A friend in need is a friend indeed....

millyweeble · 28 February 2011 at 5:15AM

Hello Everyone,

I have a dear friend who has just told me of their financial situation...worrying is not the word. I wondered why they were so distant recently and therefore asked them. Please, if you have any advice you could impart, it would be most welcome...

According to my friend, they have 4 credit cards, the balance of said credit cards amounts to £40,000.00!!!! All credit cards have no tie-in, i.e., they can move money from place to place. More details as follows:

Credit Card 1 = CC company have reduced the credit limit. Balance still within credit limit.
Credit Card 2 = CC company have just increased %age being charged to 26% from 14%. Paying minimum repayments = Balance is increasing month on month.
Credit Card 3 = Paying minimum repayments = Balance is increasing month on month.
Credit Card 4 = Paying minimum repayments = Balance remaining the same.

Please, if you can help, please do!

All the best,

Milly

P.S. I only have part information from a discussion my friend and I had. If necessary, I'll try and get further information, if required.

Paulgonnabedebtfree · 28 February 2011 at 5:59AM

millyweeble wrote: »

Hello Everyone,

I have a dear friend who has just told me of their financial situation...worrying is not the word. I wondered why they were so distant recently and therefore asked them. Please, if you have any advice you could impart, it would be most welcome...

According to my friend, they have 4 credit cards, the balance of said credit cards amounts to £40,000.00!!!! All credit cards have no tie-in, i.e., they can move money from place to place. More details as follows:

Credit Card 1 = CC company have reduced the credit limit. Balance still within credit limit.
Credit Card 2 = CC company have just increased %age being charged to 26% from 14%. Paying minimum repayments = Balance is increasing month on month.
Credit Card 3 = Paying minimum repayments = Balance is increasing month on month.
Credit Card 4 = Paying minimum repayments = Balance remaining the same.

Please, if you can help, please do!

All the best,

Milly

P.S. I only have part information from a discussion my friend and I had. If necessary, I'll try and get further information, if required.

Re credit cards.

CC1: No problem. They are allowed to decrease limits. They have not decreased the limit to a point below current balance so no issue.

CC2: In spite of the rate increase, if the card is unused, the balance should still be going down very slowly. As the rate has only just increased, it may be that the higher minimum payment doesn't kick in until next month.

CC3: Minimum payments should bring the balance down each month - even if very slowly. This assumes that the card is unused.

CC4: Same as CC3.

I believe that for many companies, minimum payment taken each month is interest+PPI+charges+1% of debt. This is probably not exact but that's the gist of it. This means that a debt should be reducing by at least 1% each month in such circumstances (some companies take more). I do have a card with a lowish interest life of balance deal where 1% is taken and interest is added on after that so clearly the above is not universal.
Whichever way they do it, the debt on an unused card should decrease each month - even if only a tiny amount.

Firstly, it would be better for the cards to not be used in a borrow from Peter to pay Paul scenario (unless that Paul is me

).
Secondly, is PPI being paid. Some companies charge this each month without the awareness of the customer. Stopping this would be a help. If these policies were missold, it is possible to claim the money back. Some companies repay this more easily than others.

Thirdly. Are direct debits set up for minimum payments? Although this may not be possible for everyone, ensuring that minimum payment is taken each month will guard against those £12 late payment fees and/or a trashed credit rating (assuming the rating isn't already trashed).

Away from the cards, there are many excellent budgeting tips on this site. Perhaps your friend needs to do an SOA (statement of affairs) to determine the best ways to budget. Additionally, there are ways on here to make extra money - often in small ways. Lots of small things all add up. I even have the Nectar search engine installed for 50 nectar points a month (£3 a year to spend in Sainsburys). There was a time I couldn't see it. Lots of those £3s a year, fivers a month saved etc etc can add up to quite a bit.

Of course, if your friend is unable to meet the minimum repayments after looking at these possibilities, there are other options such as negotiating reduced repayments with a possible freeze on interest (usually better negotiated by someone from the CAB), bankruptcy, or even one of the hated IVAs (although much maligned they can occasionally be suitable).

BTW. For what it's worth (perhaps not very much), my current unsecured debt level is still more than £40k. I am slowly reducing it by being a bit creative. I've managed to slash my spending and do more work (I'm self-employed). It's not pretty but is gradually working for me.

Meal plan (in writing) and only shop for those meals
UNLESS
you find true bargains like BOGOF deals or late evening perishables cheap in the supermarkets and freeze them.
Make a number of meals in one go and freeze (saves cooking fuel but may require freezer electricity if you have to buy one to achieve this).
Stop smoking (reduce if this isn't possible yet).
Stop drinking (reduce?)
Reduce travel as much as possible or look out for deals.
Use some garden space for food growing.
Go scrumping

.
Research TV/phone/mobile/broadband packages. Ask yourself what you really need. I'm shortly to switch away from Virginmedia broadband and very small TV package to Plusnet (£6.49 a month) and just the terrestrial channels (I can pickup the odd program I miss on the internet later).
If mobile use is occasional, do PAYG (maybe ASdA 8ppm calls/4ptexts?).
Keep a pad with you and write down out of pocket expenses - even the tiny ones. This can help to adapt.

dancingfairy · 28 February 2011 at 11:25AM

Hi - your best bet is probably to get them to talk to a debt charity and go through all their options with them.- try National Debtline , CCCS or your/their local CAB.
If they can face it a good thing to do before the appointment might be to fill out a budget sheet so they can see whether they can meet the monthly minimums, whether they are spending money but don't know where it is going, if there are any areas that when put down in black and white makes you go :eek: that aren't needed etc.Try this link for a budget planner
http://www.makesenseofcards.com/soacalc.html
Good Luck
df

katsu · 28 February 2011 at 12:46PM

Re CC2 and the rate increase - get them to look at the rate-jacking information as you can reject an increase as long as you stop using the card, and as long as you act quickly enough after they increase the rate. Look under the credit card tab at the top of the page for Martin's information on this.