Lessons learned...

My wife and I are finally debt free after six hard years, and I hope that this can possibly help those who find themselves in a similar situation.

We got ourselves into a ridiculous amount of debt by spending, borrowing and a few bit of bad luck - mostly the first two. Don't get me wrong, we never lived a 'luxury' lifestyle, we just enjoyed living beyond our means, but didn't really recognise we were doing so until the poop hit the fan. Given that we don't wear designer clothes, don't go out very often and didn't even have posh brand TVs or game systems to show for it, I wonder where it all went.

We ended up nearly £120k in debt, with around £50k equity in our home after ten years of spending more than we earned. Our fault entirely, no-one but us to blame. We had the usual cycle - credit card expands limit, we spend up to the new limit. When it became difficult to afford the repayments, we'd consolidate with a new loan, but then run up the credit cards again. It got to the point where I was trying to remortgage the house and was turned down when I went to a debt management company.

They were helpful in lots of ways, but were a mistake in others. Yes, they stopped all the nasty phone calls and letters, and looked after our business for five and a half years, but many of the promises they made when they came to visit in November 2005 were not accurate. They worked by us paying them £800/month - they then gave around £400/month to our creditors and banked the rest to make full and final settlements down the line (they estimated six years). We knew we would pay a fee to them for handing our affairs - they are a business, after all - but they didn't mention that they'd also pocket 10% of any payments they made, i.e. we'd pay £400/month to creditors, then £40 to them and bank £360.

They also told us that we'd be clear in six years, and that our creditors would accept 40% of the total we owed in settlement. Now, fair enough, they couldn't predict the financial crisis, but in reality, it has been closer to 70%.

They told us that there was no way anyone could take our house away, as none of our loans were secured. Wrong again - NatWest secured a charging order, and were within 24 hours of forcing us to sell - only by coming up with the cash we owed were we able to stop the court action.

And latterly, they told us that some creditors would not agree any settlement discount - I suspect that, as we were no longer paying them money, they lost interest in negotiating hard, as one call from my wife saved us £2500. Apparently, that commonly happens with debt management companies when the end of your payments are due.

Anyway, the six years plan didn't work at all - we've sold our house and moved into a (much larger) rental property, paying off our debts with the equity we had. We might not own our own home, but actually, we're in a more pleasant living environment, and perfectly positioned to move forward with our lives.

In total, on our £120k of debts, we've ended up paying out around £100k in settlements and payments. Our credit record is shot, but frankly, we've learned to live without credit over the last six years, so I'm not bothered about that.

Moving forward, I hope that the only loan we'll ever need will be a mortgage to buy our own home. I don't want credit cards again, and we've got used to living within our means.

So, advice for others in similar situations:
- don't give up, it is not hopeless! It took us a long time to clear everything, but now it is done. There is no easy way out, and you should accept the hard part of the process as part of your 'therapy' to make sure you never end up in the same situation.
- don't use a debt management company - I think we've paid about £10k in fees to them over the years, and don't think their advice or service was particularly accurate, and because you pay most of the fees in the first year, you are really over a barrel for the remaining term of your repayments.
- Learn from your mistakes. We have.


  • mrsdwhite
    mrsdwhite Posts: 291
    I've been Money Tipped!
    Well done on clearing your debts! That is some going doing it in 6 years! Thanks for posting about your experience, I'm sure it will help/motivate others.

    On a note about Debt Management Companies, I want to say that the Debt Management Charities are fantastic and very helpful, with no fees or strings attached. Myself and my DH have just recently started DMP's with CCCS. I only say this as I don't want people getting mixed up with the evil companies that will rip you off and the charities which will genuinely help.

    Well done again :-) Enjoy being debt free
  • curlytop12
    curlytop12 Posts: 1,224
    Name Dropper First Anniversary Combo Breaker First Post
    thankyou for sharing your story and experience.
    good luck to you from now on.
  • Thank you! Yes, there is a distinction between debt management companies and charities. I have mixed feelings towards the company - on the one hand, they helped us out when were were at our lowest point, but they did give us some dodgy advice, and it looks like their technique falls foul of the latest OFT report (which is one reason why we decided to sell the house to settle our debts - we would have been in a mess if the OFT had shut them down).
  • May2013
    May2013 Posts: 423 Forumite
    Thank you for sharing your story....and huge congratulations on your debt free status :T
    Yorkie2011 wrote: »
    - don't give up, it is not hopeless! It took us a long time to clear everything, but now it is done. There is no easy way out, and you should accept the hard part of the process as part of your 'therapy' to make sure you never end up in the same situation.

    I love this ^^^^^.....soooo true!!!!

    Wishing you and your wife a very happy debt free future xx
    LBM Aug '07 Debt [STRIKE]£52,615[/STRIKE] :eek: DEBT FREE Aug '12 :j
    Cap One CC £[STRIKE]5000[/STRIKE]/£0 - HSBC CC £[STRIKE]7500[/STRIKE]/£0 - HSBC Loan £[STRIKE]12,225[/STRIKE]/£0
    M&S CC £[STRIKE]11,500[/STRIKE]/£0 - Egg CC £[STRIKE]8750[/STRIKE]/£0 - Sains CC £[STRIKE]3000[/STRIKE]/£0
    HMRC £[STRIKE]3140[/STRIKE]/£0 - OD £[STRIKE]1500[/STRIKE]/£0
    Pay off ALL your debt by Xmas 2012 £14,128/£14,128 :j
  • Hovel_lady
    Hovel_lady Posts: 4,291 Forumite
    Well done on being debt free :T
    Don't forget to put yourself on the Debt Free Roll of Honour.
  • Well done to the OP for clearing your debts. It is also refreshing to have someone admit that they were resposible for the debts they run up, rather than trying blame the bank/CC etc.
  • Of course we are to blame for our own debts - we started borrowing and didn't know when to stop!

    There comes a point when the debts start to grow massively due to bank charges, trying to consolidate, etc., but it all stems from the fact that we borrowed too much.

    One of our difficulties was losing wages when we were both off work (my wife with problems that followed a pregnancy, and me with a back problem that left me unable to walk for three months) - and we borrowed to get through - but if we hadn't already had big debts,this would have been manageable.

    Credit cards increasing our limits regularly (without us asking for it) encouraged us to spend - but they didn't take us to a till and say 'spend or die', that was our choice. Credit was way too easily accessible - I wish our banks had been harder on us much earlier to put a stop to our excessive spending.
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