Default advice

wantamortgage

Hi all,

I was hoping some of you guys could give me a different perspective or play devils advocate to my current situation. 

I defaulted on a credit card 3 years ago, I was in zero hours contract temporary jobs and used the credit card for every day spending to get by. I owe 5300 to Barclay card, at the time I defaulted I nearly committed suicide and was in a very bad way. 

I’ve since tried to fight the debt with the FOS under a multitude of issues but they have rejected my complaint, the debt is still outstanding but frozen. 

I have no other debt and over the last year have worked hard to reduce spending, lockdown has also helped. I have 3 dependants and my wife has an “excellent” score across all three report agencies but she is self employed. Main goal here is to get a mortgage, my parents have offered to gift some money for a deposit (but not to pay off debt!) 

Since then I now have a permanent contract in the civil service and am being promoted, over the last year I’ve been using plum to save and seem to be able to save £100/£150 a month. 

My question and advice needed is should I now start to offer to pay this debt back? Would that remove the monthly defaults if I did? Could I set the amount I pay? Would this make a significant difference to my credit report? And would that difference be enough to start looking at mortgages? 

I’m sure there’s other info you may want, I’d just like some different opinions to bounce off. 

Many thanks

[Deleted User]

A settled default looks better than unsettled.

It also removed the possibility of a CCJ.

If you want a mortgage, you need to tidy up any outstanding debts. If lenders believe you can't or won't repay a 5k debt, they won't be inclined to lend you tens or hundreds of thousands.

wantamortgage

Thanks, I have no other bad credit, no CCJ’s and I have settled all over drafts and any other short term debt like store cards etc. 

Mortgage broker offered a specialist mortgage with a company who will lend to bad creditors and we potentially have a large deposit to house cost ratio. Roughly 50/60% deposit of total house cost, mortgage advisor said this makes a big difference. However she was on the fence about whether to start offering to pay back debt or not. 

I wouldn’t be able to pay back in one go to settle at once only offer some repayment of about £100 a month. One idea I had was to take the mortgage offer from bad debt company then take a loan out at a more affordable rate to pay back the Barclaycard debt but I’m not sure about this either

[Deleted User]

No point in switching an interest free debt to a high interest one.

RelievedSheff

You certainly don't want to be taking on more debt to pay back a debt, that is just madness certainly as your interest is currently frozen on your defaulted account.

If you have such a large deposit to buy a house then why can £5300 of that not be used to pay off the debt and settle the default. It will have negligible effect on the LTV of the property you will be buying.

wantamortgage

Thanks, I know. The deposit comes with conditions from my parents, they do not want it spent on debt. They believe I was reckless getting into this debt and believe I should get myself out of it. They are of the generation where they didn’t use credit and have a complete aversion to this. 

Now of course I could give assurances that I won’t and then once they transfer the money to my account I could (and have contemplated) repaying this debt in full. If they every found out though it would cause a huge rift which I wouldn’t like to do but it is an option. 

I would like to repay the debt, due to my upbringing I do have a massive amount of guilt over owing this money and I would like to do it in my own. Getting a mortgage would half our current rent and we would be able to save/pay back more, just feels like I’m stuck in a trap really and one of my own making admittedly. 

I appreciate the comments so far. 

ddonq1412

I would see about paying back the debt first before a mortgage. My reason for this if you are using adverse lender the rate you get a mortgage at could be as high as 4-5% but some high street lenders can offer as low as 1.3% on the size of mortgage this could be a massive difference in interest each month. How long has it been since the default was issued. I was giving advise when i was looking for a mortgage from bank. they have 3 years clean criteria , I had a default that was coming up to 4 years and started paying it back. From my bank that was the wrong move as that bring the default to top of my list as it was activly being paid. i still continued to pay it off. mine was for less than 1000 though.

wantamortgage

Thanks,

yes the rate quoted is 4.3% so you’re bang on there, I have seen that I could get a better rate if had better rating. 

It’s exactly 3 years ago this month that the debt went into default, Barclaycard froze it and gave advice that it would be settled in 6 years if not repaid. At the time I was in a really black state and just accepted what the phone agent said. I didn’t know it would effect rating so badly and especially as this is my only default on any credit ever in my life. Like I say I carry a massive amount of guilt over this. It literally wiped my rating overnight from excellent to poor and I feel so bad that my actions are now causing huge detriment to my wife and family. We would be so much better off with a mortgage and feel so much more secure in our own house. We have had to move twice in the last three years due to landlords selling or upping the rent. 

My concern about approaching Barclaycard now is that they will reinstate it and then start charging interest at 19+% which will mean the debt goes on for longer.

[Deleted User]

They can't.

You said you've already defaulted.

ddonq1412

You could call them up and explain the situation that you are wanting to try and pay off the debt. could they put you on a pay mangagement plan to clear it off or if they could come to an agreement to reduce the costs to get it marked as satisfied. Once its paid up and changed to satisfied it will start improving your credit rating.

wantamortgage

I think you’re right and I was contemplating this as well, call them up and offer a repayment plan. Job is stable and we’re able to save silently with the plum app so I know there is at least £100 a month I could afford and when I start getting paid more we will have a little for the family. 

Just one last question then, if I started to pay it back, and kept up the payments, would it show monthly on the credit report as a paid debt or would it still show as default. 

And last one, you mention reduce costs, do you think I could ask them to reduce the debt ie wipe the last 6 months of interest before I defaulted completely (I was only paying min payment for those 6months)