Is it a good idea to use a loan to partially finally settle a defaulted debt.

Nalf03

When I first moved out I got overexcited with credit cards and ended up with just over £6000 of debt. Due to a variety of reasons, including my fiancé having to leave her job for medical reasons, I had to default on payments about 2 years ago, and haven't been able to pay much back into it since. 

We've since moved back in with my parents and I'm in a position now where I can start paying some of it back. 

I received an email from the company offering to discuss a final partial settlement of around £2800. I don't have that much money, but looking around I could get a loan paying back £300 a month for the next 12 months.

This sounds like it could potentially save me a couple grand (especially if I try to haggle for a lower settlement), which I could put into savings ready for when the default is cleared from my credit history. 

I know that my debt would be marked as 'partially settled' which doesn't look great, but from what I understand that'd only show on my credit score for the next 4 years (6 years after the initial default). I'm also not completely clear on just how much worse this would look on my credit history if the account is in default anyway, at least it'd be closed which sounds like an improvement?

Every way I look at it, it sounds like a good idea, but I can't help but feel like I'm missing something obvious. If I can get approved for a loan, make the monthly payments and (I think) live with this on my credit score for the next 4 years, is there any reason not to do this?

CliveOfIndia

Nalf03 said:

 looking around I could get a loan paying back £300 a month for the next 12 months.

What makes you think you'd be able to get such a loan?  With 2 years' worth of tarnished credit history, I'd be extremely surprised if anyone would be prepared to offer you a loan at anything approaching a sensible rate of interest - if at all.

Voyager2002

Assuming there are no CCJs, all that debt will disappear from your credit history six years after you last acknowledged it. Is there any reason to start the clock again?Better to learn from your mistakes and avoid credit completely for the next four years, and then start again and try to be a bit more sensible.

sourcrates

No one is going to lend to you after defaulting on your credit card, don`t make the same mistake again, you can`t pay off debt with more debt, make an arrangement to repay the balance monthly, and avoid such mistakes in the future.

Nalf03

CliveOfIndia said:

Nalf03 said:

 looking around I could get a loan paying back £300 a month for the next 12 months.

What makes you think you'd be able to get such a loan?  With 2 years' worth of tarnished credit history, I'd be extremely surprised if anyone would be prepared to offer you a loan at anything approaching a sensible rate of interest - if at all.

I'm sorry if I didn't make it clear in the initial post, those numbers are what I was offered when searching on clearscore. 

The exact settlement offer was £2879.22, according to clearscore I am pre-approved a loan for £2900 over 12 months at 42.5% APR, which would cost £291.21 a month, a total repayment of £3497.09.

My current debt is £5140, so it would save me £1642.91 which would be a good amount to put into savings. If I were to pursue this I would try to lower the settlement amount, so that I could get a lower loan and save even more. 

Voyager2002 said:

Assuming there are no CCJs, all that debt will disappear from your credit history six years after you last acknowledged it. Is there any reason to start the clock again?Better to learn from your mistakes and avoid credit completely for the next four years, and then start again and try to be a bit more sensible.

I'm confused by this response. Forgive me if I'm wrong, I still have £5140 in my defaulted account, even if that gets removed from my credit history after the 6 years is over, I still have to pay the money back don't I? So I'm exploring this idea to try to reduce the amount I have to pay back and save a couple of grand. If I don't have to pay it back at all after the 6 years then I'll just leave it be. 

Also would paying it off start the clock again? I thought it would still be removed from my credit score after 4 years, it would just show as 'partially settled' until that time?

CliveOfIndia

Nalf03 said:

I'm sorry if I didn't make it clear in the initial post, those numbers are what I was offered when searching on clearscore. 

The exact settlement offer was £2879.22, according to clearscore I am pre-approved a loan for £2900 over 12 months at 42.5% APR, which would cost £291.21 a month, a total repayment of £3497.09.

Well the APR you've been quoted is extremely high.  But even then, I'd take the "pre-approval" with a very large pinch of salt.  Remember that ClearScore have no visibility of a particular lender's acceptance criteria, so their assessment of your likelihood of approval is - at best - a very rough guesstimate based on a soft search.  It's more than likely that, were you to make a full application, you'd find you were declined - or offered an even more astronomical APR.

Nalf03

CliveOfIndia said:

Nalf03 said:

I'm sorry if I didn't make it clear in the initial post, those numbers are what I was offered when searching on clearscore. 

The exact settlement offer was £2879.22, according to clearscore I am pre-approved a loan for £2900 over 12 months at 42.5% APR, which would cost £291.21 a month, a total repayment of £3497.09.

Well the APR you've been quoted is extremely high.  But even then, I'd take the "pre-approval" with a very large pinch of salt.  Remember that ClearScore have no visibility of a particular lender's acceptance criteria, so their assessment of your likelihood of approval is - at best - a very rough guesstimate based on a soft search.  It's more than likely that, were you to make a full application, you'd find you were declined - or offered an even more astronomical APR.

I don't really mind if the interest rate is high as long as its still saving money overall. Though if you're right that I'm likely to be declined, then I guess it wouldn't be worth trying and then having a faild hard search on my credit history as well.

Brie

Have you ever acknowledged any of this debt in writing?

Is there any interest being charged on any of the debt?

I'm wondering if you could get a full and final settlement figure based on you paying it off over the next year.  (don't know if this is possible).  But assuming you can afford £300 a month I wonder what the company would say if you offered that for the next 12 months without fail if they would cancel the rest.  Not sure they would be if you have already admitted to them about the debt they may be willing to do something to get you off their books.  

Nalf03

Brie said:

Have you ever acknowledged any of this debt in writing?

I'll be honest i don't really understand this question. There was probably some paperwork at the start, I've also got a monthly direct debit set up abd regularly log into the online portal to make payments when possible. It's my debt from my credit card, I didn't realise there was an option to not acknowledge it?

There's no interest being charged. 

I'm not sure if there's an option to pay a settlement monthly. All their documentation online only ever mention a lump sum. I haven't discussed it with them yet, I wanted to understand the implications and if it was possible before I responded. 

RAS

The debt will disappear from your credit record 6 years after the default. It has defaulted, hasn't it?

Brie

there's something about if you acknowledge a debt in writing.  If you haven't done this then the debt will be default from when it shows as a default on your credit history and 6 years later it drops off.  Apparently there's a difference if you say something over the phone or by email but if you use snail mail and say "I owe £XXX" then that's an admission.  But if you have been making payments occasionally that might also be an admission of the debt.