Debt solutions

redfordrose

Hello, i’m hoping someone with a bit more knowledge can offer some advice.
I have recently found out that my partner (long term, two children and a mortgage together) is in much more debt than i was aware of. I knew of some credit cards but wasn’t aware of the balances, and i knew of a loan but didn’t realise how much it was for/how much is left. I was unaware he had borrowed a significant amount from family. The original loan was when we bought a renovation property and needed money to do it up, i was unaware that this has been increased a few times since. The credit cards started when we had to have a large amount of work to a newly financed car in excess of £4000 (we did argue this with the finance provider and sought advice from the financial ombudsman at the time and we were unable to return the car without a hefty penalty or claim on the warranty) since then it seems to of spiralled out of control and the credit cards have been used for daily living expenses. I was aware of a large overdraft and that we were struggling financially as our mortgage has recently gone up by over £600 a month and this has really stung us, along with general cost of living. The debt on loans and credit cards is around £30,000 and the debt to family is around £15,000. We sat down and looked at our options with step change and money wellness, step change advised a DMP and money wellness advised an IVA. We both work and aren’t entitled to any benefits. He hasn’t ever defaulted on any payments but is borrowing money each month to cover these payments and it’s not sustainable to keep going the way we are. We looked into releasing equity from the house to clear these debts but our mortgage provider has rejected this, based on his bad credit score. I am unable to get a debt consolidation loan to the value of the debt. I’m really worried about going into an IVA or a DMP and the impact it will have on our home. From what i gather with a DMP even after the 6 years the lenders can come after you as you technically haven’t wiped the debts, is this correct? And an IVA they ask for equity release in the final year.. how does this work? What would happen when our mortgage is up for renewal? An IVA seems so extreme but reality is, we are in quite an extreme situation. Any advice or experiences would be very appreciated! 
Thank you if you got this far! 

fatbelly

Ok. It's a definite no to consolidating the debt and/or securing it against your home

So 2 advice provides have recommended different solutions and probably been negative about the other solution. I think the way forward is not to jump into either, quickly

A statement of affairs would be very useful here

https://www.lemonfool.co.uk/financecalculators/soa.php

You will need to default on the debts*. You can stop paying now as long as you are banking with a bank that you do not have debts to

*this applies to nonpriority debts like loans and cards. Not priority debts like council tax and mortgage arrears

ManyWays

Instinct says if StepChange didnt recommend an IVA than its probably a very bad idea. 

Could you please complete a Statement Of Affairs form (https://www.stoozing.com/soa.php), this should be easy as you will have gone through all the information with StepChange and MoneyWellness. Please put the names of the lenders, not just credit card 1, etc

Also some questions:
* the increased loan, what were the previous amounts and what were the dates of the increases?
* who is the mortgage with and how long is your current fix?
* what did StepChange say you would pay in a DMP?
* what did Money Wellness say you would pay in an IVA?
* is anything likely to change in your situation over the next few years? 
* do you have a car on finance that ends in the next few years, PCP or HP or lease?

From what i gather with a DMP even after the 6 years the lenders can come after you as you technically haven’t wiped the debts
A DMP continues until debts are cleared, the 6 year point doesnt change that, but your credit record normally starts to improve from that point.

And an IVA they ask for equity release in the final year.. how does this work?
You may be asked to take out a very expensive secured loan from a bad credit lender and pay the money into the IVA. So, far from getting you out of debt, an IVA may simply kick the can down the road for 5 years and then land you with another big problem debt.

What would happen when our mortgage is up for renewal? 
You can probably just get a new fix, thats why I asked who your mortgage lender is. If your mortgage drops, your IVA payment is likely to increase by that amount but it will not end any sooner, and as you are making a larger IVA payment, they may be able to ask for a larger secured loan in year 5. In a DMP you have more flexibility, eg you can use that drop in the mortgage to pay more to the DMP which then ends sooner, but you may have other needs.

redfordrose

@fatbelly Not going to rush into anything and definitely want to be fully prepared. I feel extremely nervous about him cancelling payments towards the debts, what happens once you do that? The loan is with our bank

redfordrose

@ManyWays I will complete one of them now. I really have no idea of when the loan increases were made and to what amount. All i know is that it started off as £7500 in 2018 and at some point over the years it was increased to £30,000, there is now just over £23,000 left. 
We are with natwest and we remortgaged in April 24 and fixed for two years. 
step-change said we would pay £470.21 on a DMP and money wellness said £432.00 on an IVA.
I don't think anything will change but my partner has very recently started a new job. 
We have a car on HP finance that we still have 3 years left on. 
Realistically it sounds like neither of those options are going to be a good idea

RAS

We really can't tell you what's going to be best without seeing the finances.

What we can advise is:

That if your husband owes money to the bank into which salaries are paid, he needs to set up a new basic bank account with a provider to whom he owes nothing. A basic account doesn't require a credit check.

That your personal credit record will be adversely affected if you have joint accounts with your husband. Is that overdraft in his name or joint names? If possible you need to get your name off those accounts.

That in most instances, when you renew your mortgage, you just select the best option from your current provider's menu and sign up without a credit check, providing mortgage payments have been kept up to date. 

Right now you need to work together to stabilise the situation. I'd suggest you both get your credit records for all three providers, for free, even if you have to write off for the statutory reports.

Get the last year's statements for all the accounts and work out where the money has been going.

Concentrate on making sure the mortgage and Council Tax are paid. Then food. 

EssexHebridean

Sounds like this is probably a case of you both taking your eyes off the ball a little - your husband for not thinking through what taking on more debt would mean for the future, and you for not realising that with the prices of everything going up, your lifestyle should not have been unaffected - is that a fair assessment?  As above - working together to get things sorted in this situation is vital - and by doing that it will be cleared and you can move on far faster - it sounds as though you have already taken that sensible and pragmatic view. 

Priority bills:
Mortgage, council tax, any secured debt for cars etc, food, utilities (heat, light, water), essential travel, essential insurances. i would add broadband to that these days too.

Highlighting again from RAS's comment above - you will need to change bank account if you are going to default on the loan with the bank you currently have your current account with - is the loan in sole names or joint? 

Also echoing the comments about about consolidation or adding the debt to your mortgage - no and no - those who have turned you down for these options have done you a huge favour! 

The SOA is your key first step - that will help you see how your lifestyle is currently outstripping income, and also where savings can be made. 

redfordrose

@EssexHebridean We don't live a life of luxury by any means. When the mortgage increased I made cut backs and i got a second job to help pay more bills. We have tried to get a cheaper car/hand the financed car back but there is still a hefty penalty and the car is in negative equity to trade in for something cheaper.
I have a separate bank account that my wages are paid in to and I pay certain bills, whilst others come out the joint account that i naively hadn't check. I’m in no means putting the blame solely on my partner though, I won’t understand the stress he had of being the main financial provider and trying to keep everything in check and stable. 


The loan is solely in his name, this is why i was never able to see it increasing. 

I have completed a statement of affairs and a huge chunk of our income is taken by repaying these debts the total monthly payment for them alone is £1628.97. We are trying to cut back on fuel and food shopping, but i really can’t see where else we can, we have the most basic internet package, a sim only phone plan each.. there really aren’t any luxuries.

EssexHebridean

Post the SOA - and let's have a look. It's sounding very much like stopping paying the debts is the way forwards though - if you cut down as much as you can and still can't make the minimum payments, then that's a sign that something needs to change. 

Absolutely no suggestion that you are in any way living a life of luxury either - everyone is aware how much  the general cost of living has escalated in the past few years and so many people are struggling with income simply not increasing in the same way. It's more a case of places where spending might be able to be brought down simply because you've not realised that costs there have (unusually!) become available more cheaply! 

ManyWays

a huge chunk of our income is taken by repaying these debts the total monthly payment for them alone is £1628.97

Now compare that to the 2 estimates of what you can afford each month: 

step-change said we would pay £470.21 on a DMP and money wellness said £432.00 on an IVA

That is a massive gap, trimming back your groceries or mobile spending isnt going to fill half of it, you almost certainly do need a debt solution.

The debt to family, is it urgent that is repaid?

Suppose you pay 470 to StepChange for a DMP (its a bit odd MW arent proposing the same number for an IVA, but park at the moment to see the big picture). Thats £5,500 odd a year. Interest and charges will be frozen on your debts so you can clear 30k in a bit under 6 years.

That is why StepChange have, rightly, ruled out an IVA. It would be mad to get an IVA when you can clear the debts that quickly in a debt solution that is more flexible, doesnt fail, and doesnt go down on your credit record as a form of insolvency.

When the car HP ends, you can either pay more to the DMP or pay off the family loan faster.  

A SOA will still be very useful, letting people here talk practicalities. 

redfordrose

@EssexHebridean The mobile phone balance is for 3 phone/plans. The vet insurance is a vet health plan and insurance. Whilst i understand this could be cut, we bought them many years ago and feel we owe them a duty of care and wouldn’t have the funds should something happen. Food is off £120 a week but seeing the monthly amount it does seem a lot so we are working on cutting that back, same as the fuel spend

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

Household Information[/b]

Number of adults in household........... 2

Number of children in household......... 2

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

Monthly Income Details[/b]

Monthly income after tax................ 2789

Partners monthly income after tax....... 681.52

Benefits................................ 184.38

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

Total monthly income.................... 3654.9[/b][b]

Monthly Expense Details[/b]

Mortgage................................ 1077

Secured/HP loan repayments.............. 289

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

Management charge (leasehold property).. 0

Council tax............................. 143

Electricity............................. 75

Gas..................................... 75

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

Water rates............................. 38

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

Mobile phone............................ 86.73

TV Licence.............................. 15

Satellite/Cable TV...................... 0

Internet Services....................... 27

Groceries etc. ......................... 563.33

Clothing................................ 30

Petrol/diesel........................... 250

Road tax................................ 14

Car Insurance........................... 66.92

Car maintenance (including MOT)......... 20

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

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

Childcare/nursery....................... 40

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

Medical (prescriptions, dentist etc).... 32.56

Pet insurance/vet bills................. 71.94

Buildings insurance..................... 10

Contents insurance...................... 6.61

Life assurance ......................... 22.55

Other insurance......................... 0

Presents (birthday, christmas etc)...... 100

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

Entertainment........................... 0

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

Emergency fund.......................... 30[b]

Total monthly expenses.................. 3093.64[/b]

[b]

Assets[/b]

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

House value (Gross)..................... 280000

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

Car(s).................................. 0

Other assets............................ 0[b]

Total Assets............................ 280000[/b]

[b]

Secured & HP Debts[/b]

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

Mortgage...................... 204142...(1077).....4.7

Hire Purchase (HP) debt ...... 9355.....(289)......11.9[b]

Total secured & HP debts...... 213497....-.........-   [/b]

[b]Unsecured Debts[/b]

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

HSBC Loan......................23334.....327.9.....9.9

M&S Credit card................921.......27.36.....0

Halifax Credit Card............5442......163.2.....0

Overdraft .....................2707......135.1.....0

Samsung........................377.......29.06.....0

HMRC...........................827.......69.7......0

argos..........................282.......14.48.....0

Paypal.........................492.......18.78.....31

Barclay Credit card............2848......85.44.....28.7[b]

Total unsecured debts..........37230.....871.02....-  [/b]

[b]

Monthly Budget Summary[/b]

Total monthly income.................... 3,654.9

Expenses (including HP & secured debts). 3,093.64

Available for debt repayments........... 561.26

Monthly UNsecured debt repayments....... 871.02[b]

Amount short for making debt repayments. -309.76[/b]

[b]Personal Balance Sheet Summary[/b]

Total assets (things you own)........... 280,000

Total HP & Secured debt................. -213,497

Total Unsecured debt.................... -37,230[b]

Net Assets.............................. 29,273[/b]

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

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