Which Debt to Default on

13thlegion

Firstly welcome to DFW. You are not the first to ask these sorts of questions or be in this situation so you will find lots of useful information here.

I think the general reaction can be explained a little bit more to help you understand where we are coming from.

As @ManyWays said there is little practical difference between 1 or 2 defaults and all of them defaulting from the perspective of a future lender. A new mortgage lender would be in this category.

Defaults have a negative impact for 6 years then disappear from your record. Alternative markers, such as informal agreements, breathing space, etc. also last 6 years with about the same impact for a new mortgage lender. However, they may be Arrangement to Pay markers (AP markers) which count the start of the 6 years from the day you have paid the debt off. A default goes from your record 6 years after going on there, whether the debt is paid or not. So default and marker goes away in 6 years. Have an AP marker and pay off in 3 years, the marker is there for a total of 9 years.

The debts themselves are as much or a bigger issue than defaults. Even with no defaults or defaults over 6 years old, the presence of large amounts of debts will play an important role in obtaining a mortgage. Lenders do affordability checks to see what the impact of a mortgage will have on your lifestyle. If it has been propped up by credit they can tell (as yours has been because of work – it is not just luxury that gets us into these situations) and are far less likely to lend. The mortgage lenders will be able to see payments going to debts from your bank statements, whether or not it is on your credit file.

Your general idea to pay off debt, then save a deposit, then get a mortgage is the right order to do things in. But it will take longer than you imagine.

You have estimated 2 years to pay off around £50,000 if you have no quality of life. This is not realistic to actually do. You and your family deserve some level of flexibility and quality. We say this because many of us have either tried or seen it happen.

On top of that you have said your employment is currently only guaranteed for 6 months so it simply is not possible to plan for a 2-year timeline.

But let us imagine it is just to illustrate a point. 2 years to pay off the debt. Another 2 years to save for a deposit. That is 4 years. Any defaults will still remain so mortgages will be more difficult to get. And you will have had a rather miserable time which nobody here would recommend. Now imagine something comes along to slow any of that down – such as needing to not live like a monk for 4 years - you are looking at more like 6 years away from home ownership.

Here is a more achievable plan, that will save you money in the long run, and will give you a quality of life.

Stop paying all unsecured debts today. That is stop paying the credit cards and loans. This will go against every fibre of your being because you feel an obligation to pay it back. Do not worry, the next steps are just resetting and reorientating the relationship with the lenders.

Now calculate a realistic, thrifty, but manageable budget (the statement of affairs tools are very useful for this). And do one for each month as each month happens. A piece of wisdom is this budget will be wrong in some way for the first 3 months as you get used to the process. Remember to factor in things like putting 1/12th of the cost of Xmas, or 1/12th of the cost of car MOT and service each month as well as a good amount for an emergency fund.

The emergency fund in your case is very important. You have to plan to be out of work again in 6 months’ time. This is not to say you will be. But it is an emergency fund so that if the worst happens you do not have to worry about the money side of things. (And experience has taught us all here that the worst will happen from time to time). If you have secured another job by then excellent! Better to have it and not need it than the other way around.

You can use the money you are not sending to the debts in the first few months to speed up the saving process.

Then you will get defaults. Your debts will be sold on, interest will be stopped. This is good. It will save you money. When this happens down the line (so not this week or even next month) then you can start repaying each debt. How much to repay? What you can afford. Not dictated by minimum payments. If you can only afford £5 to each then that is all they get.

What about bailiffs? Forget about them. They will only ever turn up if you have not restarted paying, are taken to court, then ignore what the court says. No creditor can take you to court currently. No lender will take you to court after a default if you are paying them something. If for some unknown reason 1 does take you to court, the court will order you to pay what you can afford. So back to giving them £5 a month again but it has cost them money to be back at square 1. This is why we are so confident in saying they are ghost stories you tell to scare children and nothing more.

What about paying off the debts if you are only paying a small amount? Here is the magic. Once defaulted, your current lenders will probably want to get rid of you. They will sell your debt to another company for a huge discount. Down the line they may offer, or you may offer to pay a lump sum to wipe off the debt. For example, if your Tesco loan will be sold to a company who will pay £1000 for the £10,000 total. Later on down the line you give that company £3000, the debt is settled and everyone is happy. Or if you are really lucky after a couple of years of paying £5 a month the paperwork gets lost in their systems and you no longer need to pay them another penny!

In 6 years time you will have no more defaults on your file, probably no debts either, and the emergency fund, because you have been adding to it consistently for 6 years is a nice deposit for a house. Mortgage lender will give you a great offer as you have no debts, nothing bad on your file, and a good deposit.

So, in a very similar timeline to living like a monk you will really have a better quality of life and be in a better position by then end. That is why we are saying what we are saying.

Final point! Do not be fooled into thinking mortgages are cheaper than rent. The reality of home ownership is that there are always costs that equal or exceed the difference. The price is worth paying to own a home in my opinion, but I often forgotten about.

enthusiasticsaver

Debtsolver33 said:

enthusiasticsaver said:

Any defaults will affect your credit file and they take 6 years to drop off.  Token payments will take longer. I suggest you default on them all and do a DMP based on a sensible budget. Realistically with that amount of debt you are a long way off being able to take out a mortgage and buy a house so I suggest you focus on paying the debt off, living within a budget and saving for emergencies. Defaulting will freeze the interest so the debt does not increase.  

Why default all of them when i can only default few to lessen the impact of the damage. When you say im a long way off paying off being able to take out a mortgage. How did you base this on, the amount of debt too much or you think it would take me 5years + to pay it off and accumulate a deposit? Just wanted to know if there was a set amount of debt that mortgage lender frown upon.

Any amount of debt will impact on affordability when mortgage lenders consider applications.  The same with defaults. A mortgage lender won't care whether it is 3 or 10 defaults and they will all drop off your file in 6 years.  You will need to save up a deposit and fees all while dealing with the debt whether that is defaulting on all or some.  Defaulting causes the interest to stop accumulating and  by encompassing all your debt in a DMP you can then set an affordable monthly repayment allowing you to live and contribute to bills etc or save.  

The basic premise of your thread seems to be mortgage lenders will consider your application even if you have some defaults.  In my experience this is incorrect.  Some will lend to someone with a bad credit history but they will weight the interest rate they charge you and you will be limited to a very few non mainstream lenders.  I would wait until the debt is dealt with and the defaults removed and you have a decent deposit plus savings for the fees and expenses of buying a home which are not inconsiderable. 

Debtsolver33

13thlegion said:

Firstly welcome to DFW. You are not the first to ask these sorts of questions or be in this situation so you will find lots of useful information here.

I think the general reaction can be explained a little bit more to help you understand where we are coming from.

As @ManyWays said there is little practical difference between 1 or 2 defaults and all of them defaulting from the perspective of a future lender. A new mortgage lender would be in this category.

Defaults have a negative impact for 6 years then disappear from your record. Alternative markers, such as informal agreements, breathing space, etc. also last 6 years with about the same impact for a new mortgage lender. However, they may be Arrangement to Pay markers (AP markers) which count the start of the 6 years from the day you have paid the debt off. A default goes from your record 6 years after going on there, whether the debt is paid or not. So default and marker goes away in 6 years. Have an AP marker and pay off in 3 years, the marker is there for a total of 9 years.

The debts themselves are as much or a bigger issue than defaults. Even with no defaults or defaults over 6 years old, the presence of large amounts of debts will play an important role in obtaining a mortgage. Lenders do affordability checks to see what the impact of a mortgage will have on your lifestyle. If it has been propped up by credit they can tell (as yours has been because of work – it is not just luxury that gets us into these situations) and are far less likely to lend. The mortgage lenders will be able to see payments going to debts from your bank statements, whether or not it is on your credit file.

Your general idea to pay off debt, then save a deposit, then get a mortgage is the right order to do things in. But it will take longer than you imagine.

You have estimated 2 years to pay off around £50,000 if you have no quality of life. This is not realistic to actually do. You and your family deserve some level of flexibility and quality. We say this because many of us have either tried or seen it happen.

On top of that you have said your employment is currently only guaranteed for 6 months so it simply is not possible to plan for a 2-year timeline.

But let us imagine it is just to illustrate a point. 2 years to pay off the debt. Another 2 years to save for a deposit. That is 4 years. Any defaults will still remain so mortgages will be more difficult to get. And you will have had a rather miserable time which nobody here would recommend. Now imagine something comes along to slow any of that down – such as needing to not live like a monk for 4 years - you are looking at more like 6 years away from home ownership.

Here is a more achievable plan, that will save you money in the long run, and will give you a quality of life.

Stop paying all unsecured debts today. That is stop paying the credit cards and loans. This will go against every fibre of your being because you feel an obligation to pay it back. Do not worry, the next steps are just resetting and reorientating the relationship with the lenders.

Now calculate a realistic, thrifty, but manageable budget (the statement of affairs tools are very useful for this). And do one for each month as each month happens. A piece of wisdom is this budget will be wrong in some way for the first 3 months as you get used to the process. Remember to factor in things like putting 1/12th of the cost of Xmas, or 1/12th of the cost of car MOT and service each month as well as a good amount for an emergency fund.

The emergency fund in your case is very important. You have to plan to be out of work again in 6 months’ time. This is not to say you will be. But it is an emergency fund so that if the worst happens you do not have to worry about the money side of things. (And experience has taught us all here that the worst will happen from time to time). If you have secured another job by then excellent! Better to have it and not need it than the other way around.

You can use the money you are not sending to the debts in the first few months to speed up the saving process.

Then you will get defaults. Your debts will be sold on, interest will be stopped. This is good. It will save you money. When this happens down the line (so not this week or even next month) then you can start repaying each debt. How much to repay? What you can afford. Not dictated by minimum payments. If you can only afford £5 to each then that is all they get.

What about bailiffs? Forget about them. They will only ever turn up if you have not restarted paying, are taken to court, then ignore what the court says. No creditor can take you to court currently. No lender will take you to court after a default if you are paying them something. If for some unknown reason 1 does take you to court, the court will order you to pay what you can afford. So back to giving them £5 a month again but it has cost them money to be back at square 1. This is why we are so confident in saying they are ghost stories you tell to scare children and nothing more.

What about paying off the debts if you are only paying a small amount? Here is the magic. Once defaulted, your current lenders will probably want to get rid of you. They will sell your debt to another company for a huge discount. Down the line they may offer, or you may offer to pay a lump sum to wipe off the debt. For example, if your Tesco loan will be sold to a company who will pay £1000 for the £10,000 total. Later on down the line you give that company £3000, the debt is settled and everyone is happy. Or if you are really lucky after a couple of years of paying £5 a month the paperwork gets lost in their systems and you no longer need to pay them another penny!

In 6 years time you will have no more defaults on your file, probably no debts either, and the emergency fund, because you have been adding to it consistently for 6 years is a nice deposit for a house. Mortgage lender will give you a great offer as you have no debts, nothing bad on your file, and a good deposit.

So, in a very similar timeline to living like a monk you will really have a better quality of life and be in a better position by then end. That is why we are saying what we are saying.

Final point! Do not be fooled into thinking mortgages are cheaper than rent. The reality of home ownership is that there are always costs that equal or exceed the difference. The price is worth paying to own a home in my opinion, but I often forgotten about.

Thanks for running me though your thought process. This is why I join a forum to get others point of view. Debts like many topics are sensitive ,stressful and complicated. Not all debtor work the same way too. Barclays are happy for me to pay them £70 a month until the debt clears and no default registered and no interest added. So I will continue to do this than paying them minimal and get default I understand and read you mentioning about defaulting on all of them as 3 or 10 defaults in the eyes of mortgage lender/ credit rating. I rather pay them off than defaulting them if there is 0 interest and low enough payment. DO DEBTS always get sold off and I can clear them off on a discount and when I do what's the update on the credit referencing, does an update saying I partially settled debt and another 6 years of it stays there? I just want to find a balance in debating them and have the least impact on credit rating. Am still in talks with Santander/Tesco/Capital one on status and plans.

When you say offer £5 a month or a minimal amount, do we need to justify to debtor via DMP, as we all aware my expenses is minimal ( I can add / get other bills from partner). As its a lengthy process want to have info ready to send out and not having to wait few weeks for debtor to come back and say they reject the plan , i guess they will still default my account and still get a % of the £5 or what ever minimum amount i sent across?

kimwp

Debtsolver33 said:

13thlegion said:

Firstly welcome to DFW. You are not the first to ask these sorts of questions or be in this situation so you will find lots of useful information here.

I think the general reaction can be explained a little bit more to help you understand where we are coming from.

As @ManyWays said there is little practical difference between 1 or 2 defaults and all of them defaulting from the perspective of a future lender. A new mortgage lender would be in this category.

Defaults have a negative impact for 6 years then disappear from your record. Alternative markers, such as informal agreements, breathing space, etc. also last 6 years with about the same impact for a new mortgage lender. However, they may be Arrangement to Pay markers (AP markers) which count the start of the 6 years from the day you have paid the debt off. A default goes from your record 6 years after going on there, whether the debt is paid or not. So default and marker goes away in 6 years. Have an AP marker and pay off in 3 years, the marker is there for a total of 9 years.

The debts themselves are as much or a bigger issue than defaults. Even with no defaults or defaults over 6 years old, the presence of large amounts of debts will play an important role in obtaining a mortgage. Lenders do affordability checks to see what the impact of a mortgage will have on your lifestyle. If it has been propped up by credit they can tell (as yours has been because of work – it is not just luxury that gets us into these situations) and are far less likely to lend. The mortgage lenders will be able to see payments going to debts from your bank statements, whether or not it is on your credit file.

Your general idea to pay off debt, then save a deposit, then get a mortgage is the right order to do things in. But it will take longer than you imagine.

You have estimated 2 years to pay off around £50,000 if you have no quality of life. This is not realistic to actually do. You and your family deserve some level of flexibility and quality. We say this because many of us have either tried or seen it happen.

On top of that you have said your employment is currently only guaranteed for 6 months so it simply is not possible to plan for a 2-year timeline.

But let us imagine it is just to illustrate a point. 2 years to pay off the debt. Another 2 years to save for a deposit. That is 4 years. Any defaults will still remain so mortgages will be more difficult to get. And you will have had a rather miserable time which nobody here would recommend. Now imagine something comes along to slow any of that down – such as needing to not live like a monk for 4 years - you are looking at more like 6 years away from home ownership.

Here is a more achievable plan, that will save you money in the long run, and will give you a quality of life.

Stop paying all unsecured debts today. That is stop paying the credit cards and loans. This will go against every fibre of your being because you feel an obligation to pay it back. Do not worry, the next steps are just resetting and reorientating the relationship with the lenders.

Now calculate a realistic, thrifty, but manageable budget (the statement of affairs tools are very useful for this). And do one for each month as each month happens. A piece of wisdom is this budget will be wrong in some way for the first 3 months as you get used to the process. Remember to factor in things like putting 1/12th of the cost of Xmas, or 1/12th of the cost of car MOT and service each month as well as a good amount for an emergency fund.

The emergency fund in your case is very important. You have to plan to be out of work again in 6 months’ time. This is not to say you will be. But it is an emergency fund so that if the worst happens you do not have to worry about the money side of things. (And experience has taught us all here that the worst will happen from time to time). If you have secured another job by then excellent! Better to have it and not need it than the other way around.

You can use the money you are not sending to the debts in the first few months to speed up the saving process.

Then you will get defaults. Your debts will be sold on, interest will be stopped. This is good. It will save you money. When this happens down the line (so not this week or even next month) then you can start repaying each debt. How much to repay? What you can afford. Not dictated by minimum payments. If you can only afford £5 to each then that is all they get.

What about bailiffs? Forget about them. They will only ever turn up if you have not restarted paying, are taken to court, then ignore what the court says. No creditor can take you to court currently. No lender will take you to court after a default if you are paying them something. If for some unknown reason 1 does take you to court, the court will order you to pay what you can afford. So back to giving them £5 a month again but it has cost them money to be back at square 1. This is why we are so confident in saying they are ghost stories you tell to scare children and nothing more.

What about paying off the debts if you are only paying a small amount? Here is the magic. Once defaulted, your current lenders will probably want to get rid of you. They will sell your debt to another company for a huge discount. Down the line they may offer, or you may offer to pay a lump sum to wipe off the debt. For example, if your Tesco loan will be sold to a company who will pay £1000 for the £10,000 total. Later on down the line you give that company £3000, the debt is settled and everyone is happy. Or if you are really lucky after a couple of years of paying £5 a month the paperwork gets lost in their systems and you no longer need to pay them another penny!

In 6 years time you will have no more defaults on your file, probably no debts either, and the emergency fund, because you have been adding to it consistently for 6 years is a nice deposit for a house. Mortgage lender will give you a great offer as you have no debts, nothing bad on your file, and a good deposit.

So, in a very similar timeline to living like a monk you will really have a better quality of life and be in a better position by then end. That is why we are saying what we are saying.

Final point! Do not be fooled into thinking mortgages are cheaper than rent. The reality of home ownership is that there are always costs that equal or exceed the difference. The price is worth paying to own a home in my opinion, but I often forgotten about.

Thanks for running me though your thought process. This is why I join a forum to get others point of view. Debts like many topics are sensitive ,stressful and complicated. Not all debtor work the same way too. Barclays are happy for me to pay them £70 a month until the debt clears and no default registered and no interest added. So I will continue to do this than paying them minimal and get default I understand and read you mentioning about defaulting on all of them as 3 or 10 defaults in the eyes of mortgage lender/ credit rating. I rather pay them off than defaulting them if there is 0 interest and low enough payment. DO DEBTS always get sold off and I can clear them off on a discount and when I do what's the update on the credit referencing, does an update saying I partially settled debt and another 6 years of it stays there? I just want to find a balance in debating them and have the least impact on credit rating. Am still in talks with Santander/Tesco/Capital one on status and plans.

When you say offer £5 a month or a minimal amount, do we need to justify to debtor via DMP, as we all aware my expenses is minimal ( I can add / get other bills from partner). As its a lengthy process want to have info ready to send out and not having to wait few weeks for debtor to come back and say they reject the plan , i guess they will still default my account and still get a % of the £5 or what ever minimum amount i sent across?

In this case, Barclays may add an arrangement to pay to your credit history instead of a default. This has the same impact re mortgages etc, but stays on your record for six years after the debt has been paid off (rather than six years after registration as a default)

Rob5342

Debtsolver33 said:

enthusiasticsaver said:

Any defaults will affect your credit file and they take 6 years to drop off.  Token payments will take longer. I suggest you default on them all and do a DMP based on a sensible budget. Realistically with that amount of debt you are a long way off being able to take out a mortgage and buy a house so I suggest you focus on paying the debt off, living within a budget and saving for emergencies. Defaulting will freeze the interest so the debt does not increase.  

Why default all of them when i can only default few to lessen the impact of the damage. When you say im a long way off paying off being able to take out a mortgage. How did you base this on, the amount of debt too much or you think it would take me 5years + to pay it off and accumulate a deposit? Just wanted to know if there was a set amount of debt that mortgage lender frown upon.

Defaulting on a few instead of them all would probably extend the damage rather than lessen it. Once you have one or two defaults it's going to be very difficult or impossible to get any sort of credit, so having more won't make things any worse. If you have payment arrangements on any of them then that will be far worse then defaults as they stay on your credit report for 6, years after they debt is cleared, unlike a default that drops off 6 years after it was applied. Once defaulted a debt is likely to be sold to a debt collector who will accept a reduced offer somewhere down the line meaning you can clear it for a lot less. A debt collector is also less likely to be able to produce the cca if you ask for it, and if they can you can simply ignore the debt.

It's best just to go all in, let everything default, and then you minimise the length of time your credit report is harmed for and minimise the amount you repay.