Debt Consolidation Advice (£44K debt)

enthusiasticsaver

A 19% loan is not worth taking up and certainly do not secure the debts on your house.  As I see it either you wait it out until February and cash in some of your shares and repay the most expensive debts then keep plugging away or you go for a DMP and ask your creditors to freeze the interest.  The drawback to cashing in shares  is obviously the 40% tax so you would effectively only get £3900 so that is only enough to repay CC3 and CC5 so giving you £125 back a month which is no where close enough to fill in the deficit you have each month.  Given you are not defaulting I guess you  are still spending on credit just to live and that is a downward spiral which cannot continue as before long the debt will be up at £50k.  I honestly think a DMP  is the only option for you.  You should still be able to remortgage in a  years  time if needed but may need to stick with your current lender as obviously defaults will show on your file.  You are  now in too deep to consider anything else though.   The soa does not look too bad but you should be putting money aside each month for emergencies and as you have no savings I am guessing you do not save that car maintenance money either so presumably that is going on credit cards.  Using the cards has to stop if you are to sort this out. 

If you can negotiate a DMP payment through stepchange for around £800 which is more affordable for you then you would be clear in under 5 years.  That means no using credit though, you need to save up an emergency fund but you would be able to move forward rather than presumably robbing Peter to pay Paul as you are now.  The interest rates you are paying are horribly expensive too.  Contact stepchange. 

Scoty88

Thanks for the further replies, much appreciated.

Yes, I am in Scotland so no water rates. 
Council tax has the single person discount applied.
Contents insurance is tied in with my building insurance so I just put the single price in. 
Haircut cost covers both my son and I twice a month. Probably could find a cheaper deal though, I'll have a look.
And, I want to keep my life insurance in place. If I were to pass, the equity in my house could pay off the debts but I need to know I have left money to contribute to my sons up bringing if I am not around.
The equity plus life insurance covers the debts and pays off the mortgage. After that my house could be rented out or sold, either way there is cash going towards his up brining. 

The thought of freeing up, up to £700 is very attractive.
What worries me about defaulting is that I feel like that be a 6 year thing.
My partner is keen to buy a house together sooner rather than later. (She is less keen to move in with me for various reasons)
Plus my car has just hit 150K miles, I will give it my best shot but I don't think I can keep it running for another 6 years. 
I am worried about how I would deal with these situations when/if the occurred. 
The unknown causes hesitation. Sounds daft but it keeps me up at night worrying about what I can do about my car and what I will say to my partner about moving in together. 

EssexHebridean

Let’s assume you stop paying for four months before things default - month 1 gives you a £1000 EF, months 2-4 let you set aside £3000 in an account to replace the car when it needs it. I’m not aware that this would be a problem on a DMP, although that could be wrong. 

At the risk of sounding picky, why when you’re paying the amount you are per month child support are you also paying for things like haircuts? Should they not be included within that figure for maintenance, or do you pay when he is with you, your ex pays when he’s with her? If that, then please do make sure this is evenly split and it’s not that he always “happens” to need a haircut when he’s with you! (And I know you don’t mind, but it’s £10 a month you desperately need right now, hence me “going there”). 

also, noted on the life assurance, I suspected that might be your thinking, and it’s absolutely fair. I raised it purely because sometime people think they “have” to have it.

Pixie5740

Scoty88 said:

Thanks for the further replies, much appreciated.

Yes, I am in Scotland so no water rates. 
Council tax has the single person discount applied.
Contents insurance is tied in with my building insurance so I just put the single price in. 
Haircut cost covers both my son and I twice a month. Probably could find a cheaper deal though, I'll have a look.
And, I want to keep my life insurance in place. If I were to pass, the equity in my house could pay off the debts but I need to know I have left money to contribute to my sons up bringing if I am not around.
The equity plus life insurance covers the debts and pays off the mortgage. After that my house could be rented out or sold, either way there is cash going towards his up brining. 

The thought of freeing up, up to £700 is very attractive.
What worries me about defaulting is that I feel like that be a 6 year thing.
My partner is keen to buy a house together sooner rather than later. (She is less keen to move in with me for various reasons)
Plus my car has just hit 150K miles, I will give it my best shot but I don't think I can keep it running for another 6 years. 
I am worried about how I would deal with these situations when/if the occurred. 
The unknown causes hesitation. Sounds daft but it keeps me up at night worrying about what I can do about my car and what I will say to my partner about moving in together. 

If you’re at the stage of wanting to live together you need to be honest with your partner about your financial situation. Explain that buying a new place is off the cards for the next few years. That’s the case whether or not you have a DMP because that £44k of debt is going to reduce the amount you can borrow. 

You don’t need to get into debt to buy a new car. Put some of that £700 away to buy a new car when the time comes and when I say new I mean a £2k car that’s new to you. 

enthusiasticsaver

You will not get a decent mortgage deal with that amount of unsecured debt so taking on a new mortgage with your partner will need to be put on the back burner until the debt is sorted.  You won't get a decent car deal either. Each month you delay dealing with this means you are continuing to add to the debt by using your cards to plug the gap, the interest you are paying is over £700 each month so the debt is not really coming down.  Look at your debt figure a year ago and compare how much it is today.  

Defaulting immediately gives you the option of saving up for the next couple of months so you have a few thousand if you need to  buy a new car.  If you can manage to make it limp along a few more years until you can withdraw your LTI money without paying the 40% tax you can use that or worst case scenario cash in the 1/3 after February and use that £3900 to buy a car.  

Scoty88

EssexHebridean said:

Let’s assume you stop paying for four months before things default - month 1 gives you a £1000 EF, months 2-4 let you set aside £3000 in an account to replace the car when it needs it. I’m not aware that this would be a problem on a DMP, although that could be wrong. 

At the risk of sounding picky, why when you’re paying the amount you are per month child support are you also paying for things like haircuts? Should they not be included within that figure for maintenance, or do you pay when he is with you, your ex pays when he’s with her? If that, then please do make sure this is evenly split and it’s not that he always “happens” to need a haircut when he’s with you! (And I know you don’t mind, but it’s £10 a month you desperately need right now, hence me “going there”). 

also, noted on the life assurance, I suspected that might be your thinking, and it’s absolutely fair. I raised it purely because sometime people think they “have” to have it.

Yes, if he is with me and due a hair cut I will get it done. I was paying more on child maintenance plus paying out for things like school clothes. I clamped down on all that recently.

I could be overthinking the life assurance bit but that is my though process behind it. I am open to opinion though.

Thanks for the responses

Scoty88

Ironically, my total debt levels have dropped over the past year.
But this is due to the fact I am paying the 2 loans off and, now again, I have come across extra funds (Bonus, Bday Money, Selling things) which allow me to reduce the CC balances a bit.
However, its clear that the credit cards are a mess and going in the wrong direction. 

I think I have been battling so hard to "rob Peter to pay Paul" that I have got tunnel vision, focusing on the overall amount and failing to appreciate the amount of interest I am paying and the circles I am going around in with the credit cards.
Writing it out like this and reading the responses has made the problem and solution seem obvious. 
Plotting out the balances for the past 12 months shows the credit card issue clearly.
Focusing on the total value of the debt has giving me a false sense of optimism really.



I hadn't considered the window of opportunity to save up a EF while I default, this is a massive help. 

Next steps are a DMP and on a personal note I need to understand why I got myself in to this mess. 
Reading other journals I gather that unless I understand and resolve the "why", the problem will never truly go away.

My partner does know the situation but I think I need to sit down with her and make sure we both fully understand what happens next. 

Again, thank you all for the responses and advice. 

EssexHebridean

Definitely get to the bottom of your “why” - as without knowing - and there can be a myriad of different reasons or even a combination of reasons - why it’s happened, there’s nothing you can do to stop it happening again. 

It sounds like you’re really making giant steps forward here though. We tend to say on here, the moment you say “I’ve got a problem and I need help” then the hardest bit is done - even though it might not feel like it. That’s not diminishing the job ahead of you, but just taking that first step deserves massive kudos. Well done. 

Andyjflet

Hi Scott, I was in a similar position to yourself. Have a listen to Dave Ramsey podcasts and find him on You Tube, I followed the Baby Steps, saved an emergency fund and now haven't used any form of credit for 25 months now. Every month I'm nearer to being debt free and the feeling of having more of my income to myself is amazing.
I would consider the DMP and saving an emergency fund, bin the credit cards. no reason you cant plan ahead with your partner and arrange in a few years to live together, by which time you'll be in a great position financially. 

enthusiasticsaver

Scoty88 said:

Ironically, my total debt levels have dropped over the past year.
But this is due to the fact I am paying the 2 loans off and, now again, I have come across extra funds (Bonus, Bday Money, Selling things) which allow me to reduce the CC balances a bit.
However, its clear that the credit cards are a mess and going in the wrong direction. 

I think I have been battling so hard to "rob Peter to pay Paul" that I have got tunnel vision, focusing on the overall amount and failing to appreciate the amount of interest I am paying and the circles I am going around in with the credit cards.
Writing it out like this and reading the responses has made the problem and solution seem obvious. 
Plotting out the balances for the past 12 months shows the credit card issue clearly.
Focusing on the total value of the debt has giving me a false sense of optimism really.



I hadn't considered the window of opportunity to save up a EF while I default, this is a massive help. 

Next steps are a DMP and on a personal note I need to understand why I got myself in to this mess. 
Reading other journals I gather that unless I understand and resolve the "why", the problem will never truly go away.

My partner does know the situation but I think I need to sit down with her and make sure we both fully understand what happens next. 

Again, thank you all for the responses and advice. 

That is a great spreadsheet and shows  you clearly that there has been a reduction in the debt by about £4k over the year but you have made almost £16k of payments assuming £1325 per month in total. So £12k of your annual repayments has gone on interest and presumably as you are still using the cards it is a bit like robbing Peter to pay Paul.  I think you will find a  DMP will be much better for you as the debt will actually start to come down so you can move on from this and you will actually be able to live rather than juggle payments. 

The why is a good question to ask when considering addressing spiralling debt simply to ensure you get rid of the bad spending habits and move towards a better financial future.  It is surprising how easy and quick it is though to get into a credit card spiral.  Our brains trick us into thinking it is no problem to spend a couple of thousand on a new tv or a holiday or furniture or whatever as the monthly payments look affordable.  What people forget though is that life events happen and I guess for you the separation or divorce from your childs other parent may have involved spending out on a house  deposit or buying your ex out and/ or dealing with reduced income. Also all these affordable monthly payments are no problem on their own but suddenly become a mountain as they accumulate. Sometimes a casual approach to credit and spending  is ingrained from very young.  

You have done a budget which is good.  I would write to your creditors telling them you cannot afford to pay and ask for breathing space to set up a DMP.  Speak to stepchange and see if they will deal with this for you.  Open a clean basic bank account with a bank you do not owe any money to and do not take out an overdraft.  Stop using the credit cards and the overdrafts and work out an affordable monthly payment after allowing for essential dds and bills, food,fuel,  entertainment, emergency fund savings etc  and monthly savings for car maintenance/household/child costs etc.  Between now and the start of the DMP save as much as possible so you have a good EF as you cannot access credit. My plan if I were you would be to use your shares in February 2024 to clear what is left of the DMP and put the rest if any  towards a new deposit with your partner.