Overwhelming debt, can see no way out

Ajgjejhj

We have debts of around 70k. Our income is around £130k per annum, we have a house worth £1.3 on interest free mortgage (no defaults) and have £600k equity in the house. We live in London so house prices etc expensive. We had to care for my parents until their recent deaths and without boring you with the details, we maxed out everything. Credit cards are the killers. I owe around 30k on them and struggling to make minimum payments. My husband maxed his out and then went on to a fixed agreement with them all so he's paying them off. I didn't as I wanted to keep my credit rating but in retrospect it was probably stupid. I thought if I had a reasonable credit rating at least one of us might be in a better position. We are now stuck between a rock and a hard place.

If we sell the house, we could pay off all our debts but we'd struggle to buy another property without a small additional mortgage (say £1-200k). All mortgage companies so far have said they won't even consider it due to my husband's situation. We have though about selling our house, and moving into a cheaper rental but we don't think we'll get a rental because of the poor credit rating. I am now struggling to feed the kids and I am depressed. I see no way forward.... we have been to both of our banks and rung several mortgage companies. It feels hopeless. Any advice/thoughts appreciated.

Our situation has now changed so radically that if we were able to clear our debts, we could leave more than easily within the income we have - it's just that we are stuck where we are.

sourcrates

Hi,

You have 3 choices.

(1) sell the house, clear the debt, if you can't buy another house with what's left, then you would have to rent.
Potential landlords do not have access to your financial details, only the public information section of your credit file, so they would not see any bad credit information.

(2) individual voluntery arrangement (IVA) may be an option, it's a formal insolvency option, one step down from Bankrupcy, but your home would not be at risk.

(3) Debt management plan (DMP) an informal arrangement between you and your creditors to repay what you owe at a lower monthly figure than your original contract.

Those are your options, I would suggest you contact either stepchange or National Debtline, who both offer free debt advice and solutions, and talk over which one would be most suitable for you.

tlc678910

Hi,

I'm afraid I'm asking some uncomfortable questions which you perhaps do not want to consider as they might be more scary than battling on in the short term but...

Are you sure it would not be possible to buy somewhere to live within the (approx) 500K you would have if you sold up and paid off your debts?

Do you mind saying the rough area you live in and how big your family is?

I'm guessing you have a lovely home (from it's value) but you say that you are struggling to feed the kids - perhaps it is a home that you cannot afford?

Did you mean interest only mortgage rather than interest free in your post? If it is an interest only mortgage you would obviously need a plan to pay back the capital if you want to hang onto it long term - so refinancing your debts , even if it were possible/affordable, would not be the end of your financial headache if your goal is to stay in your house. Did you have a long term plan with this. Did you plan to sell when the kids are grown up to repay?

When you consider if you could find an alternative cheaper home could your children share rooms? Could you do without outside space (if there was a nice park nearby?). A flat instead of a house?

If your current home does not require these compromises perhaps you genuinely cannot imagine that change in lifestyle - but what about if that solution meant that you could pay off your debt and be debt free? What about if as well as being debt free you were also mortgage free? Instead of worrying about how to provide the essentials for your kids you would then be able to provide all of those and have some space in your budget for some family treats and to begin to save for your future?

I guess I'm asking if it is really impossible to house your family (in roughly your existing area to provide stability for your kids) for 500K or only impossible if you think they need their own rooms, a garden, you need a garage etc (I guess that depends on where you are exactly).

Your situation sounds very stressful but your equity and earning power means you are in a strong position to take control and get on top of this.

Wishing you luck with whatever action you decide to take.
Tlc

dancingfairy

You have decent salaries which is a good starting point but you also live in an expensive area by the sounds of it and have higher costs, and let's face it higher salaries mean you can borrow more.
I would start by doing a budget on paper. Go through everything you spend or expect to spend. When you have done a budget you can see whether a) you are spending more than you earn, b) whether on paper you should be able to manage but are spending money you're not aware of and c) if there are things you can cut back on.
Getting it all down on paper should help you see more clearly.
Once youve done that then I would have a chat with someone like stepchange or national debtline to discuss your options.
Good luck
Df

National_Debtline

Hi Ajgjejhj

Ajgjejhj wrote: »

We have though about selling our house, and moving into a cheaper rental but we don't think we'll get a rental because of the poor credit rating.

I don't agree that you would struggle to be accepted for a rental. Most letting agents only do "soft" credit checks - these are designed to look for county court judgments and insolvency proceedings e.g. bankruptcy, as opposed to scrutinising your credit card balances and detailed payment histories. Even if your credit file were an issue, you could offer to pay rent in advance using the sale proceeds, which would render your creditworthiness irrelevant.


For now, you must do what you need to do in order to keep money available for paying essential bills and feeding your family. That may mean having to suspend regular card repayments at present; it may also mean changing your bank to one where you owe no existing debts.


There may be some short-term damage to your credit report as a result; however, downsizing and seeking a mortgage of £100K-£200K (if that is what you go on to do) is not going to require perfect credit - just good enough to assure the lender that you can meet repayments. I'm not a mortgage broker, but I'm sure a semi-competent one could find a deal for a couple earning £130K per annum seeking, say, a 25% mortgage on an £800K house.


Dennis
@natdebtline

Cirias

Is it possible to move to a less expensive area and commute further (I assume) to work? You do have high salaries, but I also don't know your outgoings. Are you spending beyond your means? What sort of luxuries do you spend on each month?