Repercussions from defaults

Holdenbackthetears

Hi,

I’m new to this site but I could really use some advice please. I have read several other threads and may post a full SOA once I’ve worked everything out but just some general info would be useful at this stage.

Situation is I’m married with children, both working full time but have accrued debts from Covid and my husband being out of work. Couldn’t cancel childcare for kids despite not needing it as we would be completely stuck once DH was back in work so this period crippled us.

Debts sadly went onto high interest cards as we hadn’t really got a credit history before (no cards/loans/mortgage prior to this). The debts eventually became so expensive that I had to borrow more to cover it and keep food on the table/clothes on the kids backs. So that’s the story. DH is now back in work but after paying for childcare (with the vouchers to discount it) and with him working further away and having more travel costs, we just can’t keep up with everything. We let one card slide two months ago to try and keep up with the others but they’re barely covering the interest and we have no savings so one unexpected bill and they won’t be paid either.

I’m not particularly bothered about our credit report as we won’t take out credit again, but my concern is whether utility suppliers are likely to refuse us in future if our score is super low?
 

I’ve looked at debt plans but we own our house without a mortgage so I don’t think we could do this without losing the house. This was inherited and it would kill me to lose this as it’s been our only bit of safety throughout this. My relative that died would be gutted if they thought I had lost this due to debts. If we sold it to pay our debts, we couldn’t afford to buy anything else and it would cost a lot on solicitor and estate agent fees. We couldn’t afford rented unless we lived off the capital which would be absolutely gutting.

What I was perhaps going to do is just default on them all so the interest stops (40-50% interest) and then try and agree a low repayment amongst them all. To cover minimum payments with their interest, we need about £700 per month and currently have only £350 per month so it’s clear something is going to have to happen. Would this be a terrible idea if we’re not concerned with getting credit cards/mortgages in future or will it impact us elsewhere in ways we hadn’t considered?

I don’t know anything about debts or what to expect so any help would be much appreciated. Not sleeping well at all of late and can’t save for any of the bills I know are coming (car MOT, Xmas, household repairs, dentistry work) whilst we keep trying to pay back their 50% interest rates.

savingholmes

Perhaps if you posted a statement of affairs then people would know what your income and outgoings were and suggest ways of shaving any off. 

If you own your house mortgage free is it an option to remortgage to a low interest rate to pay the debt? However - we don't normally recommend consolidating on MSE as if you don't learn the lesson things just repeat. 

Could you talk to Citizens Advice or Step Change about options...

savingholmes

You could also take a look at the DMP thread - debt management plan to see how that could help your situation.

Holdenbackthetears

Thanks for the replies. We’ve always been the sort to save before we buy anything and have never taken on credit so I don’t think we would get back in this position unless we had another pandemic and one of us lost our jobs again very suddenly. 

I don’t think we would pass the credit score for a mortgage now though as we only managed to get sub-prime credit cards before due to lack of credit evidence. We have now got between 85-90% of the limits used up and have missed a payment. Those payments we have made have been not much more than minimum payments for the last few months. I think our credit file would look like we’re struggling.

Would a DMP be an option when you own a property? Does anyone know if they would expect us to stop swimming lessons for our child? Probably sounds silly but she had such a fear of water and is absolutely loving it. I’m happy to go without anything and everything but would love this to be able to continue for her. It’s only 1 lesson per week but isn’t an essential bill and I’m aware of this.

capuchin

Assuming all the debts are unsecured don't even consider mortgaging the house to pay them. Never ever ever.

Somebody more knowledgable will be along soon but basically to answer your questions as some sort of triage:

- If you default and go onto a Debt Management plan paying the maximum you feel comfortable with, nothing much can happen.

- It MAY become difficult to get utilities etc, but 1. changing currently is impossible anyway 2. Most will just allow you to give a deposit to go over it.

- Yes a DMP is an option, and possibly the best one for you, assuming the debts are kosher.

Given the rates are 40-50% interest, I'd do as follows: (Sounds like you have around 15k or so debt - correct me if wildly wrong)

1. Post an SOA here

2. Stop paying and default on them. Contact a debt charity like stepchange for the next step.

2.5 Save all money from stopping paying into a warchest. This will act as your emergency fund and attempting to possibly reach settlements later on.

3. Wait for advice from somebody awesome like fatbelly or sourcrates here.

This isn't terminal. You won't lose the house, so don't worry.

EssexHebridean

1) Take a breath - it’s going to be OK, I promise.
2) Get that SOA done and posted in here so we can try and help.
3) Do NOT put the debt onto the mortgage! Absolutely not!

I Agree with Capuchin above about defaulting on the cards if things are that tight. They’ll complain a bit, then after 3/4 missed payments should issue the defaults at which point interest should stop and things will start to look a bit more straightforward - that can also be done as part of a DMP - and no, you won lose your home, have to stop the swimming lessons or indeed need to live on dry read and plain water for the next 30 years, either… 😉

You’ve done the hardest bit - confronting the fact that things have got away from you. From here on, it all gets easier. 

sourcrates

Lots of homeowners enter debt management, its an unregulated, informal debt solution, its not bankruptcy, you don`t have any rules or regs to follow, you don`t have to take orders from anyone, and your house is perfectly safe.

Your in charge of it, not your creditors, so change that mindset around to a more positive viewpoint, all your debts, I assume, are consumer credit act related, and are all unsecured, which means they are all "non priority debts".

Basically that means if your budget shows disposable income of £1 each per month, per creditor, then that`s what they get, post that SOA, and you can start to get things moving.

EssexHebridean

@Holdenbackthetears How's things going? Did you manage to get your energy company issues resolved in the end, and have you got any further with the SOA and taking steps towards a DMP?