Topic: Home Owner, large unsecured debt

[Richard]

Hi all

I'm sure my circumstances are not unfamiliar. I am a home owner (value ~£130k, mortgage ~£80k) and have a large unsecured debt on credit cards, around £30k. I am up to date with all repayments  (my total outgoings are around £1500 per month inc repayments), and although i am a student i live with my g/f and we are fairly comfortable in making ends meet. She has just finished her masters degree and is looking to do a Phd and is registered unemployed at the moment, so we receive her weekly allowance+ help with the mortgage paid directly to the bank (northern rock asset management). 

However, as the debt is on CC's, i am obviously not able to reduce the overall debt. What is our best option for me going forward?

I am intending to study for at least the next 3 years, so any option cannot affect my chances of getting my student loans/grants.

thanks in advance, let me know if you need any more information.

Edit: i have just checked my mortgage details, and it is in fact a £50k mortgage, with £30k unsecured (all with NRAM), plus the £30k i owe on cc's

[john1]

well i think it might be worth dealing with as many credit cards as you can,offering as much as you can to each even if it's a pound a month it shows you are willing to make payments and so i would  look into how muuch you can afford and make a proposal to the cc company's. 

[South West Debt Solutions]

One option maybe to look into remortgaging or a secured loan as you have the equity in the property to cover your credit cards. This option depends on any indemnity you may have and the rate that you could get, the advantage being you would keep your credit record intact.
 
The main problem with credit cards is meeting minimum payments doesnt reduce the debt. you could look to consolidate with a loan but be sure to cut up those credit cards.
 
If your not to worried about your credit rating you could enter a management plan to reduce or freeze interest and charges. This will have a detrimental effect on credit rating at first, but as long as you meet the payments month on month the effect will be minimal.
 
Remember that applying for loans that you dont get will also have a negative effect on rating so make sure you are likely to get the loan.
 
Good Luck Gareth

[Steven Jackson]

Hi there Richard
 
The first thing to say is that given £30k of your debt to Northern Rock is unsecured, in effect you have £80k equity in your property. This is compared to £60k of unsecured (inc the N Rock loan). As such, you are not actually insolvent as the sale of your assets would more than cover your debts.
 
Given this, going forward you do not have too many options I am afraid. A IVA can be used to freeze interest and write off unsecured debt. However, this will not be available to you given you are not insolvent.
 
As Gareth has said, you could consider a debt management plan. However, there is no guarantee that the interest on your CCards will actually be frozen. Your credit rating will also be damaged thus reducing your chances of getting a good mortgage deal the next time around.
 
One option is considering a remortgage. If you have a squeaky clean record, you should be able to raise 80% of the value of the property (c£104k). You could use the £54k to pay off N Rock and a big chunk of the unsecured debt so this is definitely worth investigating.
 
Failing that, and given that as you say, you can comfortably making ends meet, my advise would be simply to try and work out a tighter living expenses budget. Try to save during the month and start paying more off your credit card debts - choose the one with the highest interest rate first.
   

[Richard]

How likely is someone in my situation likely to be able to re-mortgage or get a secured loan at a favorable rate? My only declarable income is in the form of student loans/grants, and my g/f's JSA, so any loan would obv have to be made on the basis of the property value.

Initially i was worried about my credit rating being damaged, however given that i will be a student for the next 5-6 years it's unlikely i will be able to get any decent sized loan anyway in the current environment. My car is only 4 years old with low mileage for example, so that should see me through a few more years yet, and my house is in good condition so i shouldn't need to spend any money there. And regardless, i have kind of learned a lesson about credit so if i could get myself out of debt i would not be keen to get back in....

if i wrote to my credit card companies to offer them a debt management plan, what should i am for and what is realistic with regards to freezing interest, and making minimum payments?? Ideally i would like both the interest and payments to be as low as possible, but how low would they go? In addition, if i was not satisfied with what they offered, what would be my next step. I would like to formulate some kind of plan of action so i know what my next step should be should any proposal be rejected or something go wrong

Richard 

Edit: One option is considering a remortgage. If you have a squeaky clean record, you should be able to raise 80% of the value of the property (c£104k). You could use the £54k to pay off N Rock and a big chunk of the unsecured debt so this is definitely worth investigating.

is it fairly straightforward to get up to 80% of the property value without any proof of income, and at a reasonable rate?? my credit should be fairly good, as i have only sporadically had 1-2 late payments, and then only by a couple of days. The fact that i still have CC's lying around with £8k worth of unused credit i guess suggests that i have a decent record, well that and the fact that i have already been lent £60k unsecured!

[Steven Jackson]

By the way Richard. In terms of your ability to get student loans if you start to study, this will not be effected if you have a poor credit rating. All eligable students are allowed to take their student loan allowances irrespective of their past credit history and financial status.

[Richard]

By the way Richard. In terms of your ability to get student loans if you start to study, this will not be effected if you have a poor credit rating. All eligable students are allowed to take their student loan allowances irrespective of their past credit history and financial status.

OK i thought this was the case, but thanks for confirming this

[Steven Jackson]

Given your income circumstances Richard, it may not be possible for you to re-mortgage. However, I think it is worth having a look round just so you know. My advice would be to speak to an independent mortgage broker and see what they say. If you simply speak to N Rock, you will probably draw a blank.
 
In terms of doing a debt management plan, you first need to draw up a financial statement showing all of you income and reasonable outgoings. You should stick to the accepted guidelines for monthly expenditures - you can find a copy of these here: http://www.beatmydebt.com/debtmanagement/dmp-living-expenses-guide.htm
 
You will have to offer 100% of your disposable income (the difference that is left) to your creditors. If you do this, then it is likely that your creditors will accept your DMP proposal. However, it will normally take c3 months for them all to finanlly stop adding late payment and interest charges. Unfortunately there is no hard and fast rule to doing a debt management plan. If any of your creditors reject 1st time round, my suggestion is simply to start paying them the amount you have proposed and keep on at them.

[Telford Sell House Fast]

Hi Richard, what was your response about re-mortgaging? perhaps you could remortgage in joint names with a parent who could prove income? if you have acesss to student loans then I'd use these to pay off the credit card debt..

[James Falla]

Hi Richard
 
Did you speak to any mortgage companies about the possibility of a re-mortgage? The idea from the last poster of perhaps doing a joint mortgage with a family member who could prove their income is a good one. If I was you, I would speak to a specialist mortgage broker who might be able to come up with some options for you.
 
I am not sure I agree with the last comment about using student loans to pay off credit card debt though. Given you are a student, I guess you need all of this income to maintain your living expenses.

[Richard]

Hi all, thanks for the advice so far. Ideally, i would like to be able to re-mortgage and clear my debts that way. However, I'm not sure with mine and my partners income v expenditure i would be able to get a good enough deal compared to how little i pay atm. Incidentally, the total of my CC debt is the same as my Northern rock unsecured loan (£28k) so obviously if i could get that same deal i would snap their hand off! (no wonder they nearly went bankrupt...). Also both the interest and payment amount of my n/r unsecured loan are very favorable, but i assume if i went down the dmp route i would not be able to exclude them from the list of creditors. What are my chances of just asking the Credit card companies to freeze (or drastically reduce) their interest charges, while i reduce my payments to what i can afford??

In my favour is that i still believe i have a good credit record, as i have rarely missed payments and am still well within my credit limit on a couple of cards.

 This is our rough income/expenditure p/m - options??

Income:

Student income - £632
Mortgage help - £130
benefits - £445.25

Total - £1207

Expenditure:

Mort  -    £243.10

Council tax  £0       
water    £30.50
Home Ins £34.65
heating     £75
food      £250
Car Ins  £35.71
gym membership           £66
BT           £42
TV           £12.12
Petrol   £100
RFL         £17
Car maint            £20
Sundries              £30
  total - £956.08



Disposable income - £251


Loans:


Northern rock (28k) - £143.6
 Halifax (8k) - £200
 MBNA (12k) - £250
 m&s (4k) - £100
 Amex (2k) - £50
 RBS (2k) - £50

total (56k) - £893

[James Falla]

Hi there Richard
 
I think the chances of you being able to re-mortgage given your current circumstances are pretty slim. My view is that at present your best option will be a debt management plan. Under normal circumstances, you would need to include all unsecured debts in such a plan. However, given you also have a mortgage with Northern Rock, I would be considering allowing you to maintain that payment.
 
That would leave disposable income of c£107.mth which could be used to do a DMP with the remaining creditors (£173 if you ditched your gym membership). Obviously at this payment rate, you are going to be paying these debts for a long time. Your credit rating will also be negatively affected. However, other than considering selling your house, it does not look like yo have too many alternative options.

[Richard]

I don't see much point in selling my house. I live with my g/f and we have no plans for children, so i dont envisage moving for a long time, plus my parents live very close by (they are pushing 70, my father is disabled) and as an only child its very handy to be able to live close to keep an eye on them.

the debts are in my name, and other than go out for the odd meal we are not big spenders, however gym membership isnt something we would give up, my g/f would take the payments up if push came to shove.

With regards to a DMP, i have a couple of questions:

1, Will the c/c companies freeze the interest, or just reduce it?
2, are any of my personal possessions under threat (ie will ballifs come knocking)?
3, Will the debt ever be written off? or will there come a time when they might consider taking partial payment in "full and final"?
4, What are the pros/cons of including the NRAM debt in the DMP?

Thanks again for your advice 

[shocksoc335]

Hi Richard

The Northern Rock element of your mortgage has to be treated as a secondary credit debt. Yes you will be able to include it in a debt management plan or an IVA for that matter. Your property cannot be repossessed if you do not meet full payment on the unsecured element but you must maintain the mortgage.

All secondary credit debts have to be treated equally so NRE and cc/loans/OD should be treated the same. Your budget sheet is minimalistic in relation to food you could increase this to include your Gym membership as lenders won't like that figure so you can hide it away.

Given your not big spenders you could opt for a DMP however I urge you not to pay for this in any way shape or form. You need to contact Free DMP companies which means no costs upfront and your full available income will come of the debt, these companies will also make sure that int/charges are frozen unless you have a particularly awkward creditor. Even if you do there are ways round this by arguing unreasonable behavior etc  and use of the lending codes.

Unless your receive a claim form and default on it bailiffs will not come knocking on your door, however a field agent may - if they do send them packing they have no rights wotsoever. 

And yes at some point in the future you may be offered full and final on the debts but don't agree to these before talking to someone first.

Hope this helps!

Shocksoc335

[Richard]

Your budget sheet is minimalistic in relation to food you could increase this to include your Gym membership as lenders won't like that figure so you can hide it away

yes i realize that many of these costs are arbitrary, and i'd certainly upwardly revise a few figures if i felt i wanted to give myself a buffer

Given your not big spenders you could opt for a DMP however I urge you not to pay for this in any way shape or form. You need to contact Free DMP companies which means no costs upfront and your full available income will come of the debt, these companies will also make sure that int/charges are frozen unless you have a particularly awkward creditor. Even if you do there are ways round this by arguing unreasonable behavior etc  and use of the lending codes

I had been considering dealing with this myself, however i can see the advantages of having a company do this for me, especially if they are not going to charge. Can you suggest a couple of reputable ones??

And yes at some point in the future you may be offered full and final on the debts but don't agree to these before talking to someone first.

i realize that with my level of debt, paying a token sum every month i will probably never pay it off, that in itself isn't really an issue, but i guess the main problem i have had with debt has been to ignore it for too long and it has snowballed. Since the credit crunch and the disappearance of low rate deals, i have simply been borrowing from one to pay another, and i guess the vast majority of my debt is accrued interest. I'd like to think that if i ever came into a small sum of money that i could make them an offer to clear it off and start again, but as i never intend to borrow money again i guess this isn't such an issue. Guess i'm rambling now so i'll give your advice some further thought! thanks