Priorities

dora87

My brother has been to see me this evening with an expanding file crammed full of letters which he has been ignoring for at least a year. He lives with our grandparents and has started to receive calls at the house from various debt collection agencies and this has made him face up to his debt problems (our grandparents do not know he is in debt, neither did I until about 8pm this evening)

We have opened every single letter he has, and matched the original debts to the correspondence from the relevant debt collection agencies.

His debt is as follows:(I have rounded them up to the nearest pound)
Quickquid - 560
Wonga - 256
Payday Loans - 260
Birmingham Council - 230
Vanquis CC - 650
LLoyds TSB - 200
Natwest - 505


He had been out of work since being made redundant last year. Being a sensible lad with his head buried in the sand, and not being able to admit that he was in trouble financially, his redundancy payment is long gone. In the last fortnight he has secured a full time job though he will not be being paid a full months wage until the end of April. In March he will receive roughly 10days pay. When he receives his first full months pay it will be roughly £1000 after Tax/NI

His other outgoings are as follows: (monthly)
Car payment - 270
Car Insurance - 50
Board - 100
Mobile Phone - 40
Fuel - 120
CSA payments - 130

This leaves him with £290 a month of which all can pretty much go on his debts. He may need the odd £5 haircut. His board covers his food including stuff for packed lunches. He can also earn himself some extra small amounts by babysitting for me occasionally.

Obviously I am aware that the payday loan companies will increase at a rapid rate if not dealt with urgently.

My query is what is the best way to deal with this situation - he is not in a position to pay anything off in full. Nor is he in a position to make initial payments until the end of April.

wildingb

450/1000 is going to the car He just can't afford a 270/month car payment. this is more than 1/4 of his take home pay. Can he sell the car? Perhaps use the proceeds to pay off both the car loan and payday loans?

Show him this website
http://www.daveramsey.com/article/the-truth-about-car-payments/lifeandmoney_automobiles/
I relise Dave Ramsey is exaggerating investment returns, but his point about car payments is well made.

wildingb

He needs a 1000 to escape the payday loans. Does he have anything other than the car to sell? Computer? TV? anything?

[Deleted User]

What precisely is the £230 to Birmingham Council?

Council Tax Arrears?

Rent?

dora87

A parking fine which he didn't pay!

He will need the car to get to work, I know he could change it for something which costs him less...and this is something I have already suggested.

He does have a computer and a TV in his bedroom - but neither of them are technically his....they belong to our grandparents.

I am in a position to pay at least initial payments on some of his debts if we are able to negotiate with the companies....though I am unsure if it has not already passed the stage where this is viable with some of them.

bsms1147

Throw everything at those with the highest interest rate first, making the minimum payments on the others. Once the highest-interest one is paid, move onto the second-highest, and so on.

And as above, seriously reconsider the car; that's over three grand a year on just its loan payments, and another 2.5k on fuel, spending well over 5k in total all in. A smaller, more efficient car perhaps? Share? Public transport?

The £40 a month phone bill seems excessive too, that could be reduced; and if he's still in contract with an expensive phone (ie, cannot reduce the monthly cost yet), then sell the phone and get a much cheaper basic one, using the money gained to offset some of the debts as above.

dora87

He can't get rid of the car all together as his children do not live in the same town as us and he has them every other weekend and needs the car to collect them. His job is also in another town and off the top of my head it would take him about 2 hrs and 3 buses to get to work everyday.

Will recommend he sells his handset (its a samsung galaxy s3 so should get quite a nice amount for it)

My biggest concern is working out which payday loan company to pay off first.....I am guessing Quickquid as that is the one with the highest amount at the moment, so it will be the one that grows the quickest yes?

wildingb

No, the growth of the debt is related to the interest rate, not the amount.
Pay the smallest payday loan off first, it will give your brother a boost to remove a debt.
So Wonga>Payday loans>Quidquik

Anyway, it is probably better that you do NOT pay his payments, unless it is a gift. Family should not make loans to other family members, it just makes life awkward. By paying his loans you are paying for his car. If he won't accept your advice regarding the car, why should you pay for the car?

Your brother just needs a little financial education, otherwise this problem will not improve.
I suggest borrowing "The Total Money Makeover: A Proven Plan for Financial Fitness" by Dave Ramsey from your local library. Perhaps also subscribe to "The Dave Ramsey show" on itunes - it might help your brother to hear about people in a similar position.

[Deleted User]

dora87 wrote: »

I am guessing Quickquid as that is the one with the highest amount at the moment, so it will be the one that grows the quickest yes?

Not necessarily.

It's a combination of balance and APR.