Struggling with debt? Ask a stepchange debt adviser a question

StepChange_Kirsty · 24 September 2019 at 4:11PM

Hello,

Thanks for your post.

If the creditor agrees to the partial settlement you can request your credit file is updated to show the account is “settled” which would have a lower impact, however, this would be at the discretion of the creditor and they may show this as “partially settled”. Either way the mark will be on your credit file for the six years from the date the account was closed.

It’s possible the creditor will default the account before they would be even willing to consider a partial settlement. In this case the default will show on the credit file for six years from the date of the default even if the debt is paid in full or partially settled in that time.

The presence of this debt on the credit file during these six years could make it more difficult to get a mortgage and you may not be able to get the best deals, but this is always up to the individual lender. However, by the time you’ve saved for a deposit for a house you might find that your credit file is repairing itself anyway.

I couldn’t tell you how likely you are to be successful in what you’re trying to do but if you’re struggling with your debts, I would highly recommend you get debt ddvice as soon as possible to work out the best way forward.

We can provide you with free and impartial advice and you can find our contact details here.

I hope this answers your main questions.

Kirsty

Diva0804 wrote: »

Hi
I have a query about partial settlement of a credit card debt of around 8K.

My creditor has agreed to freeze charges and interest at the beginning of the year when the balance was 10k, and I’ve been keeping up with the minimum repayment which amounts to 200£+ every month.

However, it’s been extremely difficult, and I’ve had to sacrifice almost everything. Daycare cost for two small kids, rent and utility bills is what is making my financial situation difficult, and I don’t see how we can go on like that. For instance, I need to buy a new car seat for my little one next month, and don’t see how this is feasible without paying less than the minimum amount…which means my account will fall in arrears.

I’ve had the time to think over it this, and now feel like I want to go down the route of partial settlement to clear my credit card debt once and for all.

My question is:
If I start making small token payments for 5 months straight (let’s say 50£ instead of the 200£ minimum I’m currently paying), and then propose a partial lump sum settlement BEFORE they send me a default notice (which usually occurs after 150 days of arrears), will they accept it? Basically, I’m assuming that falling into arrears will make them more likely to accept a partial settlement of maybe 25% of the full amount (which I’m hoping I can secure with help from family)

If they do accept, will my credit report show a default, a partial settlement, or both ?

And if my credit reports shows a partial settlement only (but not a default), for 6 years, does that mean I will find it hard to secure a mortgage the next 6 years?

I know for a fact that I’m absolutely done with credit cards so I don’t really care about a low credit score (I don’t ever want to apply for one),...but I’m 37 , with 2 small kids and never had a mortgage…. and I’m worried about becoming a home owner only 6 years from now.

I’m hoping that a partial settlement before default and debt collectors getting involved will mean my credit score is not too tarnished, if that makes sense?
Thank you for your help.

recurringdream · 25 September 2019 at 9:15PM

Dear stepchange,
I feel as if I am between a rock and hard place. Over the past 6 years I have accumulated approximately £6800 in debt. This consists of a £3000 overdraft from my student days that is constantly maxed out, for which I also now pay roughly £50 a month in charges (the overdraft was initially 0% but hey, that's how they get you). The other £3800 of debt comes from a credit card that spiralled out of control due to unnecessary spending and interest build up. Now usually I would just work as much as possible to pay it all off and clear it. However I have a lovely 1 year old daughter that I look after alongside my partner which causes a fall in my working hours and therefore my income. I feel I should add I have done some research and due to being in what I call the "middle ground" we are not entitled to anything except child benefit. we are not well off, we are just not on rock bottom which is where all the support is these days. I do not feel my situations extreme enough to warrant bankruptcy/IVA and essentially burn my credit score to a cinder. The main concern is the credit card due to the interest, and yes I have looked at 0% balance transfer credit cards which sounds ideal but they just don't have a high enough credit limit to cover my debt.

I would appreciate some advice although I feel the only option for me is to just pay what I can.
Thank you for your time,
George :S

StepChange_Allen · 26 September 2019 at 12:49PM

recurringdream wrote: »

Dear stepchange,
I feel as if I am between a rock and hard place. Over the past 6 years I have accumulated approximately £6800 in debt. This consists of a £3000 overdraft from my student days that is constantly maxed out, for which I also now pay roughly £50 a month in charges (the overdraft was initially 0% but hey, that's how they get you). The other £3800 of debt comes from a credit card that spiralled out of control due to unnecessary spending and interest build up. Now usually I would just work as much as possible to pay it all off and clear it. However I have a lovely 1 year old daughter that I look after alongside my partner which causes a fall in my working hours and therefore my income. I feel I should add I have done some research and due to being in what I call the "middle ground" we are not entitled to anything except child benefit. we are not well off, we are just not on rock bottom which is where all the support is these days. I do not feel my situations extreme enough to warrant bankruptcy/IVA and essentially burn my credit score to a cinder. The main concern is the credit card due to the interest, and yes I have looked at 0% balance transfer credit cards which sounds ideal but they just don't have a high enough credit limit to cover my debt.

I would appreciate some advice although I feel the only option for me is to just pay what I can.
Thank you for your time,
George :S

Hi George

Welcome to the forum and thanks for posting.

I appreciate that it can be hard to see a way out when you're struggling to get balances down due to interest and charges. I can see that you've already looked at a number of possible options and they haven't worked out.

I can't advise you what's best to do without seeing a full breakdown of your finances and debts. You can register with us free of charge, either online or on the phone. We'd then be able to assess things and make recommendations of steps you can take. Details of how to get started can be found on our website: www.stepchange.org/contact-us

I hope this is helpful.

Allen

NM87 · 30 September 2019 at 2:41PM

Hi,
I'm new to the site and forum so if I'm posting in the wrong please let me know.

I've struggled with debt and generally adulting for most of my life. In the last few years I've managed to pull myself together and am now in a stable relationship and a job.

I currently have approximately £10k of debt split between £6k on a credit card and a £5k overdraft that I'm consistently scraping the bottom of. My overdraft charges are about £50/month.

My credit card debt is split over two 'deals' and the remainder. The two deal are the bulk of the £6k but expire next year. Then APR is 24.3%
My overdraft is 17.90% EAR variable

(in all honesty I don't really know that that means!)

I'm currently paying £150/month

I have just had a default drop of my credit rating after a long 6 years and my Experian rating jumped from 739 to 999.

I'm considering applying for a personal loan from my bank HSBC for £10k over 5 years to consolidate my debt into one monthly payment at approx 3% about £181/month

I am living with my partner and child (one more on the way) in a house worth £450k. We are joint owners having both contributed £50k each to the deposit and we split the monthly repayments. However I'm not named on the mortgage.

We are looking to buy a new house early next year before the baby arrives. I want to be added to the mortgage so we can upsize. My current income is £45k and we're looking at properties around £625k

My question is whether I should consolidate and how a personal loan with affect my credit rating and mortgage application in a few months time.

I intend to keep the CC but only use it for household bills and pay it off completely each month.

Hope that all makes sense and that there's a sensible question in there somewhere!

StepChange_Allen · 1 October 2019 at 5:37PM

NM87 wrote: »

Hi,
I'm new to the site and forum so if I'm posting in the wrong please let me know.

I've struggled with debt and generally adulting for most of my life. In the last few years I've managed to pull myself together and am now in a stable relationship and a job.

I currently have approximately £10k of debt split between £6k on a credit card and a £5k overdraft that I'm consistently scraping the bottom of. My overdraft charges are about £50/month.

My credit card debt is split over two 'deals' and the remainder. The two deal are the bulk of the £6k but expire next year. Then APR is 24.3%
My overdraft is 17.90% EAR variable

(in all honesty I don't really know that that means!)

I'm currently paying £150/month

I have just had a default drop of my credit rating after a long 6 years and my Experian rating jumped from 739 to 999.

I'm considering applying for a personal loan from my bank HSBC for £10k over 5 years to consolidate my debt into one monthly payment at approx 3% about £181/month

I am living with my partner and child (one more on the way) in a house worth £450k. We are joint owners having both contributed £50k each to the deposit and we split the monthly repayments. However I'm not named on the mortgage.

We are looking to buy a new house early next year before the baby arrives. I want to be added to the mortgage so we can upsize. My current income is £45k and we're looking at properties around £625k

My question is whether I should consolidate and how a personal loan with affect my credit rating and mortgage application in a few months time.

I intend to keep the CC but only use it for household bills and pay it off completely each month.

Hope that all makes sense and that there's a sensible question in there somewhere!

Hi there

Welcome to the forum and thanks for posting.

Before I tackle some of the points you've raised, I just want to say that I can't give specific advice as such on this. In order to do that, I'd need a full income and expenditure plus more information, and even then, at StepChange, we never recommend taking out further credit. However, that doesn't mean it's always a bad idea.

I will make a few points though and hopefully it will prove to be some help. First of all, it is useful to understand what APR means. There's a good explanation on our website here: www.stepchange.org/debt-info/debt-collection/charges-and-interest-on-debt

I've never heard of EAR so I'm not sure what that means. You could call the bank and ask them perhaps?

Basically, the interest rates on both will be high when in effect. If you're trying to clear the debt as fast as you can, at an affordable a rate as possible, a low rate consolidation loan is certainly worth considering. You could also consider a balance transfer to a 0% credit card, but a problem could be getting a large enough credit limit to do this.

If you go for a loan, you just need to be sure that you can afford it and to try and get the best rate. It's also important to make sure you'll get what you're applying for, as multiple applications can have an adverse effect on your credit rating. You can check loan eligibility on the MSE site here: www.moneysavingexpert.com/eligibility/loans-calculator/search

One of the considerations lenders make when assessing a mortgage application, the interest rate, amount they'll lend etc is your disposable income. Monthly debt commitments mean you have less money to pay the mortgage. So the lower your monthly payments the better, and possibly the less debt you have.

So, as I said, I can't advise you what to do, but there are options there, and as long as affordable and financially sensible, there are no obvious issues. I suppose I'd just add to be careful with the credit card if you keep using that, as I regularly speak to people that consolidate only to then keep borrowing more and ending up in a worse situation.

I hope this is helpful.

Allen

whatsername · 1 October 2019 at 9:59PM

I am in around £15,000 of debt. I have been plodding along trying to pay it off as best I can but it's becoming a really big source of stress. It is particularly troubling at the moment I am suffering from health issues and afraid that I might need to cut my hours at work or possibly lose my job if things don't improve (my condition is exacerbated by stress so it's a bit of a lose-lose situation at the moment).

A few months back I did an assessment with you where the Token repayment plan was your suggested solution. At the time I ended up being able to borrow from a family member instead.

I am now in this place again where I feel like I need to tackle things more urgently, but I am really concerned about the potential impact on my credit score. Despite my level of debt, my credit score is pretty good as I have always managed at least minimum payments. I am worried that if I wreck my credit score I will never be able to achieve my dream of buying my own home (something that I would like to be able to do in the not too distant future).

I am aware this is a bit of a 'how long is a piece of string' type question, but how badly is taking a token payment plan likely to hit my credit score and how easy (and fast) is it to rebuild credit once that has happened? I am desperate to be free of this debt, but I don't want to cost myself any chance of home ownership.

Thanks so much.

StepChange_Kirsty · 4 October 2019 at 2:51PM

Hello,

Thanks for your post.

When you’re no longer able to pay your contractual payments to your creditors you will find they will start to issue default notices. The default notice will show on your credit file for 6 years which will impact your rating. This is likely to happen in a token payment plan as you’ll stop paying the contractual payments to your creditors.

I’m sure one day you’ll still be able to own a home of your own. By the time you have paid off your debts and started saving for a house deposit, your credit file should have improved or at least be improving.

If you would like further advice following any changes in your situation, please do not hesitate to get back in touch.

All the best,

Kirsty

whatsername wrote: »

I am in around £15,000 of debt. I have been plodding along trying to pay it off as best I can but it's becoming a really big source of stress. It is particularly troubling at the moment I am suffering from health issues and afraid that I might need to cut my hours at work or possibly lose my job if things don't improve (my condition is exacerbated by stress so it's a bit of a lose-lose situation at the moment).

A few months back I did an assessment with you where the Token repayment plan was your suggested solution. At the time I ended up being able to borrow from a family member instead.

I am now in this place again where I feel like I need to tackle things more urgently, but I am really concerned about the potential impact on my credit score. Despite my level of debt, my credit score is pretty good as I have always managed at least minimum payments. I am worried that if I wreck my credit score I will never be able to achieve my dream of buying my own home (something that I would like to be able to do in the not too distant future).

I am aware this is a bit of a 'how long is a piece of string' type question, but how badly is taking a token payment plan likely to hit my credit score and how easy (and fast) is it to rebuild credit once that has happened? I am desperate to be free of this debt, but I don't want to cost myself any chance of home ownership.

Thanks so much.

K2409 · 9 October 2019 at 1:37PM

Hi,

I have unfortunately become burdened with debt and looking for some advice in order to clear it.

I have the following debts:

[*]Loan £5000 currently - pay £200 per month
[*]Credit Card £2050 - pay £100 per month
[*]Credit card £6150 - pay £175 per month
[*]Credit card £400 - pay off bits and pieces

All credit cards except the small one are all 0% cards but should I switch them to paying the minimum monthly in order to pay more off one of the others. Ie focus on clearing one rather than feeling like I’m getting nowhere with any of them?

I realistically can afford to pay off £500 per month total or otherwise I end up using the little card for top ups and end up in a vicious circle.

How do I prioritise the debt?

Thank you in advance!

StepChange_Kirsty · 9 October 2019 at 2:51PM

Hello there,

Thanks for your post and welcome to the forum.

It sounds like you’re able to keep up with your debts each month, but I can appreciate it can sometimes feel like it’s not reducing.

With your loan, at the moment I would suggest you continue to pay the loan as normal and concentrate paying any extra money to the credit cards.

Ideally it would good for you to stop using the smaller credit card and get this paid off as it's charging you interest. Bear in mind that the 0% rate on the other credit cards will run out so check how long you have left to repay the other credit cards and try to make a plan which will enable you to pay them off before the interest rate increases, if possible. This may help you to decide how much to pay towards each card.

There are quite a few factors which come into play here such as when the 0% ends, what the interest rate will be, and the remaining term on your loan depending on interest. I would be recommending trying to pay as much as you can when you can before the charges begin.

You might find it useful to make a post in the credit card forum as you may get other contributions on how best handle these debts. If you start to experience problem debt where you’re struggling to maintain minimum payments, please get straight back in touch with StepChange.

I hope this helps.

Kirsty

K2409 wrote: »

Hi,

I have unfortunately become burdened with debt and looking for some advice in order to clear it.

I have the following debts:
[*]Loan £5000 currently - pay £200 per month
[*]Credit Card £2050 - pay £100 per month
[*]Credit card £6150 - pay £175 per month
[*]Credit card £400 - pay off bits and pieces

All credit cards except the small one are all 0% cards but should I switch them to paying the minimum monthly in order to pay more off one of the others. Ie focus on clearing one rather than feeling like I’m getting nowhere with any of them?

I realistically can afford to pay off £500 per month total or otherwise I end up using the little card for top ups and end up in a vicious circle.

How do I prioritise the debt?

Thank you in advance!

User_060921 · 9 October 2019 at 4:06PM

I sent in my activation pack and it was received yesterday.

Up until today i have been 'impressed' with the process, but when i rang today to find out some little bits of information, and the advisor at Step change couldn't get me off the phone quick enough.

Not interested in my questions, the reasons for them or indeed with any level of reassurance. It has made me wonder if i am doing the right thing.

Struggling with debt? Ask a stepchange debt adviser a question

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