I’m £50k in debt….help

chrisjvc1

Hi folks, I know this is all my own doing but after a difficult divorce I bought a small house that needed some work. To cut a long story short I now have 8 credit cards, with £17k of debt, most of which is on 0% for a year. I have 3 loans, one with 8k left, one with 7k left and one with 19k left. I earn £50k a year, I can just cover all my payments but have about £100 spare for food……I don’t want to loose my house but either I sell up or take out a 7 year loan for £29k which will mean I can pay off all my credit cards and 2 loans, this will take my payments for all that from £870 a month to £538 giving me some money to live on. Any advice please 

MattMattMattUK

Can you complete and post an SOA so we can get a more complete picture?

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

fatbelly

I think it's optimistic to be thinking that you will get a 29k 7 year loan when you already have 51k of debt.

It's quite likely to be higher apr than your current loans and certainly higher than the 0% that your credit cards are at.

Put that idea on the back burner for now and we'll see if we can find a better one

Ps. You won't lose your house as long as you pay the mortgage.

sourcrates

Consolidating bad debts is like pouring more petrol on a fire, in the vain hope it will go out, its not recommended.

I will be bold, and jump the gun slightly before seeing your SOA, because, unless your spending is way out of control on other things, that can be stopped, as a homeowner it will boil down to one of two choices, either you opt for the informal solution of debt management, where essential debts take priority, and what`s left from your disposable income go`s towards the non priority cards and loans etc.

Or you opt for the insolvency route via an IVA, a more formal solution that gives you legal protection from creditors taking further action against you.

With around 30k of debt, and a house to protect, either would be an option here.

Possibly the informal route would be best, creditors taking folks homes is mostly way in the past these days, as long as regular payments are made, things just trundle along as per normal.

You should put aside all thoughts of borrowing your way out of this, that`s not going to happen.

RAS

You won't lose the house as long as you keep paying the mortgage and keep up the building insurance.

There are various options, let's see the SOA and we can make suggestions.

It might also be possible to increase you income say via the rent a room scheme?

chrisjvc1

[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................ 3049

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

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

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

Total monthly income.................... 3049[/b][b]

Monthly Expense Details[/b]

Mortgage................................ 1005

Secured/HP loan repayments.............. 0

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

Management charge (leasehold property).. 0

Council tax............................. 145

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

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

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

Water rates............................. 0

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

Mobile phone............................ 12

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

Satellite/Cable TV...................... 40

Internet Services....................... 25

Groceries etc. ......................... 280

Clothing................................ 0

Petrol/diesel........................... 200

Road tax................................ 0

Car Insurance........................... 45

Car maintenance (including MOT)......... 0

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

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

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

Other child related expenses............ 150

Medical (prescriptions, dentist etc).... 0

Pet insurance/vet bills................. 0

Buildings insurance..................... 23

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

Life assurance ......................... 0

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

Presents (birthday, christmas etc)...... 10

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

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

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

Emergency fund.......................... 0[b]

Total monthly expenses.................. 2120[/b]

[b]

Assets[/b]

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

House value (Gross)..................... 163000

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

Car(s).................................. 7000

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

Total Assets............................ 170000[/b]

[b]

Secured & HP Debts[/b]

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

Mortgage...................... 144000...(1005).....5.1[b]

Total secured & HP debts...... 144000....-.........-   [/b]

[b]Unsecured Debts[/b]

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

Sainsburys.....................4626......104.......0

Natwest........................2934......75........0

Bank of Scotland ..............3120......78........0

Zopa...........................19000.....415.......11.2

Nationwide.....................8523......189.......8

Halifax .......................6327......189.......7.8

Halifax........................287.......5.........0

Nmba...........................2028......50........0

Lloyds.........................1639......42........0

Natiinwide.....................3141......60........0[b]

Total unsecured debts..........51625.....1207......-  [/b]

[b]

Monthly Budget Summary[/b]

Total monthly income.................... 3,049

Expenses (including HP & secured debts). 2,120

Available for debt repayments........... 929

Monthly UNsecured debt repayments....... 1,207[b]

Amount short for making debt repayments. -278[/b]

[b]Personal Balance Sheet Summary[/b]

Total assets (things you own)........... 170,000

Total HP & Secured debt................. -144,000

Total Unsecured debt.................... -51,625[b]

Net Assets.............................. -25,625[/b]

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

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

fatbelly

Nothing there is high interest so a consolidation loan is not a good idea.

Looks like a debt management plan will work for you.

No water charge - are you in Scotland?

I think you need to budget something for car maintenance, clothing and road tax (?)

DankVielen

chrisjvc1 said:

Hi folks, I know this is all my own doing but after a difficult divorce I bought a small house that needed some work. To cut a long story short I now have 8 credit cards, with £17k of debt, most of which is on 0% for a year. I have 3 loans, one with 8k left, one with 7k left and one with 19k left. I earn £50k a year, I can just cover all my payments but have about £100 spare for food……I don’t want to loose my house but either I sell up or take out a 7 year loan for £29k which will mean I can pay off all my credit cards and 2 loans, this will take my payments for all that from £870 a month to £538 giving me some money to live on. Any advice please 

First of all, well done for recognising you have a problem and coming to get help, this is not always easy.

Before deciding on a debt solution I think there needs to be some analysis of where the money went.

I have had family and friends in London buy a flat to add a bedroom, it was the only way they could afford to get to a 2 bed flat to start a family.  They both used up to 6 credit cards each to fund the development of the property and that was after they had saved up around £40k and cashed in ISA's etc.  When one went to remortgage to pay off all this debt (as property value was not £250k higher) the bank refused the mortgage because apparently they do not like to use a mortgage for this purpose.  6 months later they went to a broker who got them a deal to remortgage and they paid off every penny of debt, even the zero percent.

House value (Gross)..................... 163000

Mortgage....................................... 144000

Therefore if your debt was 90% spent on the property and the property now has a higher value then I would suggest a remortgage, even if you have to pay above the going rate.  However, unless you were quoting the old house valuation then it seems as if this was a money pit and you made poor decisions on developers.

If we consider that the

Amount short for making debt repayments. -278

and you do only have around £20,000 of equity then the simple solution is to remortgage the house, pay off the Zopa thus reducing your outgoings by £415

Zopa...........................19000.....415.......11.2

This would give you an extra £137 a month to attack the Nationwide and Halifax

Nationwide.................8523......189.......8

Halifax .......................6327......189.......7.8

If now that you have done up the house worth more you could add and extra £15k and pay off the Nationwide and Halifax too.

This would release a further £398 a month so an extra £530 a month to pare down your zero percent debt.

If you use can remortgage and then use this £530  you could have the whole debt paid off in 18 months

If you had the dates when the zero rate expires it would be possible to reorder the cards so that you pay off the ones that have debt expiring first.

If remortgage is NOT and option then let's work through other options, but first consider the ROOT CAUSE of the debt.

If the Zopa debt for example was to already consolidate previous overspending then I think you need to address that problem.  There is no judgement here, many people have gambling habits, paying of an Ex's debt and so on.  What you need to know is whether the root cause could happen again?

Normally the way I would approach an SOA like yours is on how much disposable income you have without debt and yours seems pretty healthy.

So the next question is whether you mind trashing your credit record for 6 years to get a reduced rate on this debt?

If the answer to that is that you want to preserve your credit record then there are two things to check, 

1. Is there any discount for early repayment of any loan? 

2. How much credit do you have on the zero percent cards and 

3, When do the zero rate expire.

If there is some capacity on the zero percent cards and there is a discount for early repayment then it makes sense to use that capacity to reduce the debts that are costing you the most.  You do this by putting your monthly spending of bills & food on the zero percent card and then each day move what you spent on the zero card to a savings account and then pay those accumulated amounts from the savings to the debt with the highest interest rate (if you benefit from early repayment).

The three that stand out are

Zopa...........................19000......415.......11.2

Nationwide...................8523......189.........8

Halifax .........................6327......189........7.8

If Zopa is a fixed rate loan and does not cost less if you pay off early then Nationwide and/or Halifax would be where you spend it, assuming they too reduce.

If neither reduce then still use up your credit limit but use the money to pay off the zero percent that ends earliest.  This will reduce the risk of you having to pay 24% when an offer expires and you are deemed over extended and can't transfer to another zero percent card.

On personal spending these are the areas to question:

Water rates............................... 0 ----> This should be payable

Mobile phone.......................... 12----> Switch to Lebara £3 month deal    

TV Licence.............................. 15 ----> £0 Dump BBC & Live TV

Satellite/Cable TV.................... 40 ---> Dump all pay TV

Groceries etc. ....................... 280 ----> Try to cut this by 20% minimum
Petrol/diesel........................... 200 ---->

Road tax.................................... 0 ----> Is this another omission, how can you spend £200 on petrol but £0 on this?

Haircuts................................... 20 ----> Get a trimmer for £18 at Tesco

If you were going to DMP your debt then you might take a different approach and pare down your mortgage with any spare cash but that would be a bit of a dodgy thing to do.  You are not in that desperate a state yet.

DMP will trash your credit record but you should be able to remortgage at variable rate with existing lender when the promotion rate expires (or that may have happened).  If your mortgage discount has reverted it would be a good reason to remortgage as rates are coming down.

Green_hopeful

Could you get a lodger? When i got divorced i let out a room. You can get up to £7500 tax free and it costs you very little. Obviously you need the space to do it but it helped me pay off my debts. 

RAS

Green_hopeful said:

Could you get a lodger? When i got divorced i let out a room. You can get up to £7500 tax free and it costs you very little. Obviously you need the space to do it but it helped me pay off my debts. 

Even if full-time isn't an option there are folk looking for Monday to Thursday. And others moving jobs looking for short-term until they can find a rental or to fulfil a short-term contract.

chrisjvc1

DankVielen said:

chrisjvc1 said:

Hi folks, I know this is all my own doing but after a difficult divorce I bought a small house that needed some work. To cut a long story short I now have 8 credit cards, with £17k of debt, most of which is on 0% for a year. I have 3 loans, one with 8k left, one with 7k left and one with 19k left. I earn £50k a year, I can just cover all my payments but have about £100 spare for food……I don’t want to loose my house but either I sell up or take out a 7 year loan for £29k which will mean I can pay off all my credit cards and 2 loans, this will take my payments for all that from £870 a month to £538 giving me some money to live on. Any advice please 

First of all, well done for recognising you have a problem and coming to get help, this is not always easy.

Before deciding on a debt solution I think there needs to be some analysis of where the money went.

I have had family and friends in London buy a flat to add a bedroom, it was the only way they could afford to get to a 2 bed flat to start a family.  They both used up to 6 credit cards each to fund the development of the property and that was after they had saved up around £40k and cashed in ISA's etc.  When one went to remortgage to pay off all this debt (as property value was not £250k higher) the bank refused the mortgage because apparently they do not like to use a mortgage for this purpose.  6 months later they went to a broker who got them a deal to remortgage and they paid off every penny of debt, even the zero percent.

House value (Gross)..................... 163000

Mortgage....................................... 144000

Therefore if your debt was 90% spent on the property and the property now has a higher value then I would suggest a remortgage, even if you have to pay above the going rate.  However, unless you were quoting the old house valuation then it seems as if this was a money pit and you made poor decisions on developers.

If we consider that the

Amount short for making debt repayments. -278

and you do only have around £20,000 of equity then the simple solution is to remortgage the house, pay off the Zopa thus reducing your outgoings by £415

Zopa...........................19000.....415.......11.2

This would give you an extra £137 a month to attack the Nationwide and Halifax

Nationwide.................8523......189.......8

Halifax .......................6327......189.......7.8

If now that you have done up the house worth more you could add and extra £15k and pay off the Nationwide and Halifax too.

This would release a further £398 a month so an extra £530 a month to pare down your zero percent debt.

If you use can remortgage and then use this £530  you could have the whole debt paid off in 18 months

If you had the dates when the zero rate expires it would be possible to reorder the cards so that you pay off the ones that have debt expiring first.

If remortgage is NOT and option then let's work through other options, but first consider the ROOT CAUSE of the debt.

If the Zopa debt for example was to already consolidate previous overspending then I think you need to address that problem.  There is no judgement here, many people have gambling habits, paying of an Ex's debt and so on.  What you need to know is whether the root cause could happen again?

Normally the way I would approach an SOA like yours is on how much disposable income you have without debt and yours seems pretty healthy.

So the next question is whether you mind trashing your credit record for 6 years to get a reduced rate on this debt?

If the answer to that is that you want to preserve your credit record then there are two things to check, 

1. Is there any discount for early repayment of any loan? 

2. How much credit do you have on the zero percent cards and 

3, When do the zero rate expire.

If there is some capacity on the zero percent cards and there is a discount for early repayment then it makes sense to use that capacity to reduce the debts that are costing you the most.  You do this by putting your monthly spending of bills & food on the zero percent card and then each day move what you spent on the zero card to a savings account and then pay those accumulated amounts from the savings to the debt with the highest interest rate (if you benefit from early repayment).

The three that stand out are

Zopa...........................19000......415.......11.2

Nationwide...................8523......189.........8

Halifax .........................6327......189........7.8

If Zopa is a fixed rate loan and does not cost less if you pay off early then Nationwide and/or Halifax would be where you spend it, assuming they too reduce.

If neither reduce then still use up your credit limit but use the money to pay off the zero percent that ends earliest.  This will reduce the risk of you having to pay 24% when an offer expires and you are deemed over extended and can't transfer to another zero percent card.

On personal spending these are the areas to question:

Water rates............................... 0 ----> This should be payable

Mobile phone.......................... 12----> Switch to Lebara £3 month deal    

TV Licence.............................. 15 ----> £0 Dump BBC & Live TV

Satellite/Cable TV.................... 40 ---> Dump all pay TV

Groceries etc. ....................... 280 ----> Try to cut this by 20% minimum
Petrol/diesel........................... 200 ---->

Road tax.................................... 0 ----> Is this another omission, how can you spend £200 on petrol but £0 on this?

Haircuts................................... 20 ----> Get a trimmer for £18 at Tesco

If you were going to DMP your debt then you might take a different approach and pare down your mortgage with any spare cash but that would be a bit of a dodgy thing to do.  You are not in that desperate a state yet.

DMP will trash your credit record but you should be able to remortgage at variable rate with existing lender when the promotion rate expires (or that may have happened).  If your mortgage discount has reverted it would be a good reason to remortgage as rates are coming down.

thank you for all the fantastic advise. I’m tied to year 3 of a 5 year fixed mortgage deal, I doubt that remortgaging is an option. You were correct to assume that most of the money went on the house. And as I am currently living beyond my means I am consuming more on my credit cards. I have managed to move all the card balances around this month to start new zero percent deals most at 12 months. I was focused on how to reduce my outgoings and payments before I sink. Consolidating debts and having one loan was the only way I saw to do this. I only have about twenty years until retirement so I’m limited what I can achieve. I was also worried about raising all the debt on my zero percent cards to pay off loans as this will increase my payments and also it’s only for 12 months. I keep getting messages from clear score saying my credit rating might get damaged if I go above 40 percent utilisation. I potentially have around £27000 I could utilise further at 0. Percent. 

It’s difficult to know what to do next.