Getting to grips

capuchin

Hi all,

trying to get to grips with my current situation. I've been completely isolated and very unwell for the last few years so the debts have piled up. The headline figures are basically that I've had around £600/month income for the last 2 years, and been paying off around £500 a month in debt each month... with a total debt of around £15,000. I've not been able to manage or even look at it.

In the last few months I've hads some fantastic help and come under the care of a team that is helping me become more alive instead of just existing. So we're trying to deal with this. Lemonfool SOA below. My income is about to rise to the figure in it, and I am now exempt from council tax, and current with my rent. Important to note I've not defaulted (somehow) on anything, so everything is current and accruing more interest. A DRO is not possible as I have assets (reclaimed inherited Nazi era art which is not for sale under any circumstances) worth around £15,000? perhaps. It's unlisted in any account etc, but does exist.

I will need around £3000 in 6 months or so (to buy a motability car). At that point my income will reduce by £271 a month.

Our current plan is to speak to my bank (Natwest) and try to secure a £15,000 loan at 3.4% (Around £270 a month) which would pay off the creditors, then message each individual creditor and ask for a partial settlement at around 70% given my circumstances. I have drafted a letter and basically intimated it would be this offer or more drastic action which meant they got less of a return. Any ideas are welcome though.

Many thanks!

[spoiler]

[font=courier new][b]Statement of Affairs and Personal Balance Sheet[/b][b]

Household Information[/b]
Number of adults in household........... 1
Number of children in household.........
Number of cars owned.................... [b]

Monthly Income Details[/b]
Monthly income after tax................ 1520
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0[b]
Total monthly income.................... 1520[/b][b]

Monthly Expense Details[/b]
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 0
Electricity............................. 80
Gas..................................... 20
Oil..................................... 0
Water rates............................. 15
Telephone (land line)................... 26
Mobile phone............................ 10
TV Licence.............................. 0
Satellite/Cable TV...................... 0
Internet Services....................... 0
Groceries etc. ......................... 200
Clothing................................ 0
Petrol/diesel........................... 0
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0
Haircuts................................ 0
Entertainment........................... 40
Holiday................................. 0
Emergency fund.......................... 31[b]
Total monthly expenses.................. 422[/b]
[b]

Assets[/b]
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 12000[b]
Total Assets............................ 12000[/b]
[b]
No Secured nor Hire Purchase Debts[/b]

[b]Unsecured Debts[/b]
Description....................Debt......Monthly...APR
Paypal.........................1708......56........19.9
First Direct...................1544......46........0
Natwest........................1411......23........9.9
Lloyds.........................1090......28........0
Debenhams......................1413......40........0
Halifax........................1338......33........0
Barclaycard....................600.......20........0
Current2.......................600.......0.........0
Amex...........................1120......33........0
Current Account................1700......45........0
MBNA...........................3100......85........0[b]
Total unsecured debts..........15624.....409.......-  [/b]

[b]
Monthly Budget Summary[/b]
Total monthly income.................... 1,520
Expenses (including HP & secured debts). 422
Available for debt repayments........... 1,098
Monthly UNsecured debt repayments....... 409[b]
Amount left after debt repayments....... 689[/b]

[b]Personal Balance Sheet Summary[/b]
Total assets (things you own)........... 12,000
Total HP & Secured debt................. -0
Total Unsecured debt.................... -15,624[b]
Net Assets.............................. -3,624[/b]

[i]Created using the SOA calculator at www.LemonFool.co.uk.
Reproduced on Moneysavingexpert with permission, using Firefox browser.[/i][/font][/spoiler]

sourcrates

Hi,

Ouch, never try to borrow your way out of debt, never works well.

You have omitted your rent from the SOA, as well as a number of other categories as well with no figures in them, so its not a very accurate picture of your actual spend.

"Nazi era art" never seen that mentioned in a post on here before, unfortunate, as you have the means to clear the debt, yet you continue to struggle onwards, and look to use the worst possible option as a means of clearing the debt.

Also how on earth have you managed to keep paying these debts on an income of £600 a month ?

Seriously, you have been beating yourself up for no good reason, on an income that low its very likely your creditors would have either written the debts off, or at least put them on the back burner at £1 per month each, had you informed them of your circumstances.

Your situation would much better suit a free debt management plan, run by one of the free debt charities, rather than opting for consolidation, you would likely be declined for the loan anyway, as consolidation loans are a sign of financial struggles, and lenders have been very cautious what they lend for, what with the covid situation still ongoing.

fatbelly

1. Are you sure some of those expenditure items are zero? You explained about the council tax but you if you spend nothing on travel, what is the point of the Motability car? You should budget a sensible amount for 'fuel' even if that is an electric vehicle you are thinking of. Also clothes, haircuts, Christmas and birthday presents.

2. Has your bank confirmed a 15k loan at 3.4%? That seems unlikely, as you already have 15k of debt and a low income. What would you do if they offer a loan at a much larger interest rate?

EssexHebridean

You need to go back over the SOA, filling in the  categories which should have a budgeted figure there. As already mentioned, rent - just because you’re up to date now you still need to pay it ongoing, presumably? Also things like contents insurance which even if you paid it outright when it was last due, good practise is to budget a monthly figure so that you have it ready when renewal time comes along. You have no costs against any sort of TV, license or paid service, is that correct? 

The other thing that stands out to me is a very high electricity cost against gas - usually we would expect to see the other way round. If you use electricity for heating, then that would explain that spend, but then why is the gas so high? (We use gas only for cooking here, and even now with escalating prices we only pay £8 a month). 

Agree wholeheartedly that consolidation is not the right way forwards for you too - there are the odd occasion when we might say it could be a fix, but they are few and far between I’m afraid. 

Well done for managing to get so much of the debt onto 0% though - does the MSE credit club suggest you might still have eligibility for any more transfers, specifically money transfer cards? That could be a good way of tackling that wretched PayPal debt if so, although Sourcrates suggestion of a DMP seems like the best bet for you. 

fatbelly

We're not having a go at you, honest.

But I'll throw in my other points now

3. It is not necessary to spend a lump sum on a Motability car and if that means using borrowed money maybe it's best avoided. Zero contribution cars are listed here

4. You will not get any settlement offers as you have not defaulted on any of the accounts.

Why did that go to small type?

capuchin

Thank you both for the reply.

@sourcrates There is no rent to pay. I mainly did list that to budget the debt not the daily living though. You can assume an extra £100 a week or so to live on I guess. By 'Nazi era art' I mean items confiscated by the Nazi's, then restituted to my grandmother post war, and inherited by myself. Just some jewellery and stuff.

I have absolutely no idea how I have not defaulted. I think it's my overdraft which has acted as a buffer and slowly been eaten into over the past year or so. I've been unwell to the point I've not managed to eat, shop, or wash etc so I suspect this has driven down my daily living costs very low.  I've not even been claiming benefits. The council and CMHT are helping now, which is why my situation is improving.

So it's just been going out every month, I've not even been cogently aware of it... going out, mounting up, continuing.

My sister can lend me the money if the loan doesn't go through, though Natwest have been helpful so far. (They want to see my uptick in income confirmed before continuing, but have already frozen the interest on my overdraft for 12 months as well as extended the facility from 2k to 3k.)

Why would they write off the debts when I've been paying them? How would I approach them over this? Or is it better to let them default and then come to me with an offer when they get desperate?

@fatbelly The point in the motability car is mobility and independence. I basically can't even get to the supermarket or the hospital/doctor currently, nor would I be able to without a vehicle. It wouldn't be many miles, but would make a huge difference to quality of life for me.

capuchin

To expand on the above, basically I found out I've been overpaying rent for a long time and simply not opening letters, so I'm over a year in credit or so. There's rent to pay long term, but not in the imminent future. I also have housing benefit covering some of it now I think, so that credit is going down really really slowly. I figured it was best to leave it with the landlord so it's 'protected' 

Unfortunately not all f them are 0% (I just didn't manage to find the interest rate on all from the details) - I think only the Amex and Paypal ones are high rate though.

I do have some 0% offers. I think it's because my credit utilisation is quite low, my income used to be rather high, and I've never defaulted, so I have a 'good' credit rating?

Electricity is unfortunately high as I forget to turn things off all the time (imagine an oven on 5 hours a day on average etc.) Apparently I can apply to the energy companies to mitigate this cost as it's due to disability, but I've not managed that yet.

It seems to be a DMP would be the same as consolodation, but with the added effect of tanking my credit rating. (As opposed to a £1250~ cost over 6 years. (or £21 a month 'interest')

I'd really like to negotiate some of the debts down, even if my credit rating takes a hit. Would the only way to do this, to be to default intentionally and then negotiate?

@fatbelly No problem on the

EssexHebridean

Ok - an easy win for you then. Every time you use the oven, as an example, set yourself a timer for an hour later to remind you to turn it off again. Quite aside from anything else, leaving stuff like that on and forgetting about it is downright dangerous! If when the timer goes you’re still using it, set the timer for another hour or however long you need. Also get into the habit of BEFORE you take your food out of it, turn it off. Just good practise. We all do stuff like that occasionally, but in your case it’s costing you a silly amount of money, and is easy to fix! You can use that method AND the habit building for other things too. 

If you will have rent to pay in the longer term then I would mentally budget that amount to pay against one debt at a time right now, starting with the overdraft. You do need to keep track of when that rent becomes payable again though. 

If you can get a 0% money transfer card then for goodness sake get that PayPal credit transferred on to it as a starting point. On clearing the debt, the first thing you need to get shot of is the overdraft - that is a dangerous one as it can be recalled at any time. 

If you can get as much interest accruing debt as possible to 0% then with your new increased income and a year where you don’t have to worry about rent you can make a huge impact in that figure you currently owe, even allowing for the car. As already suggested look at a zero contribution option for the time being, you should be able to scale up when the time comes to change it if you feel the need to at that stage. 

TheAble

How come your income will go down when you buy the car? Is that just coincidence?

EssexHebridean

A further thing that has jumped out at me - you were considering consolidating via a £15k loan, and then trying to talk the amounts payable to the debts down, so what is your plan for the remainder of the money you’d be borrowing on the consolidation loan? Consolidating generally isn’t a good idea as already said. Doing so when you have the means and the credit history to pay things off via some sort of payment plan even less so, and borrowing more on the consolidation loan than you need to pay off the debts is a real red flag, and almost certainly the top of a massive and very slippery slope, too. 

capuchin

@EssexHebridean Thank you so much for your thoughtful and detailed replies. Really means a lot when trying to get a grip with this all.

I think I see what you're saying about the consolidation idea being bad. The idea was to have a cash buffer as I barely spend much anyway, which would deal with the car payment and other unforeseen issues.

I think I have some sort of plan forming in my head - Borrow 5k from my sister over 10 months (500/month repayment each is a lot, but no rent to pay and I'm already paying close to that in minimum payments.) I've also found 2kg of silver and around £500 in some old accounts.

Use it to clear Paypal and AMEX, clear the overdraft myself asap. Then try to shift the remaining debt onto 0% fee cards or similar.

Still unclear if it's worth trying to protect my credit rating, or tank it and default to try to get some lower settlements and things immediately cleared. (with the added benefit of no credit, no problems) - Any thoughts on this?

With regards to the oven and stuff - working on it! Now that AFIP is here and I have some support I am getting a network of alexas/alarms in each room installed which I can simply speak to to aid short term memory.

@Theable You use the mobility component of your AFIP to get the car, so pay an advance payment + 63 a week or so. Due to the area I live in, insurance is very expensive and it is cheaper to do it this way.