140k Unsecured debt - advice

kimwp

Just a note to think carefully about what to do with a lump sum. It may be better to keep some back as a emergency fund if you are going to default. Or to meet payments. (Although obviously it means you're not paying so much interest if you reduce your debt). 

stu12345_2

if you are doing a f and f , don't tell creditors you have a windfall, say it is from a friend or relative ,eg  a gift..

or they will then know you have money to carry on repayments 

BadDebtor

ldn83 said:

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.

Thanks for sharing, I have not read the 10 pages of replies but will work through them.

The first thing that jumps at me is that you said you had these downward spirals but have you actually cut your costs by any reasonable amount.

I can attest that they only go for CCJ when debt is close to expiry, your only concern will be getting a new mortgage, so really you need an option where you do not sully your credit record. So whatever solution you decide upon needs to fit in with resolving the debt a year before your current fixed rate expires.

Asking for payment holidays may give you some help in the short term and I would hammer the debts with the highest interest rate first.  I am not suggesting robbing Peter to pay Paul, but just getting rid of the worst first.  If you do some drastic cost cutting you will be in a position to really attack the debt, you can put bonuses and salary increases towards your debt, again the highest interest rate first. 

Keep the facilities open because your percentage of used debt affects your credit score.  

A friend of mine who has £200k+ coming in had to remortgage in Truss period and was turned down because they were fully loaded, they put their bonus across their cards and were able to secure a new mortgage which included a building project.

I bet if you went through this forum and site as if you had been made redundant and made decisions on that basis you would cut your costs substantially.

Floss

BadDebtor said

I can attest that they only go for CCJ when debt is close to expiry, your only concern will be getting a new mortgage, so really you need an option where you do not sully your credit record. So whatever solution you decide upon needs to fit in with resolving the debt a year before your current fixed rate expires.

Not necessarily correct - it is generally possible to move onto a new deal with the existing lender without credit checks.

kimwp

BadDebtor said:

ldn83 said:

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.

Thanks for sharing, I have not read the 10 pages of replies but will work through them.

The first thing that jumps at me is that you said you had these downward spirals but have you actually cut your costs by any reasonable amount.

I can attest that they only go for CCJ when debt is close to expiry, your only concern will be getting a new mortgage, so really you need an option where you do not sully your credit record. So whatever solution you decide upon needs to fit in with resolving the debt a year before your current fixed rate expires.

Asking for payment holidays may give you some help in the short term and I would hammer the debts with the highest interest rate first.  I am not suggesting robbing Peter to pay Paul, but just getting rid of the worst first.  If you do some drastic cost cutting you will be in a position to really attack the debt, you can put bonuses and salary increases towards your debt, again the highest interest rate first. 

Keep the facilities open because your percentage of used debt affects your credit score.  

A friend of mine who has £200k+ coming in had to remortgage in Truss period and was turned down because they were fully loaded, they put their bonus across their cards and were able to secure a new mortgage which included a building project.

I bet if you went through this forum and site as if you had been made redundant and made decisions on that basis you would cut your costs substantially.

According to the Experian website: "Payment holidays can affect your mortgage application, as they normally appear on your credit report."

Also received wisdom on here is that remortgaging with the same provider will not require a credit check.

Percentage of used credit affects whether creditors are willing to lend, however amount of credit (used or unused) affects how much they will lend. Best to close the accounts down strategically to promote the chance of 0% offers.

ldn83

Just getting ready to take action in dealing with the debt finally. Just got a question, for those that set up their own DMP’s, firstly, did most accounts default without issue or did you have people knocking on your door trying to establish contact (eg Fieldcall) and endless letters and phone calls hassling? Also, did any debts not default within 6 months? And secondly, when you eventually negotiated a re-payment plan after default, did they want to see a budget to see how much you can afford or did they take the first figure you offered? Currently I’m looking at paying back 15% of the original monthly payment per debt until we have more cash free to pay down a higher amount. 

FacelessNumber

No advice on the debts here, I think you've had excellent advice on all of that already, but just a note about childcare hours - it doesn't reduce anywhere near as much as you think it might! 

Our 30 Hours has just kicked in, my son goes to nursery for 31.5 hours a week (3 days) which are normally £73 a day. Once the hours are spread over the full year it's around 23 hours a week, not 30, and it doesn't cover the full cost (they get around £5 per hour for 3 year olds) so nurserys add 'additional resource charges'. We are still paying approx £35 a day once it's averaged out, despite in theory the hours covering almost all of his childcare.

Sounds like you have a plan though, just wanted to give you a more realistic idea of how much your nursery costs might reduce! Good luck!

ldn83

FacelessNumber said:

No advice on the debts here, I think you've had excellent advice on all of that already, but just a note about childcare hours - it doesn't reduce anywhere near as much as you think it might! 

Our 30 Hours has just kicked in, my son goes to nursery for 31.5 hours a week (3 days) which are normally £73 a day. Once the hours are spread over the full year it's around 23 hours a week, not 30, and it doesn't cover the full cost (they get around £5 per hour for 3 year olds) so nurserys add 'additional resource charges'. We are still paying approx £35 a day once it's averaged out, despite in theory the hours covering almost all of his childcare.

Sounds like you have a plan though, just wanted to give you a more realistic idea of how much your nursery costs might reduce! Good luck!

Thanks very much, yes this is what we’ve found and worked out recently and are planning for it now.

enthusiasticsaver

I haven’t done a DMP so can’t answer as to what action they take before defaulting or how long  it takes but legally they have very little they can do if debt unsecured so I wouldn’t worry about income/expenditure details. If you don’t want to show them you don’t have to. Just tell them what you can afford.  Most of the debts will probably be sold on after default.  

sourcrates

ldn83 said:

Just getting ready to take action in dealing with the debt finally. Just got a question, for those that set up their own DMP’s, firstly, did most accounts default without issue or did you have people knocking on your door trying to establish contact (eg Fieldcall) and endless letters and phone calls hassling? Also, did any debts not default within 6 months? And secondly, when you eventually negotiated a re-payment plan after default, did they want to see a budget to see how much you can afford or did they take the first figure you offered? Currently I’m looking at paying back 15% of the original monthly payment per debt until we have more cash free to pay down a higher amount. 

"Affordability" and "treating customers fairly" are the key issues highlighted by the FCA in a recent report to creditors.

What this means in practical terms is that defaults are taking longer, and SOA`s are being asked for, to ascertain whether proposed payments are affordable to the debtor.

You don`t negotiate a payment plan, as such, you supply a budget showing what you can afford to pay, most are accepted on that basis, debt collection companies with assigned debts are given certain scope to accept payments within a defined amount, without referral back to the client, making for a lot smoother ride all round.

Only certain creditors use companies such as Field call/Resolve call, to name but two, by far the majority will use a call centre based debt collector, the threat of a home visit is a phycological approach to try to re-establish contact so that a payment plan can be arranged, mind games in other words.

There use is generally restricted to mainly built up, inner city areas, or large towns where many addresses can be visited in a short space of time, they are just self employed collection agents with no more power than you or I and can be dealt with on that basis.