help with full and final settlement - what to offer?

pavlovs_dog

Hi All,

hoping to get some advice on behalf of my brother. 

He has 1 debt of a little over £5k with barclaycard.  He was using his card like a debit card and clearing the balance in full each month.  Around 3 years ago, his had an accident and his injuries meant he had to leave his job.  He had to use the card to cover living costs until he recovered and got a new job. His new job had lower pay and fewer hours.  Where he was now only able to make the minimal repayment each month, his debt spiralled.

He has never missed a payment but due to being unable to significantly reduce his debt, Barclaycard recently put him onto a debt management plan and have frozen the card.  However their 'lower' APR is still ridiculously high (more than 60% of his payment is servicing interest), and his debt is only reducing by about £60 a month.  They have forecast that it will take more than 30 years for him to clear his debt based on his current payment schedule.

He has recently opened up to us about his situation.  We can access 0% interest free credit and have offered to use this to help him get back onto a stronger financial footing (I fully trust that he will pay us back in full). Can anyone offer any advice regarding what would be appropriate to offer as a full and final settlement.  Barclaycard have already fleeced him and I don't want to see him have to pay them a penny more than he has to.

Thanks in anticipation of any advice

RAS

At this stage Barclays are unlikely do a full and final as they are being paid. That's on offer if the debtor has defaulted, hasn't paid in ages or is paying peanuts per month.

Mixing money and relationships often leads to heartache. If you do decide yo help your brother

Insist he does a full Statement of Affairs and I'd suggest, not insist, that he posts here for feedback. His SOA needs to be sustainable for everyone's sake, including an emergency fund.

Work out how much per month he'd need to pay back to clear an 0% card. Can he afford that? If not are you prepared to rinse and repeat?

Ask him to look at how he can increase his income?

Insist he sets up a standing order to pay the card, or you, very shortly after payday. When his rent, CT, utilities and debt have gone, he'll need to adjust.

And discuss some degree of transparency. You don't want to be paying off a card only to find he has even more debt on another card he's taken out since.

The other option is set up a new basic bank account into which his salary is paid, stop paying, get a default, which halts the interest, and do a DMP where at least his payments clear capital, not get absorbed by interest. 

And get him to speak to Stepchange or National Debtline.

pavlovs_dog

thank you for your input RAS.

He has been very transparent with me about his financial affairs, I have no reason to disbelieve him when he says he has no other debts.  He's always been sensible with money and has always paid his way.  His current predicament is a result of some bad luck, compounded by low wages and limited options to access balance transfers etc.  

We played with a snowball calculator today to run various payment scenarios.  What he is currently paying would allow him to halve his debt over the next 17 months. Happily he is now in a position to increase his hours at work and earn more, and is eager to do so in order to clear his debt faster.  We've also spoken about the importance of him building an EF so he doesn't find himself in this predicament again.  

RAS

For everyone's sake, make sure you document the loan and repayment agreement properly, both sign and get the signatures witnessed.

Also once he's got a clear card, her can make a few small purchases each month with a DD set up for full payment. In time, he may get this own 0% offer on the card. Barclays are well-known for that according to another poster. He won't be able to balance transfer from your account but you may be able wrangle something which transfers some of the debt back to him (a third card owned by him used to buy something you wanted anyway?).

That'll be good for him feeling in control of his own debt and for you as well. May need to adjust the payments back to you so it won't change the end date.

kimwp

You should only lend him this money if you are willing to write it off - not because of his trustworthiness, but because things happen.

It's a moot point though unless you are going to lend him the full £5k- he will be unlikely to be able to make a full and final offer at the moment (which is a smaller amount than the amount owed). 

Rob5342

It's not just about trusting him, you need to consider what will happen if something happens to him that means he can't pay you at any point, or if something crops for you and you can't borrow what you need becuase of your increased debt. You really need to treat it as a £5k expense you fund yourself, with a potential £5k bonus you may get back one day.

Barclaycard probably wont accept a full and final offer unless the debt has defaulted, but if it has defaulted then there won't be any interest and he can just pay it and whatever rate is affordable anyway.

One thing to conisder is if you actually would be helping him. I assume that his credit report has an arrangement to pay marker on it now, so that would stay for 6 years after he used the money you lent him to pay it off. If he stops paying, gets a default, and then starts paying, then he'd get a default on his credit file that dropped off after 6 years which wouldn't really be much different. If you lend him the £5k then he may feel a compulsion to pay you off as soon as possible meaning he saves less and is vulnerabe to the same thing happening again. If he defaults then it would be 0% interest forever and he could pay it off at whatever rate is affordable and save more.    

fatbelly

As others have said, this is not a good use of your 5k.

If he can't come up with 5k himself and his credit history is too poor to get 0% offers then his best tactic is to  stop paying them and wait for the default, and hopefully sale, of his account.

In the meantime he should save the £200 or whatever that he was going to pay you each month into a fighting fund.

Who knows, by the time this gets sorted he might be able to offer a full & final settlement...

sourcrates

I too agree with what`s already been said.

Creditors won`t take settlement offers whilst the account remains live, you must break the terms of the agreement, usually by defaulting, in order to do this.

Even then any settlement offer won`t be very good, its only once a debt gets sold on, that a decent offer will be made.

Debt buyers buy debts for much less than there face value, so discounts can be a lot higher, so I would go with fatbelly`s advice, no sense in wasting your own money, these things take time to progress, with time, and a fair wind, a 5k debt could be settled for less than half of that figure.

pavlovs_dog

I realised that I completely forgot to update this thread.

Since my original post my brother has worked hard to improve his situation.  He has secured a new job with better pay and increased hours.  He is close to completing a training scheme which will make him eligible for promotions.

He decided that he didn't want to default and damage his credit rating so I've helped him with a plan to cut the interest burden he was facing.  He received an insurance payout which he has used to pay a chunk off of his card and set himself up with an emergency fund. He has set up a balance transfer, which has given him a 20 month 0% window to  pay down his debt.  The card limit he was offered was £1k short of the amount owing.  I've loaned him this to bridge the gap.  It is a much smaller risk to us than the £5k loan I had initially considered and he should be completely debt free (CC and repaying us) within a maximum of 24 months.

I took your counsel regarding the the potential dangers of loaning him money seriously.  I am fortunate to be in a far stronger financial position than he is ever likely to achieve, and it is important to me to use that good fortune to help my brother work towards building a stronger financial future for himself.   If something were to happen to delay or prevent him from repaying us, -£1k would dent, not derail, our financial plans.   Loaning him a far smaller amount limits our exposure to risk, and, as RAS pointed out, gives my brother far greater control/responsibility over his debt.

Thank you to all of you who took the time to respond and offer advice.