Add 65k debt to mortgage, dmp, or something else?

ManyWays

Natwest will offer you a new fix no matter how large your debts are or how bad your credit score (assuming no mortgage arrears), and there is no need to go through a broker to just get a new fix unless you want advice on whether to go for 2,3 or 5 years. 

I would be very surprised if you can get a better rate by changing lenders, with such a lot of debt you are pretty likely to fail their affordability checks.

I suggest you look on the NatWest site now and see what your options are, pick the one you are most likely to go for and put that monthly amount into the SOA that you are drawing up. 

Kittymumof4

@RAS thank you for this. I'm going to log into my mortgage account when I can find my login details today or tomorrow, I thought it would be best to look elsewhere but didn't realise they don't do a credit check if you stay with them. 

If I do a DMP myself then will this still affect our credit rating the same as going through an agency such as stepchange? Will this mean that we can't move house until after the 6/7 years is up? 

Why do I need to set up a new account? What will happen with our current bank account with the overdraft? 

So my next steps so far:

Do a SOA and post here

Sort new mortgage deal with Natwest 

Tell HMRC that I'm no longer self employed 

Set up a new bank account with no overdraft available

Is this right? 

Thank you all so much for your support. I can't explain how much of a relief it is to know that we can get help here. 

Grumpelstiltskin

Make sure your new basic account is not with any banking group you have debts with.

Make sure you swap in time for all income to change over as there are usually cut off dates.

Also don't use the banking switch service switch vital direct debits manually.

Your current account with the overdraft just becomes another debt

Rob5342

Kittymumof4 said:

So with the DMP, what does this look like? Would we be able to live okay?

With a DMP you create your own budget that gives you enough to live ok, and what's left over is what you pay towards your debts. The more you can cut back the quicker you can get things paid off, but you don't have to live on beans on toast and forgo absolutely everything. Debts often get passed to debt collectors who accept settlement offers, so when you are a few years down the line you might be able to settle some or all of the debts for a lot less than their value.

I have a current account with Monzo and I find that very useful for budgeting as they let you split your money into different pots to help keep track of it. I put all my bills money into a bills pot when I get paid and have the direct debits set to come out of those pots. That means I can just look at what's left instead of having to manually keep money aside. I also have a pot for each week that I put money into, so all I have to do is make a pot last a week.

The defaults you get will mean that it's more difficult to get credit which will affect getting phone plans etc so you need to manage that. You could get a sim only plan that has minimal or no credit check requirements, and put some money aside to buy a second hand phone from Gifghaff when necessary 

Kittymumof4

Rob5342 said:

Kittymumof4 said:

So with the DMP, what does this look like? Would we be able to live okay?

With a DMP you create your own budget that gives you enough to live ok, and what's left over is what you pay towards your debts. The more you can cut back the quicker you can get things paid off, but you don't have to live on beans on toast and forgo absolutely everything. Debts often get passed to debt collectors who accept settlement offers, so when you are a few years down the line you might be able to settle some or all of the debts for a lot less than their value.

I have a current account with Monzo and I find that very useful for budgeting as they let you split your money into different pots to help keep track of it. I put all my bills money into a bills pot when I get paid and have the direct debits set to come out of those pots. That means I can just look at what's left instead of having to manually keep money aside. I also have a pot for each week that I put money into, so all I have to do is make a pot last a week.

The defaults you get will mean that it's more difficult to get credit which will affect getting phone plans etc so you need to manage that. You could get a sim only plan that has minimal or no credit check requirements, and put some money aside to buy a second hand phone from Gifghaff when necessary 

Thank you for this. So with the self managed DMP, do I just not pay them and wait for them to contact me? 

How long is it usually until I will have to start paying them? 

If the debt collectors are involved will i have bailiffs knocking at the door?

Will I have to prove our income to agree an amount to pay back and can I arrange to pay a set amount each month to each lender which is affordable? 

sourcrates

You don`t have to wait until accounts default to start debt management, but its to your advantage if you do, as all interest stops, and you have a clear 6 year window till your credit file recovers.

It can vary between lenders, but it can take up to 6/9 months or more for a debt to default.

Debt collectors are not bailiffs, bailiffs can only be engaged after a CCJ has been granted, and you fail to keep up payments on that court judgement.

With consumer credit debt, bailiff action is extremely unlikely, but would only be the county court bailiff if one was engaged, who are employees of the court, and are reasonable to deal with.

Most debt collectors work from a call centre, a few still knock on doors, but not many, and debt collectors have no more power than you or I do, so they are of no real consequence in that regard.

You don`t have to prove anything to anyone Great Britain is still a free country, you work from a budget and you tell them what they will be getting, you can share this information if you wish.

DankVielen

Kittymumof4 said:

Hi, we have serious debt. Our credit score is good at the moment but we are struggling to make payments. We need to sit down and do a full SOA this week but I estimate our credit card debt (between us) to be around 65k and an overdraft of 1.5k on our joint account.

Our mortgage is due for renewal very soon. Our house is worth approx £330k and we owe £180k with 20 years left, we are 47.

We are contemplating applying for a higher mortgage to consolidate the debt to protect our credit rating and to make the payment more manageable.

But I also know that this means moving unsecured debt to secured.

Our family situation is complex. We have a teenage son with additional needs and are supporting our 20 year old who is in university (living at home) who doesn't get a full maintenance loan due to my husbands wage. I have a physical disability. When we moved to this house 5 years ago, we didn't understand the complexity of our son's needs, he was in school full time so I was able to work part time self employed. Now his school attendance is sporadic and he needs a lot of support, meaning I have been unable to work since just after we moved here and my own health issues make it even more challenging. I'm paying out on things like professional registration but not earning.

I am still registered as self employed in the hope of getting my small business back up and running to help us out of this mess, which means that step change won't support me with my debts, but would support my husband. If I close my HMRC sole trader account and we go onto a joint dmp, this stops me from being able to earn money while we're on it, if my circumstances change and I become able to work again. I do get carers allowance, my son is on DLA and I get PIP and we can't claim any other benefits as my husbands is on 60k p/a.

On paper we should be okay! We don't go on lavish holidays, we eat out 2-4 times a month (usually takeaways) as I find it difficult to cook meals every day, my husband commutes and is out of the hours 12 hours a day, so we're living in a constant state of exhaustion. I pay for a cleaner from my PIP payment as I can't keep up with the cleaning myself due to health issues. I'm currently studying, I have a student loan for the course costs but extra costs are £140 a month and I'm not entitled to any financial support with this due to my husbands wages. We shop at Tesco and use club card points for eating out treats, we buy mainly their own brands and only buy branded products for our son who has a restricted diet.

Our son brings high demands on our finances and going forward we will work to budget this so that the extra costs are covered by his DLA payment, but at the moment our finances are a mess and we're constantly fire fighting.

Both of us have struggled with mental health and I hit a mental health crisis a couple of years ago, which has meant we've buried our heads.

We are paying £1400 per month on debts, and this is rising, as most of our cc are 0% but we've started to pay interest on some of them now. Our overdraft means that when my husband is paid, we're back in the overdraft within a week or 2. Our mortgage is 1k per month and rising soon as we had a low interest fixed rate and rates have gone up so when we remortgage the cost of this will rise.

We've started to look at subscriptions that we can cancel and have started to do this and we're looking at non essential spending.

We don't know what to do. If we go onto a dmp it's going to mean phone contracts etc will be difficult and I don't relish the idea of telling our children about our struggles, especially as my son is currently in mental health crisis and anxiety is a huge part of this. We obviously have no savings so things like holidays (we go on a budget friendly UK holiday once or twice a year and before we woke up to the mess we're in, we planned but not booked a budget self catering holiday abroad as one of my sons special interests is planes and he's never flown) will be out of the window and days out will mean park visits instead of trips out to places which are important to my son. We also have a small dog and 4 cats and I'm worried that we will have to rehome them if we can't afford their food and vets bills/insurance on the dmp. Irresponsible I know, for having them, but as I said, we buried our heads for a long time.

This is why adding the debt to our mortgage is appealing, because although our mortgage will go up, we will have no cc to pay, meaning that we will have some disposable income for building an emergency fund then to pay for holidays and days out each month, which in our circumstances with my son, would be very difficult to go without. And when I am able to work again, we can pay extra payments on our mortgage to pay it off earlier. And we plan to move house in approx 5 years, possibly downsizing, and I think dmp may make this harder.

When I look at my husbands wage and add in my carers allowance and PIP, and my son's DLA, I feel like we should be living comfortably and I feel so guilty and ashamed as I know many people are on a much lower income and haven't spiralled into debt. I feel like I can get a handle on our spending and stick to it as although we're just about hanging in there, if I accept that I'm unable to work at the moment and we can manage to get the debt under some kind of control, I feel like I could manage budgeting. I think our issues have been that we've both been trying to work, on top of me studying and caring for my son, and my own health issues, and neither of us have time or energy to keep on top of things as our family life is so chaotic.

Any advice is greatly appreciated.

First of all WELL DONE for realising that things have got out of control, that is the first step, you have no reason to feel guilty or ashamed, we have all been there or in a worse situation and each respondent has their own experiences to help you. Just reading their posts gives great insight.

So you know WHERE you are but I think it might be helpful to understand the HOW and the WHY before you make any drastic solutions like remortgage the £65k debt or go down the DMP route.

To be honest I think your situation is very common, whilst you did the spending it is the Lenders made it so easy because their goal is to get you into a position where you can afford to service the debt but not to pay it off.

If you remortgage you will not "feel" the impact of the debt and there is a high risk that you will be back with a similar problem, possibly with no way out.

I think that it is important that you go through some drastic cut backs so that you do feel it, also explaining it to your kids is a really good way of teaching them about the danger of credit and not living within your means (something we are all encouraged to do).

Your children will not only be your rod of accountability but also need to be part of the solution.

They can learn about the value of a £3 a month Lebara SIM on MSE being much more than the difference between the O2 one.

A great MSE resource is this credit card interest calculator, you can show them the true cost of debt.

https://www.moneysavingexpert.com/credit-cards/minimum-repayments-credit-card/

There are clues that you are not quite in the mindset you need to be in to get things resolved as quickly as possible and that means SAVE SAVE SAVE. When you talk of "phone plans" you need to understand that you do not need a plan because new phones are all part of what got you here. A new phone is not necessary, maybe a clear down of your phone storage and deleting apps you do not need, this will make them run a bit faster. I have been using the same iPhone since 2016 and it was a refurb, for me it is now a challenge to see just how long I can manage without upgrading.

Based on what you have said about your income I think it you may manage by just cutting back severely whilst moving as much of your debt to zero percent as possible. That means no takeaways, make meals and freeze them in tupperware, then tale them out the night before, the when you get home 7 minutes to reheat and you are done. This not only saves you the cost of the takeaway food but the exorbitant cost of delivery. I hear some of the calls on consumer shows and am astonished how people can pay £37 for the delivery of food that cost £5 to collect a few years ago.

Another motivation for you is that if you take the measures here you will be able to complete your commitment to the animals (which I applaud).

What is missing is your SOA, until the people here see that they can't give you appropriate advice. My opinion that you might still save this is based on where I have seen others or where I have been before.

Unless you are looking for a 10 year Mortgage fix then the DMP will wreck your credit, it might be that the SOA will make that the recommended solution but it would be naive to think it won't affect your credit.

BTW don't ever tell a mortgage company you are increasing loan value to pay off debt, they have internal rules about using mortgage to repay debt. I have friends who converted properties they lived in using credit cards but when they wanted to remortgage they made the mistake of mentioning it and mortgage was declined. As a result they ended up having to wait until the dust has settled, it was during the period when UK interest rates shot up so cost them a lot.

The mindset I refer to not forever, during this period you make it your mission to cut back and put every saved penny towards reducing your debt, starting with the one that has the highest interest rate.

This procedure will be good for you, life is a roller coaster, it is inevitable that you will have a down period sooner or later, one of you may lose your employment, some urgent healthcare may be required privately or as others have said you may find PIP cut back. I live in social housing now and a lot of people around me are already seeing cuts to their income and that is before the new things come in.

So please get the SOA done, people will tell you what is understated and what can be cut back on. Then you will be able to decide which is the best choice for you moving forward.

https://www.stoozing.com/soa.php

Rob5342

Debt collectors sound scsry but normally the first contact is quite a friendly sounding letter saying they want to help you find a solution or something along those linea.

Debts often get sold on for a small fraction of their value, so even a seemingly small monthly repayment from you can quite quickly net them a nice little profit without them having to do anything else. 

Kittymumof4

@DankVielen thank you so much. You're right, I know we need to change our mindsets and get a grip on our spending. I'm not making excuses, I think I can see now that things are so chaotic on our household that we haven't kept track of spending. I've been trying to get my small business back up and running while caring for my son, studying, and with my health issues/disability on top. We have to find ways of making life easier so that we can make time and energy to get control of our finances. 

How we got into debt, the major part is above  not budgeting and sticking to it, living in exhaustion and never making time to look at finances, moving to a house we can't comfortably afford, when we moved here I was working part time self employed, this stopped just after we moved due to caring for my son and my own health issues. We weren't getting any disability benefits back then so we were living on credit as my wage disappeared overnight. We paid around 3k for assessments and legal support (low cost, partly funded) for tribunal to ensure our son was placed in the right secondary school for his needs after he was diagnosed with PTSD from his mainstream primary. Household improvements that we'd planned to make when we moved here (and still not complete) but once we started, cost much more than we'd thought. Trying to support our son (and keeping us sane) by engaging in his special interests, meaning a fair few family days out, though we've always done this as cheaply as possible, taking our own lunch, drinks and snacks etc, costs still add up. Now supporting our older child in university, living at home (who learned a very hard lesson about money when she was desperate to move away for uni but we had to tell her we couldn't support her living costs beyond what we could help her with living at home) as she doesn't get a full maintenance loan due to my husbands wage, and as she commutes to uni a lot of her loan goes on travel. She understands and manages her own money now, she's not someone who goes out all the time and thankfully, she is very money aware, rarely buying clothes that don't come from a charity shop, and using student discounts and shop offers for everything she needs to buy. 

We talk to the kids about money all the time, my son finds it harder to understand but we still have the conversations and explain to him that we can't buy him the latest technology and his special interest items, we rarely buy him stuff, he has bigger items for Christmas and birthdays by putting money together from family, and everything else he saves his pocket money for. Money goes on him in experiences, trying to keep him occupied and regulated, something we need to do to support his mental health, and our own as when we don't do this, he becomes dusregulated and this affects all of us. We do lots of free and cheaper stuff most weekends and holidays, especially over the last 6 months,  but I don't think we can stop the more expensive days out completely, it would massively impact him and cause a lot of stress for the rest of us. 

My daughter knows that we're struggling financially but doesn't know the extent of it. As I mentioned before she is money aware and I don't think I will tell her how much we are in debt, she has enough stress at uni and coping as a young carer at the moment, though I do think its important to keep having conversations about money and borrowing and we will continue to do this. My son, well, he's in the middle of a mental health crisis and on a year long waiting list for CAMHS support for severe anxiety and other issues including risk of su*cide, so the advice at the moment from CAMHS and a charity who are supporting us is to reduce demands and stressors as much as possible, engage in his special interests as much as possible (some of which we can do for free but not all) and keep things as stable as possible. So it's not the right time to speak to him about it all, though we will continue to talk about money by letting him know that we can't buy the majority of the items that he wants. 

The phone contracts, I'm not sure if it's because we don't buy expensive phones, but all of our phones seem to give up just before our contracts are up! We all have lower spec Samsung, A ranges, but yes, down the line it may well be cheaper to buy a reconditioned phone and get sim only. 

Thank you for the advice about the mortgage, and we started the SOA last night so I'll post that as soon as it's done. I really appreciate your support. 

Kittymumof4

@DankVielen sorry also meant to mention, I can't really batch cook as I struggle to prepare food most days in terms of peeling and cutting etc. Our takeaways we never pay delivery of that amount, that's extortionate! My husband collects food if we have a takeaway and we share meals between us to keep the cost down. But what I can do to reduce this is make sure we have easy cook foods in the freezer so that on my worst days, my husband or daughter can just out something in the over from the freezer with some frozen veg. This will reduce the takeaways/meals out. Although going through the bank account last night I think I've overestimated the number of takeaways we have, it's probably more like 2 a month. There was a meal out which was a birthday celebration but this month we've not had any other food out as we know we ate out then. 

So although I can't batch cook, it has made me think of other ways we can reduce costs for food. 

Also, the mortgage we're looking at is either 2 or 5 yr fixed. I understand that if we stop or reduce cc payments, our credit rating will be trashed, what I wasn't sure about is how this will affect our ability to get a new mortgage deal once the next one is up. I'm not sure whether to go for a 5 year fixed so at least we know the mortgage is secure for 5 years, but with interest rates predicted to drop, I also don't want to be paying more than we need to as our new rate is likely to be over 4%. 🤔