Creditor advised paying 10% of current debt repayments

foolofbeans

Co-op Bank have just contacted me about my recent missed payment on a loan. I was expecting a pushy 'pay up' talk but instead the advisor was super helpful and went through my SOA.
Our outgoings have been exceeding our incomings for some time and we have been using credit to get by day-to-day. Of course crunch time has now happened and we can't (and won't) get any further credit and have to deal with our unmanageable debt.
Having completed an SOA our debt repayments total about £1200 a month. We have a fairly good income but the debt repayments are more than half of our income.
The Co-op advisor calculated our available income for debt repayments at 10% of what we actually pay. Instead of £160 a month Co-op will accept £17 a month, interest frozen for the next 5 months. The advisor said our total debt repayment each month should be less than £100 and she calculated the pro-rata payments for each debtor.
Is this a standard calculation? Would other creditors be obliged to use the same calculation and reduce our monthly payments?

sourcrates

Hi,


I'm unsure what calculations are used in determining reduced monthly payments to creditors, or if the method you describe is used universally amongst lenders.

What you usually do is add up your income, then deduct your outgoings, and what's left is the amount you have for debt repayments, most debt charities divide this up on a pro-rata basis between your creditors.

If you intend to self manage then its really up to you how much you allocate each creditor from your available "pot".

fatbelly

There's nothing legally binding about it but full marks to the Co-op adviser for effectively setting up a dmp for you!

Standard letters for the other creditors here but their website seems to be down at the mo.

You will get defaults on your credit file but that's a small price to pay for being able to live.

One question - with interest frozen, how long will it take for £17 per month to pay off your debt?

Karonher

OP, are you looking at doing a DMP or were you looking at this as a sort of favour from the companies just over the next few month?

Once interest hits after 5 months if you are only paying £17 you will soon rack up a higher debt.

I also doubt the Coop advisor can tell other companies what they will have to accept. If you start a DMP then the same system will be used and the figures will be accurate but the others don't have to freeze interest right away.

Without knowing your full salaries it is hard to know the exact figure, but as £1200 is more than half, if it was say £2,000 a month I think £100 total repayment is quite low to what others pay.

foolofbeans

sourcrates wrote: »

I'm unsure what calculations are used in determining reduced monthly payments to creditors, or if the method you describe is used universally amongst lenders.
What you usually do is add up your income, then deduct your outgoings, and what's left is the amount you have for debt repayments, most debt charities divide this up on a pro-rata basis between your creditors.
If you intend to self manage then its really up to you how much you allocate each creditor from your available "pot".

We had`calculated money available for debt repayments as about £1000 monthly which is just slightly less than what we pay now

fatbelly wrote: »

There's nothing legally binding about it but full marks to the Co-op adviser for effectively setting up a dmp for you!
Standard letters for the other creditors here but their website seems to be down at the mo. Thank you for that.
You will get defaults on your credit file but that's a small price to pay for being able to live.
One question - with interest frozen, how long will it take for £17 per month to pay off your debt?

It would take me forever

Karonher wrote: »

OP, are you looking at doing a DMP or were you looking at this as a sort of favour from the companies just over the next few month? Yes, just a breather for the next few months. I'm hoping we could save some money in that time to be able to pay some debt off which would lower the overall monthly repayments and make it all more affordable.
Once interest hits after 5 months if you are only paying £17 you will soon rack up a higher debt.
Yes I understand it would have to be a temporary measure and the advisor explained that after six months it could default.
I also doubt the Coop advisor can tell other companies what they will have to accept. If you start a DMP then the same system will be used and the figures will be accurate but the others don't have to freeze interest right away.
Without knowing your full salaries it is hard to know the exact figure, but as £1200 is more than half, if it was say £2,000 a month I think £100 total repayment is quite low to what others pay.

Income is about £2500 so £100 is definitely very low. Not really sure how it was calculated hence why I wondered if there is a standard calculation for all companies and this is what has been applied.

Karonher

Income is about £2500 so £100 is definitely very low. Not really sure how it was calculated hence why I wondered if there is a standard calculation for all companies and this is what has been applied.[/QUOTE]


I think there is but it would be as part of a DMP. Others will know better but I think in order to be sure you can reduce payments you have to default. Once you have done that you can choose how much to pay each company as long as you self-manage. The problem is that by then your credit rating will be poor.

fatbelly

foolofbeans wrote: »

It would take me forever

In a dmp interest is frozen, so that is only true if your debt is infinite!

I was looking for an answer of X months where co-op debt/17 = X

With pro-rata payments all your debts clear at the same time. I was wondering whether X was a reasonable period, like 36-60 months, or whether you should be looking at another strategy.

But if this is only a temporary difficulty then it doesn't really matter.