Chance to get off Debt Management Plan - can I get a loan?

LeicsRed

Hi all,

I'm new here, and need some advice please. Apologies for the long message, but I like to explain things as properly as possible

About 15 years ago my wife and I managed to get ourselves deep in debt. It started with a graduate loan to pay for a holiday and moving in together (so we needed furniture, TV, the lot), and finance on a new car. With a couple of credit cards added in we then got a consolidation loan, but then our first child was born and my wife came out of work to be a full time mum, leaving me as the sole earner. We thought we could manage but found we couldn't, and ended up with a Debt Management Plan, which we've been paying off for many years. However, we still have quite a lot we owe (about £16k), the vast majority of which is the consolidation loan, which is actually in my wife's name (well, her maiden name, no matter how many times my wife tried to update her name and address, the bank refused to speak to her due to a different address).

However, a couple of weeks ago my wife received a settlement offer for this loan, with a massive 80% discount! We can pay back £2,800 to clear a debt of over £15k. This would leave us with just a few hundred pound left on the DMP which we could then clear easier. Clearly this would be a massive weight off our shoulders, though I'd also feel genuinely bad for not paying the whole lot we borrowed.

Since I got in debt my wages have increased to almost double - last year I gained a promotion at work and due to this have just received a 9.3% increase in my salary, so I'm actually now close to £50k per year. However, in addition to the debt above that goes through the debt management plan I also have a £3,800 tax debt, for which the HMRC are taking about £300 extra per month from my pay packet. My parents have had to loan us money over the years from credit cards to buy a car so I can get to work, washing machines etc. In total, to the tax, my debt management plan, and my parents, I'm paying back about £615 per month (I did say I'd got myself into a bit of debt!). I am managing this, though we don't have a lot left over at the end of the month (or didn't before my recent pay rise).

What I'd like to do is try and pay all of this off, get out of the debt management plan, and have a single loan that we have to pay back. To pay it all back would require about £13,000 (though as explained below I'm not looking at borrowing this amount).

Looking on the Santander website (who I bank with), this would cost about £235 per month at 3.4% interest (I understand this could change based on credit score etc.), so a lot less than we're paying now. I would even consider paying it off over a shorter period as we could afford it now.

My wife is also in work now, she just started back full time last week, however we can't guarantee this income (it's in a nursery and relies on funding, so she could potentially lose the job at any time), so I wouldn't want to include this in any application for a loan if possible.

I've checked my credit score on both ClearScore, which shows me at 432/700 (Stable), and Experian CreditExpert which shows 966/999 (Excellent). ClearScore say that I have 7 positive factors (including no court insolvency data, no accounts in default, and no accounts in arrears), and 1 negative (no active credit accounts), whilst Experian give 5 positive and 1 negative (1 new credit account in last 6 months, which will be O2). Both show my outstanding debt as very low (£1,500), so they're not including the above £15k debt (which is with a debt collector). Experian also give my wife an "Excellent" rating, in fact it's higher than mine at 988/999. When I look through the Experian report, it shows almost all payments as up-to-date, with the exception of a few late payments on an account closed in 2013. So as far as my credit rating is concerned all looks great.

However, now for my reason for this post. When I look on either of the above websites at loan comparisons, for up to £8,000 (excluding what I owe my parents, they are happy to continue taking usual payments for now, and I don't want to go for too much debt), most of them show a low chance of approval, including my own bank which actually shows 0%. I'm not sure why, with the above credit ratings, this will be. Is there anything else they check when determining eligibility?

What I need to be careful of is that I don't affect this rating by making multiple applications, so I need to try something that has a high chance of approval. Can it make a difference if I go to see a bank in person rather than making an online application, so I can go through my financial statement, explain the situation etc.

Also, when doing these comparisons (which do a soft search so as not to affect my rating) I'm selecting "Debt Consolidation" for the reason for the loan - does this impact the chances of getting the loan?

I'd rather be paying off "good debt" (in the loosest possible terms, no debt is actually good), i.e. a current loan rather than through debt management. I'm 40 this year and so am already going to struggle to get a mortgage - I'd like to get sorted ASAP so as to keep any low chance of me being able to buy a house.

What would your advice be? Am I right in trying to get it sorted this way? I know it's affordable, I've setup spreadsheets showing all of my expenses (including groceries, petrol, school bus fair for my daughter, as well as all the bills), and have also included some for just misc expenses that might come up throughout the month (by going through several months worth of statements and seeing how much cash we've withdrawn and money we've spent on unplanned items). It still shows us having more than enough left over to pay back a loan of £8000 over 3-5 years, and this is excluding my wifes wages which should be in excess of £700 per month average (she won't be working during school holidays). When taking into consideration I'd be paying off my tax bill so my income would immediately increase by another £300 per month after tax I'd be even more able to pay it.

Are there any recommendations of who I should go to first for a loan? Should I go in to see the bank or is there only as much chance of being approved as if I did it online? How many searches would it take to start adversely effecting my rating (clearly I'm not going to start going through all the banks in turn, but would 1 or 2 rejections very badly impact it).

One last thing, I just want to point out that (unless the above suggests otherwise without me realising ), I'm much more responsible with my money now than I was when I got into this spiralling debt problem. I've seen where borrowing constantly can get you, I've suffered the consequences of this for over a decade, and worse than that so have my family. Every month nowadays I'm updating a spreadsheet with my balance, income and expenditure, what balance we should have on any given day based on bills/groceries etc. and basically trying to keep on top of things.

Thanks in advance for any advice.


P.S. I forgot to mention above that my spreadsheets include the amount I pay to the debt management plan - this amount itself would cover over half the amount a loan would cost, and I've never missed a single payment to this, so this proves I'm able to afford a loan.

datlex

Post an SOA. At £50K a year there should be enough savings in it to pay off the £13K without taking on more debt.

SusieT

First of all is your DMP with a free company or a fee paying one? If a fee paying one then I would stop it and either go self managed if you have the self control, or move to a free one. Did the DMP provider get interest stopped on the debts? If not it may be worth trying to get it stopped and pay back at 0%

January2015

All of my consolidation loans were affordable - my spreadsheets proved it to me I still ended up in a mess and on a DMP.

Everyone is different, but for me - I wouldn't ever borrow to clear debt again, no matter what. If a creditor has offered a huge discount, then negotiate paying the reduce figure over a few months. Once that debt has gone, then hit the tax repayments with extra money. Target each debt and hit it with whatever you can afford. If you are better with managing your money, and your income has increased, then this should be easily doable without resorting to borrowing.

LeicsRed

Thanks for the replies.

Datlex - I've just found out what an SOA is, so I'll do the calculator shortly and post, thanks

SusieT - It's not a free one unfortunately, so they are taking a fee each month hence it's taking so long to pay off. They have however stopped the interest.

January2015 - I see your point, but up to now the spreadsheets have proved fairly accurate, with the exception of some bigger bills that come totally unexpectedly, though we've still just about scraped through. With the fact that any loan would actually be less than I am paying to the tax and DMP combined I am confident that we could afford it, hence looking to do it. It would end up saving us money, and we'd still be in the same debt as we are at present (well, less based on the 80% settlement offer).

January2015

Have you looked at options for throwing more at the debts from your increased income and from moving your DMP to either a free provider or self-managing. I still think you have options you can investigate which will not involve borrowing more money.... but, then again, I think you may have already decided this is the route you want to take.

LeicsRed

It's something I'll certainly look at, I'd rather not take on more debt, as I say I've seen the consequences of debt over the past many years.

However, even if I pay more towards the DMP, this will mean that it's not cleared for longer, potentially 10 years. This way I can have it cleared within 5 years max at a lesser amount.

I am willing to listen to all advice however, and take the best option. One thing I am thinking of at the moment based on a previous comment is getting rid of the debt management company and go direct - despite us regularly providing updated financial statements they never seem to update their records and still have us as having no children, despite us having 2 and having told them many times. If I go direct, I can potentially come to an agreement with the company who have offered the discount to pay them within a year, and then try and clear the others off also.

LeicsRed

I've just completed the SOA calculator a couple of times with different amounts.

The first is based on current income after tax (including pay rise), taking into account the extra that HMRC are taking from me each month to repay my tax bill (which I'm told cannot be included in a debt management plan). So this is basically the amount that will go into my account (I hope) tonight as it's my first pay day since the pay rise. It shows that I would have £405 left to pay towards the debts (so this would take about 2.5 years to pay back the £13,000).

The second assumes I've paid off my tax bill with a loan, so I'm getting the full amount without the additional income tax. I would then have £710 per month left after bills etc. I could put the same amount towards it, and still have some left over. However, that's then a further 2.5 years of being away from a debt management plan.

As I say, I'm still considering all my options, and greatly appreciate all advice given on here.

enthusiasticsaver

I think it fairly safe to say that having been on a DMP and still being on it will affect your credit rating so the chances of you getting a very good rate are fairly low even if they approve it. I also do not think that borrowing more to get out of it is sensible. You also have tax debt and family debt so incurring more even if it gives you a discount is unwise. On that income with both of you working I suggest you either save as much as possible and try again in a few months time to see if the discount still applies or pay more on the DMP to clear it quicker.

You know yourself consolidation does not work, you have tried it before. You need to be living in budget and saving for emergency tax bills, broken washing machines and so on and taking out another loan on top of the £615 you already repay monthly in debt and living costs sounds like a route back to where you were before the DMP. Having a large salary does not guarantee financial solvency. Living in budget does and that means no debt.

enthusiasticsaver

The best advice is come off your fee paying DMP. There is no need for that. You can self manage or speak to stepchange who manage it for free. No wonder it is not decreasing if there is a fee. Also HMRC debt will be interest free, so presumably is your parents debt so borrowing to repay that makes no sense at all.

middleclassbutpoor

Dont consolidate.

Move to a free DMP

Post your SOA without consolidation and let the great people of this forum make some suggestions on how you may be able to free up some more cash to get you out of this more quickly.