£53,000 in unsecured debt, feeling very scared.

MissCarmen

Hi. Looking for some advice please. 

I am £53,000 in debt with credit cards and loans, plus owe a further £7000 to my mum. 

Got myself into this mess through a series of bad choices. One being to invest in a property with my ex partner (who is a property mentor and investor) which turned out to be a bad investment. 

I also bought a house to live in, which is affordable for me but needed a lot of work. I did the work using credit cards thinking I’d be able to remortgage after I had done the work and pay off the credit cards. Unfortunately it didn’t work out that way. 

I’m self employed, and my business has done well for the past 5 years, with take-home pay of around £56,000 per year (which allowed me to buy the house I now live in). Business was doing well, until this year. 

At the beginning of this year my business took a downturn. My income dwindled way down and stayed that way all through the summer. Some big clients didn't pay. 

This meant I didn’t have the income to support remortgaging to borrow from the equity in my house and repay the credit cards. 

I began to panic as I have 7 creditors in total and the 0% deals were coming to an end. I was juggling with balance transfers and things but knew it wasn’t sustainable. 

So I reached out to Payplan for advice and support. They suggested a DMP. 

I am in month 1, and have made the first payment, but have now had letters from most of my creditors stating that they’re going to put defaults on my credit file, which I didn’t realise would happen. I’ve researched it now, so I understand a bit more now. 

I've also taken a sales job now (which I invoice for through my business) and it's commission only, so I feel in a very precarious position, but it was a way I could earn money... 

I'm also waiting to hear back from my accountant about my tax situation. I am up to date, as in nothing currently owing, and have been making payments on account, but don't know how much my next tax bill at end of Jan will be. 

Facts of the situation: 

> £53,000 in unsecured debt on credit cards and a loan. 

> £7000 owed to mum (but she’s not in a desperate hurry to get it back). 

> I have 1 rental property I own myself, which I’m selling. Have a buyer and it’s in the conveyancing process, but not a done deal yet. All told I may get between £15,000 and £20,000 profit after fees and capital gains tax, hopefully within the next couple of months. 

> Ex-partner is due to buy me out of the property I invested in with him. This will be £15,000 back to me. He says it’s imminent, but this has been going on for nearly 2 years, so I’m not counting on it. 

> Estimate I have about £40,000 of equity in my home, since doing the improvement work. 

> Have had a better 2 months’ income in my business, so it looks like that is improving again (although not back to the previous levels before the trouble). 

> I’m also exploring getting a job, as part of the problem is the variable income in my business. 

> Currently have an emergency fund of £1200 and about one month’s worth of expenses covered, but that’s it. 

> I’m currently doing sales for a client, and this is my only source of income currently, and it’s completely commission based. This is very triggering for me and causes a lot of anxiety. I have been applying for other work too. 

> Am working on securing other sources of income. 

I’d rather avoid getting defaults on my credit file, but having read the forums today I now see that this may not be as bad as I first thought? Think I need to get myself more financially stable before paying non-priority debts, is this the right way to think about this? 

I feel completely overwhelmed with all of this, and have no idea what to do for the best. 

It feels like so many moving parts. 

Thanks in advance.

Grumpelstiltskin

OK So you panicked and went into a DMP without fully researching what you were doing.

Did Payplan explain defaults to you?

MissCarmen

Yes, that's right. I panicked and did a DMP without fully understanding the implications. 
No, Payplan didn't explain about the defaults. 

MissCarmen

Also, I have a default notice already from Natwest with 14 days notice before the default goes on my credit file. 
This seems awfully fast to issue a default as I only started my DMP and made my first reduced payment a couple of weeks ago. 

The debt with Natwest is for around £4500 (I need to check exact amount). I also have my mortgage with them, which is up to date. 

I took this credit card out in May of this year and did a balance transfer. 

I'm really afraid of them taking legal action or doing something with my house. 

MissCarmen

I did my first go at SOA. Would really appreciate some feedback and suggestions on the best way forward for me. 
Thank you in advance:

[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................ 2500

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

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

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

Total monthly income.................... 2500[/b][b]

Monthly Expense Details[/b]

Mortgage................................ 82

Secured/HP loan repayments.............. 606

Rent.................................... 0

Management charge (leasehold property).. 0

Council tax............................. 318.16

Electricity............................. 104

Gas..................................... 104

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

Water rates............................. 30

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

Mobile phone............................ 10

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

Satellite/Cable TV...................... 21.97

Internet Services....................... 45

Groceries etc. ......................... 375

Clothing................................ 35

Petrol/diesel........................... 80

Road tax................................ 2.5

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

Car maintenance (including MOT)......... 65

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

Other travel............................ 0

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

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

Medical (prescriptions, dentist etc).... 35

Pet insurance/vet bills................. 75

Buildings insurance..................... 69

Contents insurance...................... 0

Life assurance ......................... 20

Other insurance......................... 35

Presents (birthday, christmas etc)...... 15

Haircuts................................ 20

Entertainment........................... 120

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

Emergency fund.......................... 25[b]

Total monthly expenses.................. 2327.63[/b]

[b]

Assets[/b]

Cash.................................... 1200

House value (Gross)..................... 242000

Shares and bonds........................ 15000

Car(s).................................. 2000

Other assets............................ 15000[b]

Total Assets............................ 275200[/b]

[b]

Secured & HP Debts[/b]

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

Mortgage...................... 48000....(82).......2.98

Secured Debt.................. 124500...(606)......5.9[b]

Total secured & HP debts...... 172500....-.........-   [/b]

[b]Unsecured Debts[/b]

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

MBNA Loan......................13090.....333.......0

MBNA CC........................10086.....109.......0

Virgin Money CC................9414......123.......0

Mum............................7000......0.........0

Santander CC...................3287......75........25

Natwest CC.....................4539......100.......0

Halifax CC.....................6005......111.......0

Tesco Bank CC..................6503......100.......0[b]

Total unsecured debts..........59924.....951.......-  [/b]

[b]

Monthly Budget Summary[/b]

Total monthly income.................... 2,500

Expenses (including HP & secured debts). 2,327.63

Available for debt repayments........... 172.37

Monthly UNsecured debt repayments....... 951[b]

Amount short for making debt repayments. -778.63[/b]

[b]Personal Balance Sheet Summary[/b]

Total assets (things you own)........... 275,200

Total HP & Secured debt................. -172,500

Total Unsecured debt.................... -59,924[b]

Net Assets.............................. 42,776[/b]

[i]Created using the SOA calculator at www.stoozing.com. 

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

* Just to clarify a few things... 

I'm currently paying the mortgage, council tax and electricity on 2 properties. My main residence that I live in, and my rental property which is currently being sold. 

I am self-employed and have variable income. This is average take-home based on the last few months. I am working to increase my income. 

Grumpelstiltskin

OK A quick one. Council Tax, is that with single person discount?  I am assuming you are living alone.

MissCarmen

Hi Grumplestiltskin, 

Yes. That is with the single person discount applied. The figure is high because it also currently includes the council tax for my rental property as well (which is being sold). That accounts for £200pm and will drop off once the property sells. 

The same goes for the figures in mortgage (£82 of that is for my rental property) and electrcity/gas (£50 is for rental property) and buildings insurance (£25 for landlords insurance). 

These will all come out the budget once property sells. 

I have a buyer and it's in conveyancing process as we speak. Contracts not exchanged yet. 

MissCarmen

Should I just let the default go onto my credit file from Natwest, or try to stop it given I may have some money from sale of property? I have about 10 days before it goes on. 

fatbelly

It's a complicated situation but not desperately bad.

I would definitely allow the defaults to go on. In fact the worst thing would be if a creditor refuses to default you. Post again if you are still in that situation after 6 months.

You have 60k of debts but are getting cash of perhaps 30k. Sounds ideal for full & final settlement deals ( not suggesting you try this with you mum) which will only be available on defaulted debt.

Don't rush at this. Let your lump sums sit in a savings account somewhere unconnected to your debts, getting a bit of interest for 6 months.

Be smart

MissCarmen

Thanks Fatbelly.

I think panicking and rushing things are part of what has got me into this mess to begin with. 

Letting them default feels scary and counterintuitive, despite all I’ve read on here. 

I’m convinced someone is going to come and drag me off to debtors prison! 😱 (joking, sort of!)

But I do think I need to face up to the fact that I can’t afford to pay at the moment, and that I need to take care of myself first, and get back on stable financial ground, before offering to pay any non priority debts.

Rather than scrabbling to pay and leaving myself in a very precarious position.

Does that make sense?

 

fatbelly

All those lenders (apart from your mum) are known quantities who play by the rules. Nothing bad is going to happen so take your time.