Debt Spiral - would love advice before the payment plan people call me in 2 hours!!!

BeachBitch

Hi - I am definitely in debt spiral rather than crisis but it is not going in the right direction.
All main bills such as mortgage and utilities up to date  but I am personally in over £8k of debt due to a mixture of overdraft, pay pal credit, 3 credit cards!! and a loan.  I have two part time jobs that are not bad paid and also and in reality I ought to have plenty to live on BUT after I give some money to help with the mortgage etc and pay my part of the food bills and then pay these debts I have about £90 left for the month so am now a bit behind on some of the payments and feeling pretty stressed.  I have zero savings and feel really stupid and irresponsible.  I am 52 years old and have the money management skills of a toddler!  I have a Payment Plan company calling me at 4.30pm today and I know it is going to sound amazing if they say I only have to pay X and don't have to deal with creditors BUT I really do not want my credit score - which is already pants - to get worse and not sure it is for me BUT also not sure what the solution is - there seems to be no wiggle room.

Grumpelstiltskin

Who exactly is calling you?

If it is a fee charging company say no thank you and put the phone down.

If it is one of the charity debt companies listen to them and tell them you will think about it.

Then come back on here for more advice.

If it is a company you have found on social media they will try and sell you an IVA, 2 words, barge and pole.

Mark_d

Overdraft, Paypal credit and credit cards are  very expensive forms of borrowing.  Ideally you'd be able to add this debt to your mortgage, so you'd only be paying 4% interest and you'd have many years to pay it off.  If it's not possible to add the debt to your mortgage then the next best things would be to get a personal loan to consolidate these debts.  This might be 6.5% but it's still far lower than the 30%-40% you're currently paying and it would allow you take control of your debt.

Grumpelstiltskin

Mark why do you think turning a small amount of unsecured debt into a debt secured on your home is a good thing?

It would be the very last thing we would suggest.

EssexHebridean

Yep - first port of call here is to establish who this "payment plan" company actually are - if you aren't sure, then when they call, ask if they are one of the charities that help people with debt - So Citizens Advice, National Debtline or Stepchange. Alternatively there is also Christians Against Poverty, who a lot of folk find helpful. If the person you are speaking to prevaricates, or talks you round in circles without a straight answer, then as above, time to say "thanks, but no thanks, please don't contact me again" and put the phone down. 

Ideally you would NOT add unsecured debt to your mortgage - that is seriously poor advice I'm afraid. Similarly, it's impossible for anyone to tell right now whether any form of debt consolidation might work for you - but, spoiler alert, it doesn't work for many people! 

Grumpelstiltskin gives excellent advice though - see where you stand on this call this afternoon then come back to us. 

Above all - take a breath - don't panic. It IS only money, and none of what you have mentioned is that significant in the grand scheme of things! 

BeachBitch

Hi - so the company calling me are called PayPlan and they are calling me following a call I had with PayPal earlier today to request some sort of plan to avoid me defaulting.  The advice is completely free - think that they are reputable enough.  Can't pop it on my mortgage and wouldn't consider that.  I already have a loan of £5,000 and the monthly payments for that are £220 which is my biggest credit payment by a long chalk.

Grumpelstiltskin

Trying to avoid defaults is the wrong way to go.

If you default it is removed from your credit report 6 years from the date of the default even if the debt isn't cleared.

If you start making reduced payments to your debt before you default your credit file is marked with arrangement to pay.
This stays on your credit report for 6 years after the debt is cleared, so if it takes 5 years to repay your credit report isn't clear until 11 years after you start repaying.

The biggest mistake you can make is to jump in to a solution before you fully understand what you are doing and why you are doing it

Rob5342

Payplan are one of the free ones but there are often much better ways to deal with things than what they suggest (they are interested in getting as much money as they can back for the creditors rather than what's best for you) . See what they have to say but dont agree to anything and come back here for further advice. Posting a statement of affairs would be a good idea so people can advise further. 

EssexHebridean

Yes - frequently defaulting can give you back a "clean" credit file faster than any alternative.

Where do you stand in regard to your mortgage - are you shortly going to be coming to the end of a fix, for example? If so, you need to be aware that your options going forward there may well be limited to the offerings from your current provider. It's not a problem, just something to have in mind. 

I agree about the advice to put together a Statement of Affairs (SOA) - there is a link to one of the calculators we suggest in my signature below. 

BeachBitch

Hi there 

So I have now had two telephone meetings with PAYPLAN and chatted to my husband.  I will most likely go down this route due to the fact that it will only affect my credit file and not my husbands (which was a worry as it used to be done by address).  My debt is just over £7,000 and it would take me 18  months to pay off which to me seems incredible!  They mentioned two routes  - A Debt Management Plan  and also a Debt Arrangement Scheme (which is I think a Scottish thing).  The second is what they recommend, its a government scheme and you do you on the DAS resister BUT as it is a legal contract your creditors can't continue to hound you or decide to take any action. They both affect the credit file of course .  My gut is to go with the first option actually but keen to hear what you think.   

The other issue is our joint mortgage - we are coming to the end of our fixed term with Santander and want to stay with them and renegotiate.  Will we need to do this BEFORE I enter into any debt management scheme.  PAYPLAN say that as we want to stay with the same mortgage company it will not make any difference but I can't really afford for them to be wrong on that one.  What do you think on this one?

Thanks and looking forward to hearing what you advise?

birdsfoottrefoil

Hey, please follow the advice from Grumplestiltskin and Essex Hebridean. I do think you are worrying too much about the mortgage if you are wanting to stay with the same lender. I don’t know fully what a DAS is? I’m a bit cynical of consolidation loans as my sisters husband has had more than one….. 

Apols as I’m editing: but please SLOW DOWN, you are in no rush and instead read some of the other posts on here. Do not be rushed by any providers.