Seeking advice for a relative with significant equity but large credit card debts

MARTYM8`

Am trying to seek some advice for a sibling who has got themselves into a huge level of credit card debt and at present has more going out each month in repayments than they have coming in. Both I and my parents am doing my best to assist them in covering the difference but its really not sustainable - or fair on us.

So thought I would try here!

In summary their situation is as follows:

Take home pay about £2,300 a month

Mortgage of £750 a month on a flat worth about £300k in London (has about £140k of equity with an outstanding mortgage of £160k).

Outstanding personal loans of £13,000 requiring monthly repayments totalling £480 - due to be repaid by 2018

And the really big problem:

Credit card debts totalling £34,000 on which they are currently making only the minimum repayments of about £550 a month.

Due to a pay cut since they bought the property the outstanding mortgage is just over 4 times their salary - so its unlikely they could consolidate the credit card debts into their mortgage.

They have got themselves into a terrible state and I don't really know how they can move forward. They obviously don't want to sell the flat as its in a nice area of London - so was wondering what other options there might be bar an IVA or bankruptcy.

Thanks in advance for any advice you can suggest.

fatbelly

Debt Management Plan with Stepchange or Payplan

sourcrates

Bankrupcy would result in them losing the house, more than likley, an Individual voluntary arrangement (IVA) may be a better option.

How old are the accounts, do you know ?

MARTYM8`

sourcrates wrote: »

Bankrupcy would result in them losing the house, more than likley, an Individual voluntary arrangement (IVA) may be a better option.

How old are the accounts, do you know ?

I believe the credit card debts are spread across three of the largest providers - (two around £15k and one around £4k) - and they have held them for several years. They have been taking advantage of 0% deals- but they have now run out.

As has been suggested a DMP or IVA are perhaps the only realistic solutions moving forward.

Problem is they are just terrible at managing their finances - my parents and I have bailed them out in the past (I even funded the deposit on the flat!) but its now gone beyond manageable.

northerner999

Entering unable to consolidate debts onto the mortgage is a blessing in disguise - taking credit card debt and turning it into a secured debt where your home could be taken away is not a good idea.

£2,300 PCM after tax is a good salary, though the debt is obviously a killer and a break-even budget is some way off.

Do they have savings to pay down some debt?

Can the cards be moved on to fresh 0% deals?

Is there a spare room for a lodger?

If they are determined to stay in the flat they need to accept some hardship no matter what happens - sell anything they don't use, DVDs, CDs etc. Anything collect able / of value? My mother has just sold a gold watch and ring for almost a grand - anything like that would be gold dust in terms of breathing space.

National_Debtline

Hi Marty


Based on what you've said so far I'd lean towards recommending a free DMP as per fatbelly's suggestion. An IVA is not out of the question either but represents a bigger commitment at this stage.


It sounds like your sibling is living alone (correct me if I'm wrong) and I would hope that even in London £300K buys you enough space to put up a lodger which would be an invaluable source of income - there are likely to be numerous commuters who would just be after something Monday-Thursday. Note also that the amount your sibling can earn from a lodger tax-free will leap significantly in April from the current threshold of approx. £82/week to nearer £145/week.


What steps has your sibling taken to address their situation so far? I can't help thinking that you're seeking guidance here because they themselves have yet to do so - it is crucial that they recognise the importance of getting some well-informed, independent advice.


Dennis
@natdebtline

andyfromotley

Hi marty,

i second the DMP advice, once they have answered sourcrates question about the age of the debts.

However, two thoughts spring to mind. how and why was the debt accumulated. Have they spent years living beyond thier means and what have they done to resolve this? Uness this can be answered by them very clearly then there is little point in any action as it will be case of rinse and repeat every few yers.

Secondly even on that wage a DMP is going to take years to resolve. Do they have the will and determination for such a long slog?

If the answer to this is no then again, what is the point? it may be that they wish to consider selling thier flat, settling thier bills and buying a smaller/less expensive place. Radical, expensive and probably unpalatable but none of the options are great for them at the moment.

Finally, why arent they on here sorting this mess out for themselves? Unless they get involved i'm doubtful about thier chances of success.

Sanctioned_Parts_List

+1 to National Debtline's post. Even if it's just you and your sibling over a pint in private, seeing if they're prepared to recognise the magnitude of the problem for themselves is vital if they're going to make progress.

If it were me (now), I'd sell up and move somewhere cheaper with good connections to London. Even if it wasn't the nicest place, somewhere I could buy for cash and save like crazy for a few years. (A former colleague of mine moved to Northampton from just south of the river for exactly that reason.)