Urgent advice needed please. Large Credit Card debt.

CardiffGirl88

I have around £80k of unsecured debt that I am currently covering the minimum payments for and have not missed any payments yet, but only because when I told my landlord of my problems he has already paused my rent for a few months, although he can’t do for much longer. 

I got into some debt over Covid for a variety of reasons ~ I wasn’t working and borrowed money on credit cards to pay my living expenses and some other things.  This has grown and interest rates have gone up.  I am now in a full-time job so have an income, but am in a situation where I either pay my debts or my landlord, but can’t do both, so naturally have to sort out and reduce the debts otherwise I will be homeless.

I’ve read lots of info on StepChange and other websites, and on here re e.g IVA, bankruptcy, DMP etc and am getting really confused.  I thought IVA might be a way to go but not sure now after reading some posts on here.  Please can you help me with the below, I’ve posted the SOA (which has been really useful to see the extent of my problem and work out my budget)

Lots of the posts seem to suggest just stopping payments, which although would solve the immediate problem terrifies me.  If I just stop paying the credit cards what would happen? Could a debt collector/bailiff turn up at my door and then try and take things?  I’m not really keen to do this due to some childhood memories and I don't really have a great deal of assets.  Would I be taken to court and forced into Bankruptcy?

Should I phone the credit card companies and say I am about to stop paying and try to come to an arrangement? Are they likely to be open to that and what would happen?

I thought a DMP means you agree to pay back the full amount over max 10 years - so for me I think that would be about £650-700 a month for this time period, is that correct or can you ask to write off some of the debt balance?  If I set up a DMP and then don’t pay after a few years what happens, or my circumstances change and I can't, what happens?

This is making me really frightened and affecting my mental health so need to sort quickly.  All suggestions and help very gratefully received.

Below is my SOA. To clarify a couple of points: 

I have a car that is broken that I can't afford to fix, but has to be insured even though I spend nothing on tax and petrol and so use additional public transport.

I pay £240 for private healthcare as I have a medical issue that will require an operation in the next 12 months. This is an essential payment for me otherwise a 5 year wait on the NHS.

[font=courier new][b]Statement of Affairs and Personal Balance Sheet[/b][b]

Household Information[/b]

Number of adults in household........... 1

Number of children in household......... 0

Number of cars owned.................... 1[b]

Monthly Income Details[/b]

Monthly income after tax................ 3600

Partners monthly income after tax....... 0

Benefits................................ 0

Other income............................ 0[b]

Total monthly income.................... 3600[/b][b]

Monthly Expense Details[/b]

Mortgage................................ 0

Secured/HP loan repayments.............. 0

Rent.................................... 1325

Management charge (leasehold property).. 0

Council tax............................. 123

Electricity............................. 80

Gas..................................... 145

Oil..................................... 0

Water rates............................. 75

Telephone (land line)................... 0

Mobile phone............................ 30

TV Licence.............................. 0

Satellite/Cable TV...................... 22

Internet Services....................... 20

Groceries etc. ......................... 300

Clothing................................ 40

Petrol/diesel........................... 0

Road tax................................ 0

Car Insurance........................... 35

Car maintenance (including MOT)......... 0

Car parking............................. 0

Other travel............................ 70

Childcare/nursery....................... 0

Other child related expenses............ 0

Medical (prescriptions, dentist etc).... 240

Pet insurance/vet bills................. 0

Buildings insurance..................... 0

Contents insurance...................... 25

Life assurance ......................... 28

Other insurance......................... 8

Presents (birthday, christmas etc)...... 50

Haircuts................................ 10

Entertainment........................... 25

Holiday................................. 0

Emergency fund.......................... 0[b]

Total monthly expenses.................. 2651[/b]

[b]

Assets[/b]

Cash.................................... 0

House value (Gross)..................... 0

Shares and bonds........................ 0

Car(s).................................. 1500

Other assets............................ 300[b]

Total Assets............................ 1800[/b]

[b]

No Secured nor Hire Purchase Debts[/b]

[b]Unsecured Debts[/b]

Description....................Debt......Monthly...APR

MBNA Credit Card 1.............11500.....400.......29.3

Halifax Credit Card............15300.....500.......27.85

M&S Credit Card................13300.....340.......20.9

First Direct Loan..............2758......138.......0

MBNA Credit Card 2.............12800.....360.......15.22

RBS Credit Card................12000.....270.......17.5

Virgin Credit Card.............12300.....340.......20.01[b]

Total unsecured debts..........79958.....2348......-  [/b]

[b]

Monthly Budget Summary[/b]

Total monthly income.................... 3,600

Expenses (including HP & secured debts). 2,651

Available for debt repayments........... 949

Monthly UNsecured debt repayments....... 2,348[b]

Amount short for making debt repayments. -1,399[/b]

[b]Personal Balance Sheet Summary[/b]

Total assets (things you own)........... 1,800

Total HP & Secured debt................. -0

Total Unsecured debt.................... -79,958[b]

Net Assets.............................. -78,158[/b]

[i]Created using the SOA calculator at www.LemonFool.co.uk.

Reproduced on Moneysavingexpert with permission, using other browser.[/i][/font]

CardiffGirl88

[font=courier new][b]Statement of Affairs and Personal Balance Sheet[/b][b]

Household Information[/b]

Number of adults in household........... 1

Number of children in household......... 0

Number of cars owned.................... 1[b]

Monthly Income Details[/b]

Monthly income after tax................ 3600

Partners monthly income after tax....... 0

Benefits................................ 0

Other income............................ 0[b]

Total monthly income.................... 3600[/b][b]

Monthly Expense Details[/b]

Mortgage................................ 0

Secured/HP loan repayments.............. 0

Rent.................................... 1325

Management charge (leasehold property).. 0

Council tax............................. 123

Electricity............................. 80

Gas..................................... 145

Oil..................................... 0

Water rates............................. 75

Telephone (land line)................... 0

Mobile phone............................ 30

TV Licence.............................. 0

Satellite/Cable TV...................... 22

Internet Services....................... 20

Groceries etc. ......................... 300

Clothing................................ 40

Petrol/diesel........................... 0

Road tax................................ 0

Car Insurance........................... 35

Car maintenance (including MOT)......... 0

Car parking............................. 0

Other travel............................ 70

Childcare/nursery....................... 0

Other child related expenses............ 0

Medical (prescriptions, dentist etc).... 240

Pet insurance/vet bills................. 0

Buildings insurance..................... 0

Contents insurance...................... 25

Life assurance ......................... 28

Other insurance......................... 8

Presents (birthday, christmas etc)...... 50

Haircuts................................ 10

Entertainment........................... 25

Holiday................................. 0

Emergency fund.......................... 0[b]

Total monthly expenses.................. 2651[/b]

[b]

Assets[/b]

Cash.................................... 0

House value (Gross)..................... 0

Shares and bonds........................ 0

Car(s).................................. 1500

Other assets............................ 300[b]

Total Assets............................ 1800[/b]

[b]

No Secured nor Hire Purchase Debts[/b]

[b]Unsecured Debts[/b]

Description....................Debt......Monthly...APR

MBNA Credit Card 1.............11500.....400.......29.3

Halifax Credit Card............15300.....500.......27.85

M&S Credit Card................13300.....340.......20.9

First Direct Loan..............2758......138.......0

MBNA Credit Card 2.............12800.....360.......15.22

RBS Credit Card................12000.....270.......17.5

Virgin Credit Card.............12300.....340.......20.01[b]

Total unsecured debts..........79958.....2348......-  [/b]

[b]

Monthly Budget Summary[/b]

Total monthly income.................... 3,600

Expenses (including HP & secured debts). 2,651

Available for debt repayments........... 949

Monthly UNsecured debt repayments....... 2,348[b]

Amount short for making debt repayments. -1,399[/b]

[b]Personal Balance Sheet Summary[/b]

Total assets (things you own)........... 1,800

Total HP & Secured debt................. -0

Total Unsecured debt.................... -79,958[b]

Net Assets.............................. -78,158[/b]

[i]Created using the SOA calculator at www.LemonFool.co.uk.

Reproduced on Moneysavingexpert with permission, using other browser.[/i][/font]

CardiffGirl88

sorry, can't get it to format correctly

hoverFrog1

Don't phone them, write to them. You want to keep a record of what is said and agreed. They'll phone you, frequently, and try to convince you to make a payment. Put everything in writing.

If any of these credit cards are old or have been transferred between lenders then start with a Prove It letter. They'll likely have proof but won't send anything for months. You need to ask that the creditors stop interest and give you a payment holiday until you can reach an arrangement. Offer them a payment in proportion to your expendable income. You can't offer anything more and you can't be fairer than that. Then, once they agree, change your direct debits\standing orders to match this amount. Until then pay nothing. You've made an offer that is fair and reasonable, they just need to accept or reject the offer.

This will go on your credit history and will show as a default. Your credit rating will then be in the toilet for years to come. Don't worry though, you've got a plan to clear the arrears in only 7 years. By then your credit rating will have recovered, you'll be debt free, and all will be well. 

enthusiasticsaver

You will have to default on the credit cards as you cannot prioritise those over rent although your rent is very high.  Can you move somewhere cheaper? The groceries figure is high for one person so you could probably make some savings on that but yes it looks like a monthly payment of about £700 or even £800 is doable. You also need a figure in car maintenance and emergency savings. Can you sell the car if you don't need it? 

There is a thread at the top of the DFW forum explaining what to do but as a first step you could contact stepchange who will no doubt recommend a DMP for you. They can manage it or you can self manage.  Defaulting on the cards is the first step and saving for emergencies. You won't get bailiffs round as they have to go to court for that and unless it is council tax (do not default on that) credit card companies are unlikely to do that. Your credit record will be affected for 6 years but more borrowing should not be an option anyway for you.  You want the defaults to happen as quickly as possible as the sooner they show on your file the sooner they drop off.  You also want them to stop charging interest which they will do after the defaults. I would not make any payment arrangements as they stay on your file longer than defaults.  Sometimes you can offer settlements along the way so I don't suppose it will take you 10 years to clear it but obviously it is a high figure.  That is extraordinarily high for just living expenses.  Have you addressed your budget now to make sure you are not overspending and can keep within that soa? 

13thlegion

CardiffGirl88 said:

Lots of the posts seem to suggest just stopping payments, which although would solve the immediate problem terrifies me.  If I just stop paying the credit cards what would happen? Could a debt collector/bailiff turn up at my door and then try and take things?  I’m not really keen to do this due to some childhood memories and I don't really have a great deal of assets.  Would I be taken to court and forced into Bankruptcy?

Should I phone the credit card companies and say I am about to stop paying and try to come to an arrangement? Are they likely to be open to that and what would happen?

It is ok to feel scared, and you will see from countless other threads here many others have felt frightened in similar positions to yourself. What they have all invariably found is that once you get through the initial couple of steps (which are frightening because they are big changes) it gets much much easier and simpler.

The general advice here is to simply stop paying the credit cards, wait for the them to default your accounts, then get in contact offering to pay what you want to pay them.

What will happen?
First of all the card companies will try and contact you every which way. It is ok to not pay too much attention to this at this stage.

Credit card debt is unsecured, that means it is not tied to your assets. A debt collector/bailiff will not turn up at your door. 

It is highly unlikely that any of your debts will go to court, and even if they do it will be a long way down the line. That is not a worry for now.

If you contact the companies and come to an arrangement they are likely to put an Arrangement to Pay marker on your credit file. This stays on your file for 6 years after you have paid off the debt. If you ignore them and they default you the default will come off 6 years from the date of the default. (This seems backwards and honestly the system is!)

Once debts have defaulted the interest on the them will stop. It is also highly likely the original owner of the debt (the card company) will sell on the debt to someone else at a massive discount (remember this because it will help you later). This new company is who you will pay in future.

So what do you do?
Stop paying credit cards. Now. Also stop using them. Now. Rent is a priority as you need somewhere to live. If it is a choice between rent and paying an unsecured debt, pay the rent.

Work out an accurate budget/SOA (which you are way ahead on well done for having it in your first post) that you can live on going forward. This should include a small amount of savings (even £30 a month will do)

The money that was going to debt will be a surplus. Save this! This becomes an emergency fund so you do not have to rely on borrowing again. And for 6 years you will not be able to. (Arrangement to pay marker will put this at 16 years, another reason to default and not talk to them before.)

Keep saving this surplus until debts have defaulted.

Once defaulted, use the monthly surplus to pay debts (but not the emergency savings!). You contact the owners of the debt in writing and tell them what you are paying. For example if you have £900 and 7 places you owe you could divide it equally in 7 and pay them each the same. Step change will be able to help here but I'd personally leave it to this stage to get them involved. Their process is slightly different to the one mostly suggested on this board.

Remember the part about new owners of the debt who bought it cheap? They are likely to offer you one off payments for whole debts at much reduced prices on the original amount.as the years go on. This is why it is important to save as you go as part of your budget.

And it is as simple as that. In practice obviously much harder to walk than type out. But it will be all ok. You will be ok.

Brie

A couple more suggestions to add to the wonderful ones made already.

When you write to the card companies I suggest that you include a phrase such as "I need breathing space" as breathing space is a known term within the credit industry.  Also let them know that you are seeking advice on how to manage your debt and budget.  

And if/when they agree to smaller payments (perhaps with no interest accruing for the next year or whatever) make sure that you set up standing orders for them, not direct debits.  That way you remain in control of the money that is going out.  If you also include your SOA when you write to them they will see exactly how much money is available and they should be more willing to accept a pro rata amount of your available money.  So if you have £700 available you should end up paying Halifax £134 a month but only £24 to your loan.  (£700x15300/79958=£133.94)

And another thing - I presume you aren't having any problems yet paying your utilities and water.  Check that you are actually paying them the correct amount and don't have a massive credit.  Likewise tell them you can't pay more if they say they want to raise your DD.  Check also if there's anything available in your area to deal with any water debt.

CardiffGirl88

Thank you all so much for your advice and kind words, it is very much appreciated. This has been really useful in helping me understand my options and what happens next.

I'm going to sit and reflect, but really I suppose I need to stop making the payments, which in reality I've realised I can't afford to make anyway.

Thank you again.

RAS

One small piece of information.

Most debt charities suggest you start a DMP quickly. We suggest you wait until the debts are defaulted, because that does less damage to your credit record long term, and allows you to save an emergency fund.

Other than council tax, none of your creditors can engage bailiffs etc, until they have defaulted your debt.

And since you will start paying them once they default, you are unlikely to get any legal action.

Having said that, perhaps sorting the car takes priority, even if it only allows you to sell it. And if you know you need surgery within a year, you need to build an emergency fund to cover your essential costs whilst you recover.

I'd also plan to start re-paying your LL, even if it's only a small amount each month.

elkiedee

You say you can pay rent or credit cards. Prioritise rent, council tax (it's statutory) and utilities. 

sourcrates

Affordability is the key issue these days, in a cost of living crisis even more so.

When COVID first hit, the FCA (Financial conduct authority) issued guidance to lenders on how to deal with those in serious debt, affordability was there main concern, this still applies today.

Creditors have been instructed to ascertain if payments are affordable, after your essential debts have been paid, they won`t even entertain any payment from you if you are behind with your essential bills, which you and a lot of other folk are.

So the response you get will be of putting your accounts "on hold" for 3 months, which can be extended if need be, and working out what would be affordable for you in terms of payment.

Bailiffs and court action are so far away from the reality in the majority of cases, things have moved on in recent years, lenders bend over backwards to help these days.

It really is just a case of getting your priorities right, sort out a workable budget, and decide on a plan, then implement it.