advice please how to deal with huge credit card interest

paulus3

Hi

so thanks for any advice. sorry for long text but wanted to explain everything...

firstly im 53 and  married with 2 children. I have had a lot of debt for last few years and in a circle of just paying the interest. My debt is around £60000. £35000 is personal credit cards, £5000 personal  overdraft, £10000 business overdraft and £20000 bounce back loan.

the main issue is the personal £35000 credit cards and the £5000 overdraft as every month im paying around £1000 interest and have done for last 2 years. the reason i do this as i wanted to keep my credit rating. before i could manage it but after  covid my work is less and now all interest and prices have gone up with cost of living.

I do have a flat i rent out also and the is worth £350000 and has mortgage of £220000 outstanding. i earn around 20000k per year and rental income is around 10000 per year.

At the moment any spare money i earn goes on the interest repaymnets, and i have 2 children and tax i am on a payment plan. I do not earn enough to pay of any extra so im caught in trap of going no where and even some months i cant afford everything so i am using the creduit card again to just live and so the interest increases again.

as a solution i have tried the following...

1 ) applied for personal loan to consolidate debts, i have tried high street and also specialist lenders to people under credit issues, but none will give me a loan even though i agree to put charge on flat. i think this is because im using over 70% of my available credit

2) i have tried to sell the flat but it will not sell at moment.

3) i called hsbc and other lenders to say im in persistent debt but they said i anm not classed as persistent debt as i have paid more than minimum payment and paid off some of the debt...my dad gave me sopme money so i paid off some ( before i owed £10000 more) and this paying off menas im not in persistent debt so they will not lower the interest.

4) i applied for balance transfers at 0% but i cannot get any cards.

my main aim was to reduce interest and then use the money saved to pay off debt but now stuck in circle i cant get out of. i thought the above would all allow me to pay off debt but not affect credit rating but now im thinking i cant do this and will have to do DMP or simlare but it scares me how this will affect my credit rating.

Now in future i still hope to get a mortgage and buy car ( as our car is old) but if DMP then have to pay off debt 2-4 years and then after wait 6 years until i can get mortgage.

other options i am looking at with questions are

1) call the credit acrds and say im in financial difficulty would this mean they allow a managed loan or they reduce interest without affecting my credit rating or will this be same as DMP?

2) if i do DMP will i be able to still use a bank account?

3) if DMP only option does it complrtely wipe out credit score and how many yaers after its cleared can i get a mortgage?

thankyou for any help

Floss

OK, firstly - DO NOT TRY TO BORROW ANY MORE MONEY! You can't borrow your way out of debt.

Secondly, if you enter a DMP your credit record will be trashed for 6 years from the date of the last default registered - not for 6 years after you pay it off.

Thirdly, yes you can still use a basic bank account. It's recommended that you open one with a bank that is not connected to any of your debts, such as Nationwide, Monzo or Starling. Do not use the switching service - open the account, arrange for salary to be paid in & then cancel all payments from the old bank

Mr.Generous

I think the flat would sell, just set the price right and It'll go.

Richard1212

The best, perhaps the only way, to avoid disaster is to sell the flat. You say you think it "won't sell"----what makes you think that ? All flats are sellable unless there is something awful that we do not know. Put it up for sale and don't give up, as it sometimes takes time for buyer to appear, as you will know. Good luck and I hope you clear the debts---and then learn from the experience.

paulus3

hi all

I did put flat up for sale but ii was reduced to £40000 below the sell price and still did not go. in order to sell i would have to reduce to way below its value maybe another £30000 on top of the above , this is so well below market price and also i have a fixed rate mortgage form 3 years ago when rates were near 2% , and 2 years to go. so i make £1000 per month from the flat for next 2 years and its this which i am using to pay the interest on cards.

to sell at such a low price and also losing £1000 a month for next 2 years does not seem to me the best way to go...

Gurnatronics

Don’t mean to sound rude but doing things “the best way to go” as you see it has got you in a bit of a mess.

60k debt on 30k income? 10k of which is reliant on a renter not wrecking your flat AND paying on time? I wouldn’t ever sleep again

I’d do whatever it takes to sell the flat. Market value and interest rates be dammed. Get some financial stability and some peace, a small deposit and a clear credit file. Will do wonders for your future. 

Good luck!

paulus3

thanks for the replies

i understand what you are saying about the flat but if i get a DMP then surely i can use the 24k of rent over the next 2 years to pay off the debt. plus it saves me losing money on the property by selling it cheaply.

TheAble

Since you say you're hoping to get a mortgage in the future, then presumably you're renting the place you live in at the moment? This is quite an inefficient setup from a tax point of view if so since you'll be paying tax on the rental income from your flat but minimal tax offset from the mortgage you're paying on it, plus of course no offset of your own rental outgoings. If this really is the case then one possible option might be to move out of your rental and into the flat, if that is practical.

Others are more knowledgeable on DMPs but you do need to bear in mind you have an asset to protect - this is a factor in deciding whether it would be suitable. It may still be. One thing's for sure and that you do need some sort of help because it's definitely not sustainable or desirable to be paying away £1k a month in interest.

I wouldn't be too concerned about your credit score for the time being. As you evidenced in your first post I don't think lenders would classify you as a great risk, for all that you're not missing payments.

A few other suggestions for now:

• Post up an SOA (link in the stickies)
• Consider how you might increase your income
• Give Stepchange a call as they will be able to advise on some practical steps you might take

kimwp

Hiya! The people who have recommended selling your flat aren't usual posters on this forum. For the best advice from the board veterans, best to put together your SOA (should be a link in my signature) - make it a real view of what you spend (go through bank accounts) and note anything that might mean the numbers are unusual eg in the past we've had SOAs where the person has stated a two person household, but only put their share of the bills making the bills look far smaller than they are. (If the bill looks small, there's less likelihood that something can be done to reduce it)

We'll try to help you get your SOA to be accurate by identifying things you might need to budget for but have forgotten, identify where you might be able to make savings and offer information to help decide the best route forward to solve your debt issue.

It's really important that you understand why you are in debt. You don't have to share this (though it's anonymous and if you share, posters can offer tips and share their experiences too), but if you don't understand why, then the likelihood is that you'll fall back into debt in the future.

Hth

paulus3

Hi

so i dont live in the rented flat, its a buy to let.yes the 1k a month interest is not sustainable especially when my mortgage deals runs out in 2 years as it will rise quite a bit and thats why i wanted to use this income over the next 2 years to pay the debt but i cant as im using it to pay the interest.

At the moment my income is low as business died from covid and cost of living.

I agree my credit rating might be high due to me never missing a payment but i cant use it for anything as my borrowing is so high no one will lend to me....so thats why im thinking the DMP would work as it would get rid of interest and allow me to pay the debt.Im still not sure when the DMP would allow me to get a mortgage though after its paid off and if i have to wait 6 years ando one will lend to me....  when the 6 years start and ends as i have not defaulted - is the default when the DMP start and is the 6 years from the start of the DMP or the end? sorry to ask all this....

lastly im not sure if i call hsbc and tell them im in financial difficulty if they would put me on a managed debt consolidation loan with lower interest ( more than 1/3 of my debt is hsbc) .....  so maybe this would allow me to not use the dmp and keep my credit score intact.

and thankyou kimwp yes i will do the statement

kimwp

paulus3 said:

and thankyou kimwp yes i will do the statement

Great news.

A few bits of info that might be useful -
- A default is when you've missed enough payments that your lender puts your account in default. There's no set time for this to happen. It will drop of your credit history after six years. It usually stops interest being charged.
-an arrangement to pay will drop off your credit history six years after you've paid off the debt (therefore usually this will take longer than a default) It seems to normally be applied when you try to come to an agreement with the lender for reduced payment compared to your original contract (though I think there's some situation at the moment in relation to cost of living where you can reduce payments for a bit, I'm not 100% sure on what)
-a dmp is an informal arrangement which you can do either yourself, through a charity or through an fee-taking company with a very similar name to one of the charities to pay off the debt in monthly amounts which are affordable while living a reasonable but non frivolous lifestyle. It's timing doesn't affect defaults on your credit history. It's best to undertake a dmp after a default is achieved to push the lender to register a default and get the six year countdown ticking. Note that the charities will push you to start a dmp soon after you contact them, even if your accounts aren't defaulted. Whether you rent, own or let a property doesn't make a dmp a bad idea. (That affects choosing between bankruptcy and an IVA).
-if you talk about your credit rating on this board, you'll probably get lots of posts telling you the rating doesn't matter - it's your credit history that's important. A high credit rating is an indicator of a high likelihood of being able to get credit, but (as you've encountered), there are many other factors and every lender uses their own criteria anyway - a 999 in one place might be a 500 in another. Aim for a history of consistent payments, clear of or clearing of things like defaults, a low utilisation rate and a low amount of available credit relative to your income and that will put you in a good place for a mortgage.
- I don't think there's a magic number for when you can get a mortgage, but if you crunch the numbers for paying off your debt and saving a deposit, that will give you some information about when you get a mortgage from that point of view.
- we don't really deal with business debt on here, it might be worth talking to one of the business debt charities about your bounce back loan.