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Tikitaka Posts: 5 Forumite
14 August at 1:13AM edited 14 August at 11:43PM in Debt-free wannabe
Hi,
I'm new here and hoping to get some advice on the best way forward to get out of debt. I'm resident in Scotland.
Context:
I took out two personal loans a couple years ago whilst having a good career. My mental health (for which I have a diagnosis) deteriorated shortly afterwards, and have been working intermittently since. It looks unlikely that I will ever go back to my previous career. In fact, I'm hoping to go back to studying on a scholarship (hence even lower income). The current intermittentwork pattern allows me to decompress and recharge, something I could not do in my previous high-flying career.
My current income is somewhat seasonal, which means that I get zero (or very low payments) on some months and considerably high payments on others. At the end of the year, it's averaging out OKayish, but I tend to have liquidity issues quite regularly (having had to apply for UC in one given month).
Since leaving my previous career, I managed to pay the considerable monthly payments (high interest) for almost two years (which means I could not build a cash buffer/savings big enough, and my intermittent work pattern has been "eating into" whatever slight reserves I had).
Current situation:
I stopped paying earlier this year; the bank gave me a 6-month payment break and interest freeze. Now that freeze is over, the income-expenditure assessment shows again no affordability of repayments, and they suggest another 6 months whereby during this time they "may" send me a default. When I asked whether the default can be done now, they said yes. They explained that after the default I will be moved to a "repayments team" that will be in touch periodically to see what and if I can pay.
The outstanding balance on the loans is about £25k (plus about £1k in overdraft).
I have no property (I'm renting), I have no vehicle. I thus have no assets (apart from occasional "savings", ie. whatever is left from the months when I get paid more. Those rarely go above £2500).
Last developments:
I explained everything to the bank as I am explaining here. I have been forthright in telling them that I have a mental health problem, I am unable to go back to my previous career, and that I'll either stay on my current intermittent work pattern (for which my income is no more than £28-30k a year - I was earning way more in my previous career) or go study on a scholarship (the scholarship should be about £18k/year for 3-4 years).
They pushed for the 6-month solution during which they "may" send a default. At this stage, I tried asking for a write off based on my circ*mstances. I am quite anxious, so I don't remember what they said when they said no to this, but I remember that when I then asked for a partial settlement they started checking internally.
For a 50% settlement (£12500), it may be approved,but I don't have that money. I suggested a 14% settlement (£3k), and they said they will check but they don't want to give false hopes. I explained that the £3k is money I need as a cash buffer, but for the sake of my mental health if it helps closing the deal I'd pay once I get my next payment.
So, now we're on a two-week break before we resume talks - hopefully when we'll talk again I will know on which day I will getmy next payment.
How I need advice:
Quite simply: what should I do?
From talking to Stepchange and other another advice firm, the solution they seem to push for is the DAS (the Scottish equivalent of the DMP).
The problem with this is twofold: on some months I may be able to pay some £150-200, but on some other months I simply won't have any money. And I cannot foresee where my income will be beyond 5 years. Secondly, £25k divided by £200 is some 10 years of this going on. Doesn't help with my anxiety at all. Lastly, the DAS does stay on your credit file for 6 years just like a default - it doesn't seem worth it to me on so many levels.
Some private advice firms push for a Trust Deed (I think the English equivalent is the IVA), but it seems just like a legally stricter version of the DMP to me, and it affects any present or future assets.
I was initially looking into the Minimal Asset Bankruptcy here in Scotland, whereby if you have little assets and disposable income and small-ish debts, you can get a write off within a year, I believe. I was discouraged from this because of the "acquirenda rule" within bankruptcy: if you acquire assets within the next 5 years (I believe), then the debt is kind of "reinstated". I won't be able to have any minimal savings for those 5 years. It also puts me at risk if I'm ever to get any inheritance.
I feel the best way forward would be to push for a partial write-off, but I'm not able to offer more than £3k (which is already putting me on the edge financially, as I'd have almost no cash buffer left).
Should I just default ASAP instead?
I feel overwhelmed by the amount of information I find online, and I'm reluctant to call StepChange again as the person I'd spoken to 6 months ago was not trying to engage with the intricacies of my situation, but rather just push for the DAS (the Scottish equivalent of the DMP).
My gut feeling tells me if the write off (partial or complete) fails, the next best solution would be the default. But I am lost: what happens then? How long does it go on for? How can I push for a partial settlement after default and is it true that it is more likely then? Can the default be backdated to earlier this year when I stopped paying? What happens to any savings I'll have (are they protected if a low amount)? Is the default's impact on the credit score the same as the DAS (DMP) or worse?
I really just want to breathe. I am terrified of this going on for years - the bank said it's unlikely it'll ever go to court, but of course they can/will sell the debt and I really don't want to be chased forever, with letters, calls, or, worst of all, debt collectors coming to my door. I'd rather just pay what I can, but close the deal.
Is there something I'm not doing right? Shall I get some advisor (e.g. the Citizens Advice Bureau) to talk to the bank on my behalf? Should I rather keep the conversation about the write off in writing (I see some templates on the CAB website)?
Thank you for your patience in reading!
stu12345_2 Posts: 1,507 Forumite
14 August at 9:11AM edited 14 August at 9:19AM
please fill this in, it will make things easier to read and understand
relax there are solutions , and no you won't be getting debt collectors to your door , biggest misconception ever.
and these are min wage fools you can ignore anyway
https://www.lemonfool.co.uk/financecalculators/soa.phpthis debt forum is mostly for those in England, due to different rules about debt.
but we can still see and understand the Scottish debt rules and solutions
pay your debt at your rate.not what the creditor demands.cos they have no power.they aren't the police.
RAS Posts: 33,225 Forumite
14 August at 11:35AM edited 14 August at 1:18PM
Thanks. Right now you can't edit your posts or titles but at some point you will get enough posts to be able, so add the word Scotland to the title. It'll attract more help from people with the specific knowledge.
Mean-time, I'd suggest that you make sure you have a basic bank account not linked to any of your creditors, transfer your income there and stop paying the loans. Then start putting that money into an emergency fund. You need enough to pay a month's essential costs to reduce your liquidity problems.
And when there's a bit extra, you can buy the items that don't have to recur monthly. It'd be worth paying insurance annually, perhaps getting longer period travel passes, clothing if needed etc.
The person who has not made a mistake, has made nothing
agentblackcat Posts: 17 Forumite
14 August at 1:01PM
Hi.
I'm in Scotland and considered a DAS through step change, but have decided to do a self managed DMP.
Hopefully my understanding is correct, the bank might offer to let you settle for 3k? Is this confirmed? If so do you have money to this? Would this then make you debt free? Is so seems like a good option. Then start saving.
Or if not. Let it default. Work out what you could pay on month's where you earn little. Then either save up and hopefully they will give you a reduced offer in future, or on months you have more pay more towards repaying debt. A default would mean no more interest can be added. You could ask for them to back date it but I don't have personal experience of this.
Hopefully you will continue to earn more in the future which will let you increase your payments as time goes on. I'm not an expert, but this is my understanding of everything.
Tikitaka Posts: 5 Forumite
14 August at 7:36PM
RAS said:
Thanks. Right now you can't edit your posts or titles but at some point you will get enough posts to be able, so add the word Scotland to the title. It'll attract more help from people with the specific knowledge.
Mean-time, I'd suggest that you make sure you have a basic bank account not linked to any of your creditors, transfer your income there and stop paying the loans. Then start putting that money into an emergency fund. You need enough to pay a month's essential costs to reduce your liquidity problems.
And when there's a bit extra, you can buy the items that don't have to recur monthly. It'd be worth paying insurance annually, perhaps getting longer period travel passes, clothing if needed etc.
Hi! Thanks for chipping in.
I wonder, if I default, can the bank go after my "emergency fund" - which will inevitably be in the form of savings?
May I ask why you'd recommend paying insurance/travel passes/etc. annually?
Tikitaka Posts: 5 Forumite
14 August at 7:43PM
agentblackcat said:
Hi.
I'm in Scotland and considered a DAS through step change, but have decided to do a self managed DMP.
Hopefully my understanding is correct, the bank might offer to let you settle for 3k? Is this confirmed? If so do you have money to this? Would this then make you debt free? Is so seems like a good option. Then start saving.
Or if not. Let it default. Work out what you could pay on month's where you earn little. Then either save up and hopefully they will give you a reduced offer in future, or on months you have more pay more towards repaying debt. A default would mean no more interest can be added. You could ask for them to back date it but I don't have personal experience of this.
Hopefully you will continue to earn more in the future which will let you increase your payments as time goes on. I'm not an expert, but this is my understanding of everything.
Hi! Thanks a lot for your message.
Is that what you did with your self-managed DMP? Did you default and then work out what you can pay?
The thing is, this situation is already worsening my anxiety and I'd like to get it sorted ASAP. I will have the £3k next month, and if the bank agrees, I would have no cash buffer/emergency buffer, but I would be debt-free.
The thing is, it's a low partial settlement (about 15%) and I don't see why they would agree on this without at least first defaulting me.
If you did default, how often are you in touch with your bank to manage repayments? I appreciate it may vary from bank to bank, but I am really really anxious about this going on for ages. My income is very unlikely to increase, and most likely to decrease if I get accepted to university on a scholarship.
Tikitaka Posts: 5 Forumite
14 August at 7:54PM
stu12345_2 said:
please fill this in, it will make things easier to read and understand
relax there are solutions , and no you won't be getting debt collectors to your door , biggest misconception ever.
and these are min wage fools you can ignore anywaythis debt forum is mostly for those in England, due to different rules about debt.
but we can still see and understand the Scottish debt rules and solutions
Hi!
I think this is very similar to the income/expenditure form I did with the bank.
My current spending is roughly £1800 and net income for the last three months is £1800 roughly a month. So I have £0 disposable income.
Because on some months I get higher payments through my work, the result is that my yearly net income might average out to about £2000-2100/month over 12 months. Taking my expenses as roughly constant at £1800, this would mean about £3000 in savings - which rarely happens, as I often have medical expenses. The average I manage to keep aside is probably about £1000-£1500.
Interest is pre-loaded on my loans, so the fixed monthly repayments total to about £650/month, which I am unable to repay.
When you say debt collectors coming to your door is not a thing - I actually had some people coming to look for the previous tenant! They managed to sneak into the building and check if they still lived here. I would not be able to sleep at night if something like that happened to me, unfortunately.
RAS Posts: 33,225 Forumite
14 August at 8:03PM
Banks have the right of offset, You need to make sure your savings and income are in banks that are not in the same financial groups as your debts. You might use a building society savings account or a cash ISA for the savings. A little interest won't harm you.
Regarding other items, you need to have enough income in any month to pay for your essential bills like rent, CT and food, whether from immediate earnings or withdrawing from your "savings". Really at this stage they are budgeting accounts to allow for liquidity issues.
You also need other items that you might pay for when you have some surplus. For example contents insurance can be cheaper paid for annually. If you know you're going to have a lean time, paying up front for some transport costs can be cheaper if you do so for 3 months rather than a week or daily. My annual pass paid off if I travelled to work on three days. And then any further work days were a bonus, as was all weekend travel in the county. You need to look at Scottish options near you.
Or buy a bundle of day tickets, if that's possible and you travel less often. Locally the discount is 10-20%.
At the most basic level, if you have money and see packs of cheap pasta on offer or tins of beans, soup or fish (whatever you like), stocking the cupboard provides a bit of a buffer for lean times. I nabbed a load of beans at a 20% discount for myself and the foodbank. Days later the discount on less popular varieties was 60% so I got more. But I like bean salads and stews, and they have long shelf lives.
The person who has not made a mistake, has made nothing
agentblackcat Posts: 17 Forumite
Today at 9:29AM
Tikitaka said:
agentblackcat said:
Hi.
I'm in Scotland and considered a DAS through step change, but have decided to do a self managed DMP.
Hopefully my understanding is correct, the bank might offer to let you settle for 3k? Is this confirmed? If so do you have money to this? Would this then make you debt free? Is so seems like a good option. Then start saving.
Or if not. Let it default. Work out what you could pay on month's where you earn little. Then either save up and hopefully they will give you a reduced offer in future, or on months you have more pay more towards repaying debt. A default would mean no more interest can be added. You could ask for them to back date it but I don't have personal experience of this.
Hopefully you will continue to earn more in the future which will let you increase your payments as time goes on. I'm not an expert, but this is my understanding of everything.
Hi! Thanks a lot for your message.
Is that what you did with your self-managed DMP? Did you default and then work out what you can pay?
The thing is, this situation is already worsening my anxiety and I'd like to get it sorted ASAP. I will have the £3k next month, and if the bank agrees, I would have no cash buffer/emergency buffer, but I would be debt-free.
The thing is, it's a low partial settlement (about 15%) and I don't see why they would agree on this without at least first defaulting me.
If you did default, how often are you in touch with your bank to manage repayments? I appreciate it may vary from bank to bank, but I am really really anxious about this going on for ages. My income is very unlikely to increase, and most likely to decrease if I get accepted to university on a scholarship.
Hi.
I felt really anxious too. However, u now feel so much better. I am just starting out my journey which will be long. I stopped paying my non-essential debts in Dec 2023. I was sent lots of letters and received phone calls which I ignored. Its calmed down a lot now. Some of debts have defaulted some gave not yet. I'm currently saving up an emergency fund,then I will start contacting to start payments that I can afford.
It's a tricky one, the offer of 3k does seem to gmgood to be true but you never know. However what ever happens you will be fine...some posters on here on pay token payments as that's all they can afford. Do a SOA then I'm sure more experienced posters can help too. Read the stickys, it takes a while but it made me feel so much better.
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