Debt Consolidation Advice - IFA Req'd
Discussion
For reasons I won't go into, I need to help someone close out with their finances.
It appears they've been burying their head in the sand for multiple years and things have spiralled out of control to the point where it's all now blown up. I have a fanatical grip over all of my finances (it drives the other half mad!) so said I'd try to help. The current situation is:
- they owe just over £38.5k, spread across a variety of credit cards and loans
- monthly repayments are ~£750
- however, monthly repayments alongside mortgage, childcare etc. etc. are pushing them to the wire with spending each month and so relying on CC for further spending (the death cycle)
Some key points to note:
- they haven't defaulted on anything and are keeping up with repayments currently
- they earn just shy of £50k p/a (approx. £2600 a month)
- I've told them that the first step is to cut (physically or virtually) the credit cards up, which they've agreed to, in order to "turn off the tap" (and said I'll cover any incidental stuff that's needed for now as the CCs were a safety net at the end of each month)
- I've also said I'll sit with them and go through all finances to see what can be culled, reduced etc.
I've tried looking for debt consolidation loans but due to the value (it seems there's a mini-threshold at about £35k?), it's not looking like that's either going to be an option, or going to work in terms of actually bringing down monthly payments. I'm also a bit wary about consolidating as the CCs are 0% interest and so adding them to a loan could actually be making them worse off (as they'll be paying interest on the debt).
A quick Google brings up many IFAs but wondered if anyone a.) has any further advice, or b.) can recommend a good IFA that might have access to other debt restructuring plans / approaches that I wouldn't as Joe Bloggs. I don't mind spending a couple of quid if needs be as in the long-term it could save tens of thousands (they were looking at a £40k loan which would see them paying back nearly £85k....
)
It appears they've been burying their head in the sand for multiple years and things have spiralled out of control to the point where it's all now blown up. I have a fanatical grip over all of my finances (it drives the other half mad!) so said I'd try to help. The current situation is:
- they owe just over £38.5k, spread across a variety of credit cards and loans
- monthly repayments are ~£750
- however, monthly repayments alongside mortgage, childcare etc. etc. are pushing them to the wire with spending each month and so relying on CC for further spending (the death cycle)
Some key points to note:
- they haven't defaulted on anything and are keeping up with repayments currently
- they earn just shy of £50k p/a (approx. £2600 a month)
- I've told them that the first step is to cut (physically or virtually) the credit cards up, which they've agreed to, in order to "turn off the tap" (and said I'll cover any incidental stuff that's needed for now as the CCs were a safety net at the end of each month)
- I've also said I'll sit with them and go through all finances to see what can be culled, reduced etc.
I've tried looking for debt consolidation loans but due to the value (it seems there's a mini-threshold at about £35k?), it's not looking like that's either going to be an option, or going to work in terms of actually bringing down monthly payments. I'm also a bit wary about consolidating as the CCs are 0% interest and so adding them to a loan could actually be making them worse off (as they'll be paying interest on the debt).
A quick Google brings up many IFAs but wondered if anyone a.) has any further advice, or b.) can recommend a good IFA that might have access to other debt restructuring plans / approaches that I wouldn't as Joe Bloggs. I don't mind spending a couple of quid if needs be as in the long-term it could save tens of thousands (they were looking at a £40k loan which would see them paying back nearly £85k....
)Edited by Notshortnottall on Monday 11th September 10:55
My very limited experience of this is that it is a shark pool and extreme caution is needed before anything is committed to, clearly it's obvious but worth mentioning.
The other thing I see is mortgage payments, I guess when all's said and done, the determining factor for a creditor is what will they get back and if someone has loads of equity this might alter their view even if from a leverage point of view.
Short of defaulting on the debt, the options are reduce interest, extend time/reduce interest how that happens should be fairly simple once the facts are known.
The other thing I see is mortgage payments, I guess when all's said and done, the determining factor for a creditor is what will they get back and if someone has loads of equity this might alter their view even if from a leverage point of view.
Short of defaulting on the debt, the options are reduce interest, extend time/reduce interest how that happens should be fairly simple once the facts are known.
I've hopped debts across 0% interest cards for years and now in a position where I'm paying them down so that eventually I won't have them.
This is how I would help your friend out:
Do any of the cards have a current 0% offer (money transfer or balance transfer) that has a long repayment period on it? If so use that to clear down as many of the other cards as possible, if any are not0% then pay those off as a priority.
Then set that one up to repay minimum payments (for now)
Whatever card balances are left, set up Standing Orders to pay off the balances in equal instalments e.g. if one of the cards has 10 mths left at 0% with a £1k balance, pay that one off at £100 a month.
Then over time they'll have more cards with nil balances and more 0% offers to be able to use to transfer as periods end, but always have one of the balances being paid off by standing order within the 0% period.
Hopefully that will also reduce their current monthly repayments while reducing the debt total.
This is how I would help your friend out:
Do any of the cards have a current 0% offer (money transfer or balance transfer) that has a long repayment period on it? If so use that to clear down as many of the other cards as possible, if any are not0% then pay those off as a priority.
Then set that one up to repay minimum payments (for now)
Whatever card balances are left, set up Standing Orders to pay off the balances in equal instalments e.g. if one of the cards has 10 mths left at 0% with a £1k balance, pay that one off at £100 a month.
Then over time they'll have more cards with nil balances and more 0% offers to be able to use to transfer as periods end, but always have one of the balances being paid off by standing order within the 0% period.
Hopefully that will also reduce their current monthly repayments while reducing the debt total.
£50k pa should net ~£3k per month, no?
Consolidating debts sounds potentially helpful, as seeing one big number may be more ‘visual’ than dealing with multiple smaller debts, but unless you can reduce the overall interest cost, plan A would, of course, be to focus on the one with the highest APR first.
Consolidating debts sounds potentially helpful, as seeing one big number may be more ‘visual’ than dealing with multiple smaller debts, but unless you can reduce the overall interest cost, plan A would, of course, be to focus on the one with the highest APR first.
I know someone who was in an almost identical situation which made it impossible to cover all their outgoing costs, even when they stripped back to the bare essentials.
They ended up with an IVA with PayPlan, the ones recommended by citizens advice.
They ended up with an IVA with PayPlan, the ones recommended by citizens advice.
Edited by Silvanus on Monday 11th September 10:45
speak to the lenders, you will be amazed at the lengths they will go to in order to support someone genuinely in a difficult place. you can get the debt frozen so interest doesn't continue to rise and so on and that way payments actually reduce the debt rather than just service it.
after that step change and CAB are both good shouts.
after that step change and CAB are both good shouts.
Mogul said:
£50k pa should net ~£3k per month, no?
Consolidating debts sounds potentially helpful, as seeing one big number may be more ‘visual’ than dealing with multiple smaller debts, but unless you can reduce the overall interest cost, plan A would, of course, be to focus on the one with the highest APR first.
Sorry - fat fingered, now edited. Take home is just under £2600 p/m (some stuff comes out at source at they earn a grand or 2 under £50k).Consolidating debts sounds potentially helpful, as seeing one big number may be more ‘visual’ than dealing with multiple smaller debts, but unless you can reduce the overall interest cost, plan A would, of course, be to focus on the one with the highest APR first.
Silvanus said:
I know someone who was in an almost identical situation which made it impossible to cover all their outgoing costs, even when they stripped back to the bare essentials.
They ended up with an IVA with PayPlan, the ones recommended by citizens advice.
How did that plan out (if you don't mind me asking)? They're terrified of IVA-esque things negatively affecting them for years to come...They ended up with an IVA with PayPlan, the ones recommended by citizens advice.
Edited by Silvanus on Monday 11th September 10:45
xeny said:
Have they tried Stepchange?
That's helpful - hadn't heard of that. Will take a look.Notshortnottall said:
Silvanus said:
I know someone who was in an almost identical situation which made it impossible to cover all their outgoing costs, even when they stripped back to the bare essentials.
They ended up with an IVA with PayPlan, the ones recommended by citizens advice.
How did that plan out (if you don't mind me asking)? They're terrified of IVA-esque things negatively affecting them for years to come...They ended up with an IVA with PayPlan, the ones recommended by citizens advice.
Edited by Silvanus on Monday 11th September 10:45
xeny said:
Have they tried Stepchange?
That's helpful - hadn't heard of that. Will take a look.xeny said:
Have they tried Stepchange?
This. Contacting StepChange (or Citizens Advice) should be the top priority. One general comment I'd make is that people often think that an IVA is the automatic solution in these circumstances. It really isn't. An IVA might be suitable, but there's also a good chance that one would be totally unsuitable. There are other options.
PS: OP, you mentioned 0% credit cards. Presumably you've made a note of when the 0% periods expire? Obviously things will get quite a bit worse then.
Cannot recommend Stepchange highly enough, I went down the secured loan route a few years back due to reasons beyond my control which helped but I was paying stupid interest. An unfortunate inheritance cleared it.
Good luck and hope they get sorted, debt is the worst thing to have stressing you out!
Good luck and hope they get sorted, debt is the worst thing to have stressing you out!
Notshortnottall said:
- I've also said I'll sit with them and go through all finances to see what can be culled, reduced etc.
That's a good and easy place to start; they may well have all sorts of DDs set up for things they don't really need or use. People don't realise how monthly DDs add up... A friend of mine will say things like 'Well it's only another £12 a month'. I say 'But that's £144 a year' and she seems genuinely surprised.And no Costa Coffee! Indeed the food shop would be another area to look at. Bottled water? Don't need it.
If they have a mortgage do they have some equity that could be tapped into?
It’s unlikely that consolidation of that amount on that salary would be possible through a mainstream lender, hence the huge amount of interest on the £40k you mentioned.
Working with lenders to reduce commitments might help with cash flow but I would imagine their credit file will be trashed as a result. Lenders might accept a reduced payment but I believe will mark their file with late payments/defaults as a result.
Whilst borrowing against their home isn’t something to do lightly it could be an effective way of paying the debt back cheaply/quickly and without a detrimental impact on their credit file.
Their biggest hurdle to overcome might well be themselves unfortunately. Unless this was triggered by something outside of their control then they may well end up back in the same position again in the future. The irony here is that a trashed credit file could actually be a benefit.
I doubt you will find much in the way of paid advice for them, IFAs much prefer people with money and the reoccurring fees that they generate. Equally people in need of this support are generally unable to stump up the money to pay fees.
It’s unlikely that consolidation of that amount on that salary would be possible through a mainstream lender, hence the huge amount of interest on the £40k you mentioned.
Working with lenders to reduce commitments might help with cash flow but I would imagine their credit file will be trashed as a result. Lenders might accept a reduced payment but I believe will mark their file with late payments/defaults as a result.
Whilst borrowing against their home isn’t something to do lightly it could be an effective way of paying the debt back cheaply/quickly and without a detrimental impact on their credit file.
Their biggest hurdle to overcome might well be themselves unfortunately. Unless this was triggered by something outside of their control then they may well end up back in the same position again in the future. The irony here is that a trashed credit file could actually be a benefit.
I doubt you will find much in the way of paid advice for them, IFAs much prefer people with money and the reoccurring fees that they generate. Equally people in need of this support are generally unable to stump up the money to pay fees.
Edited by ChrisNic on Monday 11th September 19:00
ChrisNic said:
If they have a mortgage do they have some equity that could be tapped into?
It’s unlikely that consolidation of that amount on that salary would be possible through a mainstream lender, hence the huge amount of interest on the £40k you mentioned.
Working with lenders to reduce commitments might help with cash flow but I would imagine their credit file will be trashed as a result. Lenders might accept a reduced payment but I believe will mark their file with late payments/defaults as a result.
Whilst borrowing against their home isn’t something to do lightly it could be an effective way of paying the debt back cheaply/quickly and without a detrimental impact on their credit file.
Their biggest hurdle to overcome might well be themselves unfortunately. Unless this was triggered by something outside of their control then they may well end up back in the same position again in the future. The irony here is that a trashed credit file could actually be a benefit.
I doubt you will find much in the way of paid advice for them, IFAs much prefer people with money and the reoccurring fees that they generate. Equally people in need of this support are generally unable to stump up the money to pay fees.
This. It’s unlikely that consolidation of that amount on that salary would be possible through a mainstream lender, hence the huge amount of interest on the £40k you mentioned.
Working with lenders to reduce commitments might help with cash flow but I would imagine their credit file will be trashed as a result. Lenders might accept a reduced payment but I believe will mark their file with late payments/defaults as a result.
Whilst borrowing against their home isn’t something to do lightly it could be an effective way of paying the debt back cheaply/quickly and without a detrimental impact on their credit file.
Their biggest hurdle to overcome might well be themselves unfortunately. Unless this was triggered by something outside of their control then they may well end up back in the same position again in the future. The irony here is that a trashed credit file could actually be a benefit.
I doubt you will find much in the way of paid advice for them, IFAs much prefer people with money and the reoccurring fees that they generate. Equally people in need of this support are generally unable to stump up the money to pay fees.
Edited by ChrisNic on Monday 11th September 19:00
An IFA will be of no help to your friend.
I am a mortgage broker, we do some debt consolidation. I would be able to find a lender who would consolidate that lot but if they are locked in to a good fixed rate and the current lender wouldn’t do a further advance for some reason I would do a secured loan and the remortgage later to repay it.
Gassing Station | Finance | Top of Page | What's New | My Stuff