Disability & Unsecured Borrowing

Altior

To lay out the facts.

Aged in 50s, forced to leave work last year due to declining health and stubborn employer. Live alone, I have recently been placed in the support group for ESA. Only 3% of people ever return to working from this group. it's highly unlikely I will be one of them, given my health issues (physical). I don't qualify for UC yet as my capital is too high. If/when I do, I will also be eligible for SMI (adding to my debt if I took it).

As I have a mortgage, my monthly priority bills and essential spending (food etc) are higher than my benefits income, even on the higher rate of ESA. This would be the case on UC too, even with SMI. I've cut pretty much anything that can possibly be cut.

Approximately £30K unsecured debt, mostly on 0% deals. So it's not immediately urgent.

At the moment I am covering the minimum payments and priority bills shortfall with existing savings/capital. I also try to pick up a bit of cash using cashback/switching/new account bonuses et al.

My questions are around what the best strategy/approach is here. Would you recommend getting formal advice eg Step Change? Do the usual thing of going off grid until defaults land and try and set up payment plans (issue being they would still be unaffordable on my income)?

What I'm thinking is that the usual approach (off grid, await defaults) might not be the best strategy here, as there is no prospect of me being able to monthly service unsecured debt. Is it worth talking to the lenders directly to explain my scenario? What do you think they might suggest?

For info I don't care about my credit report or future ability to borrow. I don't suppose a CCJ or charge on my property would be the end of the world, but preferably avoided! However I cannot lose my property, there are no other options (no family etc).

Happy to address any questions or provide supplementary info if needed.

Thank you!

Brie

The normal thing here is to ask people to complete a statement of accounts (SOA, link below) and post it so we can have a look and see if there's any budget specific advice possible. If doing so please show the minimum monthly amounts for the credit cards with the % rate and for any that are 0% say how long that will last. It's possible we might spot something in your budget that doesn't make financial sense - I had one debt client who was surprised at the idea that their £40 a month on craft magazines wasn't sustainable for instance. Obvious to us but not to them.

Yes potentially the thing to do is to stop making payments on all non priority debts and then eventually make an arrangement (DIY or StepChange etc) to make minimal payments. There are other strategies regarding checking if they have a credit agreement (if not the debt is not enforcable) or if they shouldn't have granted credit (when you may have already been overstretched so not affordable).

You say that you can't lose the property - which I completely understand - but is downsizing an option? Something to think about if you haven't already.

ManyWays

There is no point in talking to the lenders when you are currently making minimum payments. At some point later on, you may be able to ask for write offs, but this is too early.

Can you please post a SoA and include the names of the lenders and the value of your house. Also your best estimates of what you are spending at the moment, these may not be what you later tell a lender, but it is hard for us to guess what your options are if we see fudged numbers.

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

elsien

Have you applied for PIP as that is not means tested?

Altior

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 1
Number of children in household.........
Number of cars owned.................... 0

Monthly Income Details
Monthly income after tax................ 0
Partners monthly income after tax....... 0
Benefits................................ 609
Other income............................ 0
Total monthly income.................... 609

Monthly Expense Details
Mortgage................................ 410
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 15
Council tax............................. 96
Electricity............................. 55
Gas..................................... 50
Oil..................................... 0
Water rates............................. 18
Telephone (land line)................... 0
Mobile phone............................ 10
TV Licence.............................. 0
Satellite/Cable TV...................... 20
Internet Services....................... 27
Groceries etc. ......................... 160
Clothing................................ 0
Petrol/diesel........................... 0
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 12
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 5
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0
Haircuts................................ 0
Entertainment........................... 0
Holiday................................. 0
Emergency fund.......................... 0
Total monthly expenses.................. 878

Assets
Cash.................................... 19500
House value (Gross)..................... 166000
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0
Total Assets............................ 185500

Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 100000...(410)......2
Total secured & HP debts...... 100000....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Fluid cc 5 months..............2600......26........0
Tesco 1 cc 5 months............3000......30........0
Tesco 2 cc 9 months............3000......30........0
BC cc 15 months................3600......36........0
NatWest cc 13 months...........7000......70........0
Virgin cc 4 months.............6500......65........0
Nationwide 8 months............8100......81........0
Lloyds cc 13 months............4000......100.......0
Total unsecured debts..........37800.....438.......

Monthly Budget Summary
Total monthly income.................... 609
Expenses (including HP & secured debts). 878
Available for debt repayments........... -269
Monthly UNsecured debt repayments....... 438
Amount short for making debt repayments. -707

Personal Balance Sheet Summary
Total assets (things you own)........... 185,500
Total HP & Secured debt................. -100,000
Total Unsecured debt.................... -37,800
Net Assets.............................. 47,700

Created using the SOA calculator at www.LemonFool.co.uk.
Reproduced on Moneysavingexpert with permission, using other browser.

PS Not used specific unsecured figures to retain anonymity. I've also not included any interest / bonus income as that is inconsistent. Circa £200-£300 pcm average.

Altior

https://forums.moneysavingexpert.com/discussion/comment/81904937#Comment_81904937

Thanks! It's something I have considered. To be honest I probably wouldn't quite qualify unless I slightly embellished things, and I wanted to get through the laborious WCA process and then assess. I feel at this point it's worth waiting to see if the government pursues linking LCWRA with PIP, and what happens to those on NS ESA and LCWRA without PIP.

The next step for me in the benefits space is likely to be applying for UC when I am in an eligible position.

Altior

https://forums.moneysavingexpert.com/discussion/comment/81904932#Comment_81904932

Thanks, yes this the biggest question for me. Tell them my scenario before stopping payments, stop payments then tell them soon after, or stop payments until defaults. My thinking is if they default and sell it on, I'm less likely to get any write offs.

Of course I'm not paying any interest or fees now, and if I stop any payments, that will be the end of the possibility of rolling the liabilities on to new 0% offers. It's an all in or out type scenario!

I also thought it would be prudent to do it whilst I had capital to settle or make significant payments in an emergency scenario (letters from court etc).

Altior

Another possibility is producing a I/E report after defaults that show a tiny surplus, if/when I qualify for UC and SMI. That is probably doable. Enough to make token payments.

Or just tick along as I am now. Fortunately I am still getting BT offers.

I suppose the key unknown to me is if debt purchasing companies write off due to no prospect of returns. It somehow seems unlikely to me. Or possibly offer early discounted settlement.

Altior

Not much input on my scenario here, which is fine! It's probably a bit unusual to see the cash on hand on this board, and I am not spending much discretionary cash. I just lumped my cash assets all together for simplicity, but the reality is some of that is locked into long term (multi-year) bonds, before my health deteriorated. But it's still treated as capital in an hypothetical UC application.

At the moment I am leaning toward going down the typical default route advised on here, defaults first. Even though my credit report health is more or less irrelevant. I'd be interested to know if anyone has alternative suggestions/experience of holding debt when becoming too ill to work again?

I could probably access pensions early, but pension income is offset by a reduction in UC as it's treated as unearned income. So that's a non starter really, as I'd be effectively wasting it for no gain once applying for UC. Even on ESA you're only allowed a very modest amount before ESA gets reduced.

The other related question, any potential issues with my lenders? They are all mainstream, probably Fluid a bit more on the distressed credit side and has a higher standard rate. Although I have the means to clear that if needed. By coincidence, two of the biggest lenders are rolling into one now, with the Nationwide takeover of Virgin Money. So that's quite a weighty liability added together.

Something to also note perhaps is apparently promo rates are protected with NatWest, even if missing minimum payments. Quite unusual in my experience.

Altior

Sorry for the bombing, another thought that crossed my mind, is there a difference between a 'DMP' and simply defaulting on lenders at different times? For example Lloyds is 0% for a year, and Fluid 5 months. Is there anything to stop you from defaulting on Fluid in 5 months, and maintaining minimums on Lloyds for another 12 months. Or does it have to be done at the same time.

In other words, what's the difference between a self managed DMP and defaulting on a lender and setting up payments with the debt purchasers, as and when they arise? Do you have to evidence you're on a DMP, or is effectively the colloquial term for the process.

sourcrates

There is no difference, debt management is just an informal, lose term given to any payment arrangement that is outside of your normally required contractual repayments.

You then also have your formal statutory debt solutions granted by parliament, which are:

Bankruptcy

IVA (Individual voluntary arrangement)

DRO (Debt relief order).