Suman Antcliffe says: We generally find that taking out debt to repay debt is rarely the best thing to do and often makes things worse. Never borrow more without taking advice on whether there is a better option.
You should talk to your creditors now and let them know you are having problems.
Then make a list of all the people you owe money to and how much you owe to each one and what type of debt it is - mortgage, council tax, fuel bill, overdraft, credit card, bank loan. Do this for all your commitments, even if you are up to date with some accounts. Make sure you keep paying the most important debts, not the people who shout the loudest. These are your mortgage or rent because otherwise you will lose your home; your fuel bills, otherwise you will be cut off; and council tax, TV Licence, car insurance, otherwise you risk imprisonment.
Then work out your total income from all sources. Do the same for your essential expenditure, but don't include repayments on your credit debts, just the normal payments on your important debts. At this point, you really have to look at what you can cut down. You then need to take your expenditure figure from your income figure , this will show how much you have available for your creditors. If you don't have enough money left over, you really need detailed advice on what you can do next. You will also need a list of your assets.
We would also advise you to open a new bank account where you owe no money. It is difficult to negotiate with a bank when your wages are still being paid into that bank.
We would then advise you to contact your local CAB office www.citizensadvice.org.uk , or the following three agencies for help: National Debt Line www.nationaldebtline.co.uk, free phone 0808 808 4000 CCCS www.cccs.co.uk, free phone 0800 138 111 Payplan www.payplan.com 0800 716 239 (open 24hrs).
They will discuss options with you and look at ways of maximising your income and if necessary negotiate with your creditors on your behalf.
Mark Dampier says: Taking out loans to pay off debt is a circular solution. If you choose this way of paying, you need to cut up your credit cards once you have paid them off and concentrate then on paying off the loan. I would recommend buying a little notebook and pen and logging every piece of expenditure to find out where your money is going. It is possible to approach the companies where you owe the money and come up with a realistic payment schedule. Credit card companies and banks are generally sympathetic to this but it will mean that your present lifestyle will have to change drastically for a number of years.
I own a house, and am buying another council house through the right to buy scheme. I have just started permanent work and have an excellent credit history. I have tried to borrow five thousand pounds but my own bank said no and another said no too. Is there anything I can do? M Dillon, Belfast
Jill Stevens says: Yes. But the first thing to do is stop applying for credit until you've sorted out what the problem is. Although your credit report does not show that you've been refused credit, it does record how many times you've applied - and too many of these records make lenders nervous: they can mean you're too credit hungry; they can even mean a fraudster is using your name and address.
The only people who can tell you why you were refused credit are the lenders concerned. So go back to both of the banks and ask. The Banking Code states that they should tell you the principle reason for refusing you credit. They should also tell you which credit reference agency they used and how to get a copy of your credit report.
Lenders have many reasons for refusing credit - sometimes it can just be because you are not registered to vote on the electoral roll, so they can't check your name and address. Other times, you may think you have a perfect credit history, but they may think you've already borrowed enough. Lenders are under considerable pressure at the moment to lend responsibly, so if your credit report shows you already have several lines of credit they may think it's safer to say 'no'.
They don't just base decisions on your credit report information, though. They look at what you tell them on your application form, too. Some lenders like to see that you've been in work for a certain length of time, or that you've lived at the same address for some time, as well as that you earn enough to repay the credit you've applied for. Once you've found out what the problem is, you can start to sort it out. Good luck.
We are just keeping afloat but are increasingly finding it hard to make all our bill payments. I am just returning to work after being maternity leave and our credit rating is poor. How can we get help in sorting our finances out without paying extortionate interest rates? Anon, Belfast
Jill Stevens says: Don't pay for this sort of advice when you can get it free - and don't be tempted into taking on expensive credit which will only put you further in the red. Borrowing is very rarely the way to get out of debt! Budgeting carefully is sometimes all you can do. But you can get help to do it. Contact the CAB.
Nick White says: Lenders will typically look at your incomings, outgoings and how much of your available credit you are using when you apply for more credit. Unfortunately, your individual situation (tight finances, working for a short time) means lenders will perceive you as a higher risk individual. As you suspect, this means you are likely to be offered higher levels of interest, or possibly no credit at all.
Taking credit from unscrupulous lenders at high interest rates will only make your finances worse, and should be considered a ‘no go zone’. Therefore to tackle the problem, in the short term, you need to write a budget plan that maps out all your expenditures, in particular your core bills, as missed payments are very damaging for your credit rating.
If you feel you can’t make ends meet, then you need to approach your bank as they can organize a repayment plan for you, and are required under the banking code to leave you with sufficient money for reasonable day-to-day expenses. In addition they are likely to be much more sympathetic if you approach them before things get really serious.
If this doesn’t work then seek help as early as possible from the Consumer Credit Counselling Service (CCCS), or your local Citizens Advice Bureau.
I'm drowning in debt! I owe £10,000 to one bank through personal loans and £6,000 with another bank, I have two credit cards that are borrowed to the limit and a £1,000 overdraft. My salary is a measly £30,000. My mortgage though is quite low £400 per month on a £50K loan which has another 15 years to run. I have around £280,000 in equity. Should I remortgage? One thing though . . my partner knows nothing of my financial mess - I'm able to meet my monthly contributions without a hitch. How do I get this debt burden resolved? Anon, London
Suman Antcliffe: If you have a joint mortgage you will be unable to remortage without your partner's agreement. Before considering a remortgage, you need to work out if you have the income to cover remortgage payments – by totting up all your income and outgoings (excluding credit card and loan repayments.
You need to assess if you can afford to meet your commitments (council tax, utilities etc.,) without resorting to credit .
As well as checking you can afford the new mortgage payments you need to remember that you will be turning unsecured borrowing into secured borrowing and so putting your home at risk if payments are not kept up. There needs to be some spare income in case of emergencies or if interest rates go up.
You may wish to consider other options instead. You have very high equity so it would not be advisable for you to go bankrupt or to apply for an Individual Voluntary Arrangement.
One option open to you is to make offers of payment on a pro - rata basis to your creditors. Offers need to be affordable and sustainable, however creditors will challenge expenditure such as cigarettes, holidays etc so you may want to seek help from your the CAB , Payplan or CCCS for help with this. A request should also be put in that interest is frozen so that the balance reduces as you pay.
Please note that partners often find out about debts because of phone calls and letters. Debt companies will not speak to your partner but in most cases they are able to guess and if you can sit down and work things out together this may be the best solution. In many cases partners earn more then the person in debt but expect them to contribute towards half the expenditure , if this is your situation you may be able to reach an agreement that you pay less. You also state you are overdrawn so it may be helpful to open another bank account for your salary so that you owe no money from this account.
I have a bit of debt to sort out from interest free loans expiring - £4,500 in mid-July and £7000 around the end of the year. Any suggestions on what loans I can look for with the least interest? N, Cox, Manchester
Nick White says: You could take out a loan to tie in with the end of each of your existing loans or take out a larger loan and use it to consolidate the two debts into one.
Currently the cheapest personal loans are found away from the high street. A £4,500 loan from MoneyBack Bank over 5 years will cost £85.87 a month and £7,000 over the same period will cost £133.58 a month. Alternatively, a loan for £11,500 would cost £219.46 a month.
The usual loan warnings apply here – in particular watch out for rip-off Payment Protection Insurance (PPI); take into account early exit penalties if you are going to consolidate your loans now and thus repay one early (typically 1 month’s interest), and take the loan over the shortest period possible to avoid paying unnecessary interest.
I followed the advice around and became a rate tart, swapping money from one card to another as the interest rate kicked in. Now I seem to have left a trail of footprints and no one will give me any more credit. What do I do and how long will this last? S. Dogan, Essex
Jill Stevens says: These footprints - a record of when your credit report has been looked at because you've applied for credit - stay on the record for 12 months with Experian and two years with Equifax, another major credit reference agency. Most people taking advantage of 0% interest deals usually find that their footprints fall off the record before they can do much harm. However, you're right that a lot of footprints can damage your credit rating.
In your case, though, lenders may be saying "no" for other reasons, too. Your credit report will show what credit you've had over the past six years. If you have taken out new cards and not closed the old ones, your report will show that you have access to a lot of credit - the total on all the open cards, in fact. Some lenders might think you have enough credit already. So cancel all the cards you're not using. To find out why you are being refused you have to go back to the lender and ask. If it really is because of the record of searches, you'll just have to sit it out and wait for the footprints to fall off your credit report.
Nick White says: Unfortunately, making lots of credit applications in a short space of time can give the impression to lenders that you are a "high risk borrower" even though this may not be the case.
There is no set time limit for how long these footprints will continue to hinder you getting credit. Even though they are only kept on your report for 12 months it is down to the individual lender’s assessments of your individual situation and how they interpret the footprint data.
Given that you have applied for a number of credit cards and moved your balance around it may be worth seeing if you are able to apply for a low life of balance card as this will enable you to pay off your outstanding credit card balance at a steady rate and should help boost your credit record. However, you must remember not to use this card to make purchases as the rate will be extremely high and any repayment on the card will go towards this before repaying the outstanding balance. A general guideline seems to be not to make more than a couple of applications at a time, and then to leave it for 3 – 6 months before trying again
I owe £20,000 on three credit cards, and I will soon be unable to meet the minimum repayments. Should I increase my mortgage and consolidate? I hope to let my house in approx 6 months time, but need to decorate. I also have a very large mortgage. I am 56 years old, and things are now beginning to affect me as I am very worried. Can you suggest what I should do? Anon, London
Suman Antcliffe says: You state that you are 56 years old and already have a large mortgage. This is probably the reason you are struggling to pay even the minimum amounts on your credit cards. For this reason it would not be sensible to increase your mortgage further. A mortgage is a secured loan and failure to pay this would result in your property being repossessed.
You also state that you hope to let your house in 6 months but it is unclear where you will then live.
A free debt advice agency such as your local CAB, CCCS or Payplan could negotiate reduced affordable repayments on your credit cards, they will in the first instance check your income and family circumstances to ensure that you are on the correct tax coding and are claiming all the benefits you are entitled to.
After maximising your income they will prepare a statement of income and expenditure to assess what offer if any you can make to creditors. If there is little or no equity in your property then you may wish to consider bankruptcy or an individual voluntary arrangement. With bankruptcy all your debts are wiped out but this can have very serious implications and you will need further advice on this.
An individual voluntary arrangement is a procedure which allows an insolvent individual to come to a legally binding agreement with creditors to repay debts in part or full. IVA's are prepared by insolvency practitioners and again you will need further advice on this
Mark Dampier says: Whether you will be able to consolidate the present loan under a mortgage depends on how much equity you have in the house. But you should remember that while this may reduce the minimum payments, it will mean paying considerably more interest over a much longer period of time than you would do if you paid the loans off over the next two or three years.
I live in a Police property worth £400,000. I could buy this for £250,000 but my husband and I have so many credit card debts and defaults we would never get a mortgage. He earns £35,000 a year, and I earn £28,000 a year plus child benefit. We have a bad credit rating and we owe about £70,000 on credit card bills which we have defaulted on - help please. Anon, Dorset
Mark Dampier says: It is quite clear that you must be living well beyond your means. You actually earn jointly £63,000 and for most people this would be an extremely good income. It is clear that you haven’t got your finances in any kind of order. You should be able to work out a budget by working out exactly what you need to live on in terms of utility bills, council tax etc. Anything over should go towards the debt. Presumably, if you live in a police property you may well be able to buy this at a later date, but you need to address the credit card debt and cut up all your credit cards straightaway.
Suman Antcliffe says: At present you are renting your police house. If you owned this with £150,000 equity there would be concerns over creditors taking action against the property. It would be advisable therefore to address your debt situation before trying to get a mortgage to buy this property. Your household income is fairly high, so you will probably have available income to offer creditors. An Individual Voluntary Arrangement may be the best option for you. We would suggest that you contact Payplan who will assess this for you. An Individual Voluntary Arrangement is a legally binding agreement with creditors. This provides an individual with certainty that their financial problems will be resolved within a defined time period.
Where can I go to get help with outstanding debts. I need some help with a structure or plan as these debts are causing me allot of worry. I am not able to get credit. Anon, Cardiff
Suman Antcliffe says: Don not worry and don't panic, but don't ignore the situation. The sooner you seek help, the better it is – there is always a solution. Your local CAB will sit down and work out a detailed plan with you. They will check how much money you have coming in and see if you are getting everything you are entitled to; quite often people aren't! An adviser will then look at everything in detail - how much you owe and to whom and how much you realistically have to pay out every month. This leaves you with how much you have to pay off your creditors. They will look at all your options and agree the best way forward, they will also help you negotiate with creditors.
All advice offered here is of a general nature and is intended for guidance only. It is offered without any legal responsibility. You should always consult your own professional advisers on your specific requirements.
