From managing debts to defaults... a newbies story

periwinkleperkins

Everybody has a story about how they got into debt, and mine is probably not that dissimilar.

My first experience with debt was at university - banks were throwing credit at me, credit card limits doubling every few months, consolidation loans without getting rid of other lines of credit. It took me 3 years to realise I was in a mess and over £40k in debt at 23. I took the advice to go bankrupt in 2004 and started again - I learned how to budget, refused credit when offered and promised myself I wouldn't get into that mess again.

Then five years ago, I was working in a well paid job but living right at the edge of my disposable income when I met a new partner. In the throws of a new relationship, I took out a credit card to pay for a holiday which was manageable, told myself that would be ok. I then found out that my partner had significant debts at high interest, so I applied for an interest free card in my name and transferred my partners debts onto it. Then my partners car broke down, and I co-signed the HP agreement on a 25% APR deal. A year later, we split and I was left picking up the pieces emotionally and financially. The car went back to the finance company but I ended up having to borrow the money to make up the payments to the termination 50% paid threshold.

By this point I had a £12k loan and about £10k on multiple credit cards, nowhere to live and no furniture. I borrowed some more on my credit cards to set myself up in a new place and took stock of where I was.... just over £25k in debt BUT it was OK, I could get a consolidation loan at a reasonable APR and everything would be paid off in 3 years.

I made the first 4 payments and disaster struck - I became ill and couldn't work. For the first few months I used the credit card I had kept to pay for day to day living, and was hopeful I'd soon be back at work. Then came my lightbulb moment - I was now £30k in debt, not working and had no way of paying everything back right now.

I reached out to StepChange, who were fantastic, and set up a token payment plan for me which is due for a 12 month review this October... luckily my health has improved and I will be starting work next month so here we come to where I need your help....

My debts are all defaulted on my credit file, due to the TPP, and current balances are;

Sainsburys Bank Loan £16063
HSBC Loan £9519
American Express Card £3632

Total.... £29214

I've gone through the income and expenditure forms and set myself a comfortable budget (£2173) which leaves me with £1500 to pay to my creditors and will see me debt free in 20months (this is 11 months quicker than the debts would have been paid if I were making the contractual payments as per the agreements before the defaults).

My question is... will this be acceptable or will the creditors expect me to significantly curtail my entertainment and leisure spending?

INCOME
Salary £3680

HOUSING & UTILITY BILLS
Rent £650
Water £32
Council tax £118
Electricity £75
HOUSEHOLD SERVICES
Buildings & contents insurance £14
Telephone and internet £28
TRAVEL
Spares & servicing £25
Road tax £18
Car insurance £54
Breakdown cover £13
Fuel & parking £280
FOOD & HOUSEKEEPING
Food, toiletries & cleaning products £238
Pets (food & insurance) £62
Clothing & footwear £21
OTHER SERVICES
Medicines & prescriptions £10
Dentist & opticians £24
Hairdressing £13
PERSONAL & LEISURE
Sports, hobbies & entertainment £238
Church or charity donations £25
Sundries & emergencies £0
OTHER COSTS
Dog Grooming £33
Cleaner £87
Mobile Phone £25
Takeaways £43
Birthdays / Christmas £33
TOTAL EXPENSES £2,173

sourcrates

Hi,

Take up running, its free.
Bin the church donation and the cleaner, put that in the emergency fund.
Learn to cook.

Theres £300 plus saved.

In reality, its none of your creditors business how you allocate your budget, they can expect what they like, its up to you what they get.

You do need some savings though, otherwise you will resort to credit again, rest of the budget looks fine.

Karonher

Would they agree to freeze/continue to freeze interest if there was a cleaner, a lot spent on entertainment and dog grooming?

Its OK saying a company cannot have what you don't have, but when the money is there surely it should come off debt.

There is no hardship in not having a cleaner and cutting back on entertainment.

periwinkleperkins

Hi,

Thanks for the feedback, it!!!8217;s prompted a couple more thought processes for me.

1. Interest on the loans isn!!!8217;t frozen, both HSBC and Sainsbury!!!8217;s front loaded the interest for the whole of the term and with the revised proposed payments they will be getting paid back at a higher monthly amount than in the original loan agreement - I looked into whether the default should have treated the front loaded interest in the same way as early repayment (ie a rebate) but I can!!!8217;t find any thing conclusive... what are everyone else!!!8217;s experiences?

2. Dog grooming is essential for his breed type - long haired Lhasa Apso. I can do the washing/drying myself, and regularly comb to stop his fur matting BUT I!!!8217;m not confident to do the trimming/cutting hence taking him to the groomer. Anybody any experience in doing this themselves?

3. Savings - I was always told pay debt first before savings otherwise you!!!8217;ll be worse off due to interest rates, hence I planned to wait until I!!!8217;m debt free. I!!!8217;ve made provisions in the budget for car repairs and maintenance, white goods in the house are my landlords responsibility and everything else in the house (sofa, beds, furniture) was new after I split with my ex). Do I still need a rainy day fund?

4. I spent a lot of time thinking about entertainment and I came to the conclusion that I!!!8217;m much less likely to struggle with my budget if I can still treat myself to a few nights out, cinema or day trips but I appreciate it is quite high. I suppose I could divert some of it to a rainy day fund or repaying debt even quicker but first I think I!!!8217;ll see how I manage with the budget !!!8220;as is!!!8221;, especially as I!!!8217;ve been miserable surviving on benefits for the past 8 months.

buythedip

Decent story. Good to hear your health is on the mend! Is there a chance you could relapse with your illness? I ask because you have a decent income and can make serious inroads if you ditch the cleaner, takeaways and entertainment. Should you unfortunately fall sick again money issues would largely be a thing of the past, especially if you can also build a decent emergency fund.

dionysia

Is there really, definitely nothing in your life that could go wrong? I think the usual advice is that renters can have less than homeowners but there's still Events. If you've got £1,500/month to pay to debt you could just put aside £500 in the first month for your emergency fund and call it done, it doesn't have to be a 3-6 months of living expenses type of rainy day fund. Hopefully you never need it but if you do you'll be glad it's there.

Pixie5740

I would be surprised if the loans had front loaded interest.

Are you sure all the white goods in the property are the responsibility of your landlord to repair or replace? Are they integrated appliances or does it say in the tenancy agreement that he is responsible?

What happens if your landlord decides to evict you? Where is the deposit, first month's rent plus referencing fees going to come from?