140k Unsecured debt - advice

ldn83

Hi, ok long story but will try to keep it as concise as possible, looking for advice as to what the best path forward is as IVA or DMP may not be suitable as we have large equity in our house.

I have around 140k unsecured debt, 3 credit cards 23k, and 6 unsecured loans 110k approx, and a car loan. A lot of this debt has been racked up paying for the refurbishment of a Victorian house that we bought in 2019, the works are now almost done and we estimate we have around 100-150k of equity in the house. My wife has also racked up around 30k on credit cards for various things for the house over the years.

Our combined household income is around 130k currently and projected to rise again this year. 

I lost around 20k in a bad investment which started during covid when everyone it seemed was trying to make it rich in stocks. I also lost another 12-14k(6.5k cost then countless repair bills) on a second hand car I bought privately which had a faulty head gasket which killed the engine, and wrote the car off in the end, but only after a prolonged period of around 18 months, which pushed me to then buy an expensive newer car after this ordeal on top.

Cost of living crisis hit us hard with our energy bill being 5.3k last year, as well as the massive price increases across the board for everything else. Effectively giving us a pay cut of around 20%.

As bad as all this sounds we actually still were in the green until my wife got pregnant in April 21. This is what really put us into a downward debt spiral. The huge cost of then rushing to get as much of the house finished in time for the birth and also to get baby ready as well as my wife not receiving pay for 6 months (she had 6 months full pay then 6 months of our savings and my salary topping her up), forced me to take on extra loans (which to my surprise I was being offered hand over fist through the ClearScore app). I still had some investments that were projected to double or triple so the borrowing was in the hope that the investments would rise and pay off the debt in 2-3 years. However, the markets declined hugely in ‘22 forcing me to cut my losses and face reality that the debt couldn’t be repaid by the investments.

At this point there was still some disposable income left, however nothing prepared me for the expense of childcare in London. My wife returned full time to her role in the city in Feb 23, having no family or support in London our little girl had to go full time 5 days a week at £90 a day, which is around £1800 on an average month. We use the gov scheme where we got 2k off the bill per year. We still pay around £800 a month each for her childcare, which has pushed us into the red.

The predicament we are in is that we both have good jobs and careers that tie us to London due to the various financial issues above we see no option but to either get a large secured loan of around 110k to consolidate and ease up cash flow, then try to remortgage later on to swallow the whole debt into one, however I know that putting unsecured debt into secured is generally considered to be unwise. 

I feel uneasy about simply stopping payments and going for defaults in a self DMP as the various creditors would go straight for the equity. However we would build up a substantial fund if we didn’t pay our debts for 6-18 months so this is appealing.

SC has recommended an IVA, which seems the best way forward. Can anyone confirm or give their wisdom whether this is indeed a good choice for us?

Or is borrowing further against the house actually a good idea in our instance? 

Our childcare bill will be cut down by around 60% in Jan 25 when our daughter qualifies for the 30 hours free Gov scheme, which will improve cash flow considerably, and completely falling off in ‘26.

Would creditors accept no or token payments for 12-24 months just until we get past this childcare bill phase?

Thanks and happy new year.

fatbelly

Hi. It's easy to get a knee-jerk reaction to such a large amount of debt but if you earned 13k and had 14k of debt it wouldn't seem so bad and that is the situation.

There are two paragraphs that worry me.

Your first paragraph shows that you don't understand dmps nor IVAs.

The one that says

The predicament we are in is that we both have good jobs and careers that tie us to London due to the various financial issues above we see no option but to either get a large secured loan of around 110k to consolidate and ease up cash flow, then try to remortgage later on to swallow the whole debt into one, however I know that putting unsecured debt into secured is generally considered to be unwise. 

is an appalling idea.

To give the best help we would have to see a statement of affairs. However your fear of quick court action followed by charging orders is unfounded. I'm assuming that the creditors are normal lenders and credit card providers. If you stop paying, they will do nothing except grumble for 3-6 months, then issue a default. This gives you an end point to the credit file markers, as the whole entry will drop off in 6 years.

They will then put the account with a DCA, who will run through their standard letters. They may offer to settle at a discount. Then usually the next step is that the account is sold (at a huge discount) to a debt buyer. Where we sometimes see court action is where the debt buyer is concerned that their precious investment is getting near the 6 year point when it will be worth nothing.

Without the detail I wouldn't want to indicate whether IVA, DMP and/or F&F was your best strategy but I would rule out bankruptcy and debt consolidation.

Martico

Also, if you are willing to fill in and share an SOA, the loan rates and term lengths would be helpful to know, as would the interest rates on the CC debts. Basically as much detail as you can show on these debts. 

ldn83

Yes will get a proper SOA together, did do one with SC, can I export that one somehow?

This is a quick list of the unsecured debts and current payments I have for my reference in notes:

Loans

(Dec 23)

Lloyds: £355 (15500) 1st

Admiral: £416 (23000) 1st

Novuna: £167 (8000) 3rd

Updraft: £302 (9700) 19th

Updraft 2: £330 (11000) 21st

Zopa: £611 (22000) 23rd

AA:  £441 (28000) 24th

=£2589

Loan debt: £117k

CC 

Lloyds £290(14000) 20th

MBNA £189 (5500) 27th

Virgin £100 (3200) 4th

= £490

CC Debt: (£23000)

Total monthly debt payment £3079

Monthly average net income between 3.9k and 4.5k. My wife is around 3.5k but then in March she gets a bonus and clears around 8k after tax. She pays around 1k a month on her debts.

My share of mortgage bills is around £1100 p/m.

Self managed DMP by defaulting first seems the way forward in terms of getting control in managing the debt myself, for example I would want to pay back Lloyds (loan & CC) in full to full term as we both bank with them and it’s easily affordable. We have a HP car finance of £222 a month to Carmoola which also is affordable and required as we need the car. All the other debts I would want to stop or heavily reduce, at least until we’re not lumbered with crippling childcare costs.

Thanks.

EssexHebridean

You need to take ALL the debt into account - your wife's cards as well - as it all comes down to "joint income/joint expenditure" really in your situation. Ignore your wife's bonus unless it is contractual and a known and definite amount - otherwise assume it will not be arriving and then throw the whole lot at debt if it does. 

I agree that completing an SOA would really help us to see where things are at for you and probably offer more help and suggestions. Just from the information you've given, although the debt figure does seem high, I'm guessing that as a proportion of the property value it's relatively small, and of course you have a very good income to back that up too. Your energy payments also seem very high - some of that may be that the estimated costs from your supplier relate to a period prior to you completing proper insulation on the house perhaps, and indeed to extra energy use for the renovation period itself, but it may well be worth having a proper look at what you are using and whether you are building up unnecessary credit. I assume you pay by monthly direct debit, equal amount each month? Do you have smart meters? And how is your home heated - ASHP or Gas Boiler?

Fatbelly has already dealt with the question of absorbing unsecured debt into your mortgage and confirmed that it's an atrocious idea - the reason being that unpaid unsecured debt will - at the very worst - earn you a CCJ, whereas unpaid SECURED debt can leave you and your family without  roof over your heads. Don't even go there. 

Consolidation too - it's probably pointless as all it does is kick the can down the road. what we need is to get you to a place where the books balance, not to simply put you in a position where you will pay more interest and over a longer period without ever actually solving the background problems. Let's work to get you paying as little interest as possible, and being debt free as soon as possible. the starting point for this is a proper detailed household budget, and that is something that the SOA can inform. If you use the SOA calculator in my signature this has a "format for MSE" option which you can then copy/paste into this thread and it is then there in away which is easy for us to read, digest and work with. 

Stateofart

As Dave Ramsey says "you've got a big hole, but you've also got a big shovel".  Start with the lowest amount, which is your Virgin Card.  Frankly, you should be able to knock out the cards in a little over a year.  Tighten your whole budget and forget holidays.  Your heating at 5k a year is ridiculous and you should be able to half this easy peasy.

katsu

You talk about your wife's debt and your debt and your half of the mortgage. If you can get all the data together for all the family income, debt and outgoings then everyone here can help you with some great ideas to get debt free in the best way. 

It feels to me like a household problem based on household spending, and fixed by you both making joint decisions. 

You refer to your share of mortgage bills as 1100 a month and I can't see how that covers half of the 500+ heating bill, plus mortgage, food, car insurance and petrol, council tax etc etc so I think laying it all out will help people give you ideas. 

Does your wife already know that the debt is around 170k?  (Based on adding the 30k you mentioned as her debt to the 140).  If she doesn't, having an SOA and ideas will help you tell her. If she does, hopefully she'll get inspired by ideas here on ways you can both save money and address the debts. 

There's always a solution and you'll feel so much better being able to manage your costs differently as your child grows up.  Good luck and welcome to DFW

ldn83

Thanks for the input everyone, I will get a comprehensive SOA together when I get a bit of time. 

I agree that this is definitely a budgeting issue as well as all the huge financial strains we have experienced due to the house, covid, cost of living and then pregnancy and childcare. Prior to buying the house and then becoming parents we always had good disposable income so budgeting wasn’t really a focus, and of course now we need to adapt and change our ways. We can definitely shave something off of our expenditure but the main issue we have is the crippling childcare bill for another 12-24 months. The debt would be near manageable without the almost £1900 a month in childcare. Saving or trying to pay down debt with this kind of outgoing is impossible which has pushed me/us into the red by some distance.

The 5k gas & electric bill (BG) last year is from the peak energy prices, we have a fairly large 4 bed Victorian semi which is expensive to heat and power. We have bought more energy efficient bulbs and heaters this year and with the prices moving down in the oil market it’s going to be around 3.2k this year. Our first year in the house the bill was around 2.3k as a comparison to the scale of the cost of living crisis we all experienced/experiencing.

Can I just ask, wouldn’t an IVA be suited to our situation as we could reduce our debt payments by 80%, then once childcare is out of the way we can hammer down the balances or what’s left of them. Also once the IVA is complete, how long does it stay on record? For example if we get a windfall or a big career progression where we can pay down the debt in 3 years how long would the IVA show after the debt is repaid?

Very uneasy about simply cancelling the DDs and getting CCJs.

Thanks 

RAS

With your large debt and large shovel, in an IVA you could to end up repaying almost all the debt over 5 years, and you will be asked to release equity in year 5 or pay another year. Any good luck financially and you'd repay the lot plus them IP's fees.

Bear in mind that IVA budgets are tight. Not quite bake beans on toast, but basic and not good if you need to do an urgent house repair. You'd have more flexibility on a DMP.

Might not be what you'd expect in your situation but if you've got a spare room, have you considered a lodger? £7k tax fee per annum.

EssexHebridean

ldn83 said:

Thanks for the input everyone, I will get a comprehensive SOA together when I get a bit of time. 

I agree that this is definitely a budgeting issue as well as all the huge financial strains we have experienced due to the house, covid, cost of living and then pregnancy and childcare. Prior to buying the house and then becoming parents we always had good disposable income so budgeting wasn’t really a focus, and of course now we need to adapt and change our ways. We can definitely shave something off of our expenditure but the main issue we have is the crippling childcare bill for another 12-24 months. The debt would be near manageable without the almost £1900 a month in childcare. Saving or trying to pay down debt with this kind of outgoing is impossible which has pushed me/us into the red by some distance.

The 5k gas & electric bill (BG) last year is from the peak energy prices, we have a fairly large 4 bed Victorian semi which is expensive to heat and power. We have bought more energy efficient bulbs and heaters this year and with the prices moving down in the oil market it’s going to be around 3.2k this year. Our first year in the house the bill was around 2.3k as a comparison to the scale of the cost of living crisis we all experienced/experiencing.

Can I just ask, wouldn’t an IVA be suited to our situation as we could reduce our debt payments by 80%, then once childcare is out of the way we can hammer down the balances or what’s left of them. Also once the IVA is complete, how long does it stay on record? For example if we get a windfall or a big career progression where we can pay down the debt in 3 years how long would the IVA show after the debt is repaid?

Very uneasy about simply cancelling the DDs and getting CCJs.

Thanks 

The bit in bold - energy efficient bulbs, great. Heaters though - electric heating is as efficient as it is and nothing changes that with one exception - and that is Air Source Heat pumps which can return more in heat than the energy they take in. (You also get traditional night storage heaters which are still a 1:1 energy in/out ratio, but can be charged using cheaper electricity by use of Economy 7 or other time of use tariffs - the efficiency doesn't change, but the cost of the heat drops as a result). How is the main heating in your home managed though> If you are using gas central heating, then topping up with electric heaters, other than in very specific circumstances you'd do better to simply use the GCH more as gas = a quarter of the cost per kWh of electricity. 

Also - don't assume that cancelling the DDs automatically = CCJs - it would be unusual for even one of the creditors to take that route, they just rarely do. It's not impossible, but even then - what is your real concern over getting a CCJ?

One of the side effects of dealing with the debt will be that for a while at least, your credit file will be trashed. That's actually a good thing though, as it will force you to not rely on credit and so break that habit going forwards. 

Floss

ldn83 said:

.... We can definitely shave something off of our expenditure but the main issue we have is the crippling childcare bill for another 12-24 months. The debt would be near manageable without the almost £1900 a month in childcare. Saving or trying to pay down debt with this kind of outgoing is impossible which has pushed me/us into the red by some distance.
......

.....Very uneasy about simply cancelling the DDs and getting CCJs.
 

By demonising the childcare costs, you are turning your daughter into an issue which is resented. That is not good parenting. Childcare is a bill as valid as your mortgage, and as pointed out, you could save that cost by dropping to a 1-income family & one of you staying at home to parent her. However, you are choosing to both work hence you have the childcare bill.

Perhaps you need to rephrase it as "daughter's preschool care & education" rather than "crippling childcare"