creditors will also take a very dim view of you favouring any one creditor over the other, either do it fairly or not at all.
You will need to open a new bank account with a bank that has NO connection with any of your debts.
It's far to soon to be worrying about assets!
Renting with your girlfriend is something you will need to look at, a poor credit rating will affect some rental agreements, not others!

Tixy

Hi and welcome

devilonmyshoulder wrote: »

Hi guys,

I've struggled to get out of debt for some time, and would greatly appreciate some advice before my next move.

I am about to write to my bank following advice from Payplan and tell them to freeze the interest on my credit card and accept what I offer them, which will be an appropriately low digit, as my situation has changed to being unemployed. I also have two loans which will suffer the same fate. The card is the main priority, same old story of paying the interest and not touching the balance. It's maxed out at about £6750, I've paid them between £150-200 a month for years. I have tried three times to extend my loan to pay it but they really smugly wouldn't play ball, I was also rejected other lower interest credit cards. The reason is I have too much credit/finance (there is a lot, two vehicles and the two loans - on all of which I have never missed the payment I might add). The loans are at £4095 costing £135 p/m and £3180 costing £125 p/m. They are at least going down, albeit slowly!

You can sadly only ask them to freeze interest. They often will if they can see that you are genuinely paying all you can afford - but they cannot be forced to.

So my thinking is this - I open a different account somewhere else so I control my dough, write the letter, accepting that my too much credit turns (temporarily?) to bad credit in return for being able to save up and pay them off, with the interest frozen. I don't have any assets they can come and take, and will be earning enough to be chipping away at all three nicely very soon.

They'll likely only freeze interest after seeing a statement of affairs to show that you are paying all you can, that you are not spending on luxuries etc and you won't have any breathing space to start saving up large lumps sums.

You say you will be earning enough very soon - do you mean you are expecting a payrise - if your circumstances changed you would be expected to recalculate how much you can afford to pay your creditors each month, ie more salary usually means more to pay to creditors.

But am I underestimating having a poor credit rating? For example will it affect me renting somewhere with my girlfriend (she has flawless credit)?

Most rental agencies do do credit checks, and yes having several defaults will affect your chance of renting a place. You might be asked for a guarantor or your girlfriend might be asked to rent the place in her name only (assuming her credit check shows she could afford to pay the whole rent). The other request would be to pay 6months rent up front - but that doesn't sound like it will be possible in your case.

Also does my credit go back up once I've cleared the debts - how soon?

Not really - once you have defaults they stay on for 6years and will seriously affect your chance of getting any high street credit. Once paid off you can get them to mark them as settled defaults but it won't improve things by much. If one of your creditors decided to be difficult and took you to court then a CCJ would stay on your rating for 6years from the date of the CCJ (so in theory you could get a default after 6months, then might be taken to court after 2years (if not fully paid by then) and so could have a trashed rating for 8.5years or so.

And would I be best just applying this method to the card alone and keep the loans clean? If so, why? Remember I'm already out of credit.

No - you will have no chance of having interest frozen if you favour some creditors over the others - you need to treat them all euqally and pay a fair pro-rata monthly payment to each.
If you have an overdraft you need to do the same for this, including this in your list of debts and your calculations of pro-rata payments.

It seems too good to be true to me (hence the post!), like I'm finally playing the bank at their own game. Any advice would be greatly appreciated, I'm determined to get out of this mess, it's been controlling my life for far too long and it's truly liberating even to have a plan at this stage. I'm remaining positive from now on!

Props to you guys who give out advice and put this site together, it's excellent.

Thanks!

I think the plan as you have written it down sounds to good to be true as it is. I think you might need to speak to Payplan again, or one of the debt charities to get a better understanding of how the banks will react to your reduced payments.

What I think would be useful is for you to write out a detailed statement of affairs to show how much you think you can afford for debt repayments. If you post the results on here people will be able to help and advise as to what a bank will accept as reasonable expenditure and what they won't.
Here is the calculator we use - http://www.makesenseofcards.com/soacalc.html

devilonmyshoulder

Hi, Tixy and Rugbymum, thanks so much for replying guys.

I'm really not trying to play one upmanship here, just clear the debt!

Basically, technically I'm unemployed, my income in the SOA (below) is a grand as I have that stashed, but it could be presented as 0 to the bank if it would make them freeze the interest (giving me a chance to actually pay the bloody thing off). I have a job offer as a business consultant which could put me back on a decent salary of a couple of K a month but it's not guaranteed yet, or I could go back on tour, I have offers in the music industry from the good old days. But for right now, lets assume I get real unlucky and nothing comes off.

I realise I might sound a little dodgy, I'm just trying to get the maximum out of my situation. I created those debts and intend to pay them off (as I said I've always made the payments on everything for years and years), but just want to be as effective as I can be.
Below is the SOA:

Statement of Affairs and Personal Balance Sheet

Monthly Income Details
Monthly income after tax................ 1000
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 1000

Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 659.9
Rent.................................... 150
Management charge (leasehold property).. 0
Council tax............................. 0
Electricity............................. 0
Gas..................................... 0
Oil..................................... 0
Water rates............................. 0
Telephone (land line)................... 0
Mobile phone............................ 75
TV Licence.............................. 0
Satellite/Cable TV...................... 90
Internet Services....................... 0
Groceries etc. ......................... 0
Clothing................................ 0
Petrol/diesel........................... 60
Road tax................................ 0
Car Insurance........................... 50
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0
Haircuts................................ 0
Entertainment........................... 100
Holiday................................. 0
Emergency fund.......................... 0
Total monthly expenses.................. 1184.9


Assets
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 13000
Other assets............................ 0
Total Assets............................ 13000


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 0........(0)........0
Hire Purchase (HP) debt ...... 24130....(359.9)....13.4<
Bike...........................1200.....(300)......0
Total secured & HP debts...... 25330.....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
credit card....................6712.69...142.......19.9
loan 1.........................4093.36...132.......15.4
loan 2.........................3180.53...124.9.....24.9
Total unsecured debts..........13986.58..398.9.....-


Monthly Budget Summary
Total monthly income.................... 1,000
Expenses (including HP & secured debts). 1,184.9
Available for debt repayments........... -184.9
Monthly UNsecured debt repayments....... 398.9
Amount short for making debt repayments. -583.8

Personal Balance Sheet Summary
Total assets (things you own)........... 13,000
Total HP & Secured debt................. -25,330
Total Unsecured debt.................... -13,986.58
Net Assets.............................. -26,316.58

I'm living with family for a couple of months, hence the low costs

chivers1977

I don't really understand the debts. Do you have 2 cars and a motorbike? What is the HP for? There must be a way that you can sell one of the vehicles?

Also your mobile phone bill and satellite are huge? Any way you could reduce them?

Tixy

The £1000 is not your income, its an asset. Are you claiming JSA currently? If you were sending a statement of affairs to a creditor then you need to be accurate and honest.

You could send them a statement of affairs for this month and next which shows you can only afford token payments but it can often take a couple of months for a creditor to agree to freeze interest. So all that is likely to happen is your creditors will issue you with defaults.
Then once you have the job or self-employment income you would need to show a new SoA and would then need to increase your monthly repayments. If this took you back over the normal minimum payments then you would be expected to pay these and they would continue charging interest. So all that you would have done is made a huge dint in your credit record and had a couple of months paying token payments.

Your statement of affairs needs to count all your expenses that you would expect over a year, divided by 12, so you need to account for road tax and car maintenance etc. You'd be expected to have groceries even if you had no housing costs etc aside from the rent. A creditor would probably consider that you mobile and paid tv costs were far too large to be considered 'reasonable'.

Is your HP debt of £24k secured on a car worth £13k? Do you also have a debt secured on a bike? something doesn't seem to look quite right there. Do you have an overdraft (that you are using?).

You don't have to supply creditors with proof of income / or unemployment etc but if your creditors do not believe your figures they may decide to take you to court and you would need to provide proof of all your financials.

If any of your debts are with your current account provider don't forget they will be able to check what money has been going in and out that account and will see if it ties in to your SoA - or if it doesn't that you have given adequate explanation.

When people use one of the charities to do a DMP they do expect to see proof of income etc before they start negotiating for you to make reduced payments.

devilonmyshoulder

One car and a bike. The bike's almost paid off, but it's pretty much my favourite thing in the world, plus I need the vehicles to make money. The phone bill is an average, sometimes lower but vodafone have me trapped in a contract. The tv is for a big package and is also part of my contribution to my folks, so not really.

Thanks Chivers