In quite a bit of debt, advice needed!

Jvoke

Hi guys,

So my situation is as follows:

In my early 30s.

I am in around £40k worth of debt. This debt is a mix of personal loans and credit cards. This main chunk of this debt was caused from a medical incident abroad which I got a £20k loan to cover. I've never missed a payment on anything in my life, but this large loan forced me to used credit cards more for emergency payments etc.

My salary is decent at £70k (Around £3800 take home after tax/student loan/pension) but in the past couple of months, my rent has been increased which has meant that next month it's looking like I can't meet the monthly minimums on some of my debts.

My payments and debt are as follows:

- Personal loan - 15.9k - 17.2% interest - £580 p/m (Around 3 years left)
- Personal loan - 8.2k - 22.3% interest - £189 p/m (4 years left)
- Personal loan - 1.6k - 14.5% interest - £335 p/w (Ends in November!)
- Credit card - 3.9k - 27% interest - £150-200 minimum payment
- Credit card - 3.9k - 31% interest - £150-200 minimum payment
- Credit card - 5k - 15% interest on average (Each purchase is seperate) - £570 next month, but goes down to £330 the following month and £250 after that.

Rent: £1450
Bills (everything): around £350-400

As you can see, next month is putting me almost in the red after paying all priority and non-priority payments.

I have a baby and a wife that doesn't work (looking after the baby), so supporting two people basically.

I tried contacting StepChange and they wouldn't talk to me as I am not in arrears and have a perfect credit record thus far which is annoying.

I have been doing a lot of research and my current plan is to potentially stop payments on 1-3 of my current debts to help me along the next few more expensive months. As in November I've paid a loan off so will gain £335, and my purchase credit card will go down too. If I stop paying for example the £580 p/m loan and a £200 p/m credit card, that would give me enough space to even save a bit of money.

So my question I guess, is that a sound plan or is 1 default the same as many defaults on the old credit score? If I am looking to default 1-2, should I just default all of them which would then allow me to get a way bigger emergency fund going for the eventual settlements? Or if I can afford it, just defaulting 1-2 will look better in the long run? Basically acknowledging my credit is going to be bad for 6 years.

I do eventually want to buy a property once out of this initial mess and should be earning more in 6 years with a bit of luck too.

Any advice?

2021rdsunshine

Having 1 or 2 defaults will be the same as having 5 or 6 as far as your credit file is concerned, it will be shattered for 6 years from the date your defaults are applied on your credit file . Consider that creditors won’t apply defaults straightaway once you stop paying, they have to go through all the required “helpful “ process to make you get into an arrangement to pay. I stopped paying debts last November and only now I’m seeing defaults happening. 

You would benefit from doing a SOA so people can advise you further. I really suspect that your bills are way more than £350/£400 if you take everything into account, unless of course your partner is contributing as well. 

If you want to go down the DMP route you can always self manage your own DMP. 

pdel61

A full SOA would help people to advise and also allow you to see where there are rooms for savings.

Can your wife work evenings or weekends to make some money, while you look after the child.

What are the actual minimum payments on the CCs, is that what you are paying, I'm not sure I understand the third CC with payments of: £570 next month, but goes down to £330 the following month and £250 after that.

Jvoke

pdel61 said:

A full SOA would help people to advise and also allow you to see where there are rooms for savings.

Can your wife work evenings or weekends to make some money, while you look after the child.

What are the actual minimum payments on the CCs, is that what you are paying, I'm not sure I understand the third CC with payments of: £570 next month, but goes down to £330 the following month and £250 after that.

The second card is a flexible purchase card where I can choose the repayment terms. Paying over 0-3 months is 0%, 4-12 months is like 12%, then 12-24 months is 26%. I regularly change these around and pay back some stuff on 0%, whereas I've put larger purchases on longer terms. So it varies quite a lot. It was super useful for me before I got in to an issue with having to take out a large loan as it allowed me to fully control my purchases.

Think of it like Klarna but in card format.

Jvoke

2021rdsunshine said:

Having 1 or 2 defaults will be the same as having 5 or 6 as far as your credit file is concerned, it will be shattered for 6 years from the date your defaults are applied on your credit file . Consider that creditors won’t apply defaults straightaway once you stop paying, they have to go through all the required “helpful “ process to make you get into an arrangement to pay. I stopped paying debts last November and only now I’m seeing defaults happening. 

You would benefit from doing a SOA so people can advise you further. I really suspect that your bills are way more than £350/£400 if you take everything into account, unless of course your partner is contributing as well. 

If you want to go down the DMP route you can always self manage your own DMP. 

Thanks. Yes the idea with my defaults would be to self-manage a DMP once defaulted. Probably trying to get token payments going until the debt devalues and they try and settle it.

Whats an SOA sorry?

My bills I worked out as gas+leccy, water and council tax, should be between £350-400.

Grumpelstiltskin

SOA is here
SOA Calculator (lemonfool.co.uk)

It needs to be honest, format for MSE and copy and paste on here.

Don't make token payments, they just prolong the agony before a default is issued, a default disappears 6 years after it is made an arrangement to pay doesn't go away until 6 years after the last payment.

You need to bite the bullet and stop paying everything, don't use anymore credit and save as much as you can for an emergency fund, you will need one with no credit spending.

Brie

My bills I worked out as gas+leccy, water and council tax, should be between £350-400.

The SOA will show you all the rest...food, phones, broadband, car expenses etc so way more.

a DIY DMP works well for those with the discipline to do so.  Frankly I'd start off by telling all your creditors that you are stopping paying.  That way you are being honest with them and potentially they'll stop charging interest.  They will want to see the full SOA including how much you owe and how much you might have to pay everyone.  But I'd wait a couple of months at least before you tell them (don't ask) how much you will be paying.  And then you can set up standing orders to give them each a pro rata amount.  

If you are confident you can DIY then you might talk to Citizen's advice or CMA (Community Money Advice) but if you want more help with just 1 payment a month being made you could talk to StepChange.  

I assume you have discussed the situation with your wife as obviously this concerns her future as well.  But please don't say that she's not working because she's not getting a wage.  Looking after kids isn't all balloons and playing in the park.  

Superhoopza

I'd recommend if you have a few hours spare to read my thread as I was in a similar situation and asked some of the same questions i.e. defaults and impact on credit file and weighed up a bigger debt but repaying it all versus defaults.

https://forums.moneysavingexpert.com/discussion/6496674/here-goes-starting-up-on-a-journey/p1

I went with repaying it all in order to 'protect' my credit file for the future. 

Jvoke

Superhoopza said:

I'd recommend if you have a few hours spare to read my thread as I was in a similar situation and asked some of the same questions i.e. defaults and impact on credit file and weighed up a bigger debt but repaying it all versus defaults.

https://forums.moneysavingexpert.com/discussion/6496674/here-goes-starting-up-on-a-journey/p1

I went with repaying it all in order to 'protect' my credit file for the future. 

Thank you, I'll check it out.
I think if I can get through the next 3-4 months I don't need to DMP, so I might just try calling some of the main creditors and ask for a temp freeze on interest and repayments.

Your thread is huge! I skipped to the end and saw you got approved for some big 0% cards recently. How did you do that? Even though my credit record is immaculate (no missed payments) my credit score isn't amazing because of how much debt I have, so I can't seem to get approved on anything from compare the market/clearscore etc.

A 0% card would really help me I think.

Grumpelstiltskin

Honestly do nit phone any of your creditors, all they are interested in is getting you to pay them as much as possible. as I said earlier do not make token payments as it just prolongs the agony.

Jvoke

Grumpelstiltskin said:

Honestly do nit phone any of your creditors, all they are interested in is getting you to pay them as much as possible. as I said earlier do not make token payments as it just prolongs the agony.

When I mentioned token payments, I was meaning once it's defaulted.

So from what I understand I just don't pay until defaulted THEN I contact them with what I am willing to pay and just pay that until they come up with some much cheaper settlement offers correct?

I assume to avoid CCJ action I need to setup the DMP/Token payments immediately after the default has gone through right? They can't take me to court before the default.

I've read some sources online that suggest once defaulted, a token payment should be setup (token payment term used here as it should be small, like £10 p/m for example), then the debt collection companies will want to sell it asap as it won't be worth much due to the low repayment on it. The longer I pay small amounts, the more it devalues and I assume they can't court action as I would have contacted them and be actively repaying the debt right?