Interest on credit cards

Njthom

Hi, I am looking for a bit of advice, I am being crippled by interest on my credit cards, I have 2 mbna credit cards which now charge interest, I am using almost my whole wage to cover the minimum payments, I have tried to do a balance transfer but am unable to due to my borrowing power. I really don't want to affect my credit score however it is becoming more of a challenge to keep up with these payments and the balance is hardly reducing as most of it pays interest. I contacted mbna who said that they can put a plan in place, I posted on here before about what they proposed and they advised against it, basically they wanted to put me on a payment plan however I was advised that it would basically show as a plan every month and after it was settled would take a further 6 years to come off my credit file so be on there for a very long time and much longer that if it say defaulted. I don't know whether to continue to pay it while I can in the hope that my credit file may change, although given the debt and the fact most goes on interest I can't see it changing any time soon, or do I go through someone like step change to set up a payment plan and accept my credit rating  is now going to be affected. Any advise would be greatly appreciated.

RAS

Looking at your previous thread, it's impossible to tell how MBNA would mark your credit file, unless you've asked them and not reported it there.

But:

If you were to consolidate with MBNA, can you guarantee that you can afford the monthly payments for the next 7 years? What happens if you lose your job, are off sick, etc?

Have you asked MBNA what the interest rate would be and whether you could overpay to reduce the term if situations improved?

And SOA would help work out affordability.

EssexHebridean

OK - first things first - why are you concerned about your credit file? Not coping with making debt repayments is definitely going to mark it - so you have a few choices here.

You say you've not been able to get a 0% balance transfer card for any of the debt - have you just gone through somewhere like the MSE Credit Club and seen only a slim chance of getting a card, or have you actually applied somewhere and been turned down?  if the former, then apply - you have nothing much to lose - either you are in the 10% of people (or whatever the figure is) who get the offered card, or you're not - you're no worse off though, and if you did get accepted, you'd be better off!

The alternative is to stop the payments and let the debts default - and once they have, you can then enter into a SMP either via one of the debt charities, or self managed. It sounds like what was explained before was that letting the debts default first has two advantages - the first is that the interest will stop, and the second, that 6 years from that default, the debt will drop off your file. If you make an arrangement to pay with a creditor, then they will likely put an arrangement to pay marker on your file which means that the debt only then falls off 6 years after you finish making payments to it - so if you were paying for 7 years for example, that would mean it would be 2037 before that debt would clear your credit file.

An SOA is definitely the way forwards here though - and if you are currently scrimping on priority bills - rent or mortgage, council tax, heat, light, water, essential travel and food - then stop paying the unsecured debt and focus on paying those essentials instead, paying anything left over to the debts at the end of the month. 

Njthom

Hi, thank you both for the replies, I have tried to do a balance transfer and also a consolidation loan and was unsuccessful. I don't really know why I'm bothered about my credit rating to be fair as they way things stand just now I can't get credit anyway, I have a car on pcp at the moment which has another 2 years on it, it's the worry that I won't be able so sort out finance for another car however I wondered if family could possibly help when the time comes for that. I have defaulted before about 15 years ago due to a major change in circumstances and I self managed and set up payment plans directly with the debt collection agency, im thinking this is maybe my best bet. To be honest in reality the amount I owe I'll never be able to pay back unless I could take a long term loan, mbna has said they can set up a payment plan but like you said it will be on my file for a long long time. Do you know if there are any consequences of doing this, can they sent bailiffs? I rent my property and have no assets as such other than belongings. My plan is to arrange an affordable payment plan with them. 

Njthom

Also can they take me to court? 

enthusiasticsaver

They are unlikely to take you to court if the debts are unsecured and you have no assets.  Given more borrowing is the last thing you should be looking at I would not worry too much about  your credit rating.  I would work out how much you can afford to repay and either do a DMP through stepchange or self manage one.  Payment plans stay on your credit file longer so I would not go down that route. I would let the debts default so the interest stops and put as much aside for the car once the PCP is finished and buy an older cheap car. Doing an soa would help us advise better. 

Njthom

Thank you for the advice, is there any benefit of going through StepChange rather than do myself? 

RAS

There are pro and cons with Stepchange.

They take a lump sum and distribute it within their rules. Their budgets are reasonable but they tend to rush people into starting before they've got the defaults on their file. And their budgets tend to be client led and many of their clients haven't been good at budgeting in the first place. Cue lots of queries from people on MSE who haven't got a "replacing white goods, or car " or "mending house" line in their budget and can't afford their Stepchange payment. Stepchange will defer payments for a while or reduce the repayments if necessary.

And if you have funds for a full and final they won't permit payments to only settle one account.

So you may be best sorting out an SOA here, stop paying and wait for defaults. Meantime stress test the SOA over a year and build up emergency and a bit of a fighting fund. If you want a break, use Stepchange to manage the account for a couple of years. Once the f&f offers come in or you've got a fighting fund, change back to self-managing and negotiate decent discounts.

Njthom

I appreciate your reply, I think I will allow the defaults and then set up a payment plan myself, when I completed the stepchange forms they wanted to take a big chunk to pay towards the debts. If I do it myself I guess I'd be able to work with the companies to set up a payment plan. 👍🏻

EssexHebridean

Njthom said:

Hi, thank you both for the replies, I have tried to do a balance transfer and also a consolidation loan and was unsuccessful. I don't really know why I'm bothered about my credit rating to be fair as they way things stand just now I can't get credit anyway, I have a car on pcp at the moment which has another 2 years on it, it's the worry that I won't be able so sort out finance for another car however I wondered if family could possibly help when the time comes for that. I have defaulted before about 15 years ago due to a major change in circumstances and I self managed and set up payment plans directly with the debt collection agency, im thinking this is maybe my best bet. To be honest in reality the amount I owe I'll never be able to pay back unless I could take a long term loan, mbna has said they can set up a payment plan but like you said it will be on my file for a long long time. Do you know if there are any consequences of doing this, can they sent bailiffs? I rent my property and have no assets as such other than belongings. My plan is to arrange an affordable payment plan with them. 

OK - well being turned down for the consolidation loan was a bonus anyway - consolidation is a generally poor idea other than in certain specific circumstances which right now, don't apply to you. 

If you decide to go for a Debt Management Plan then doing it as you did before - directly with the companies who currently hold the debts - is the way forward, and letting the debts default first, as already explained, is the way forwards. Enthusiasticsaver gives good solid advice on this above. 

Make sure that while you are not paying anything to the debts to allow for the defaults, you really get to grips with budgeting and work out exactly how much surplus you have to subsequently pay to the debts, Factor in saving for annual expenses and also make sure that you set money aside for emergencies - going forwards once the DMP has started you still need to be covering all your expenses remember, so don't be tempted to overstretch yourselves with what you offer your creditors.. 

Njthom

Yes, my plan is to try and put aside savings as a back up as I won't have the option of using the cards anymore. I feel better now having this all sorted in my head so thank you to everyone who has taken the time to reply, I'll keep aside the money I would usually pay to the cards this month and plan to the the same the next few months until the default and then I will make arrangements to pay with the creditors. Thanks