Dealing with debt with the least amount of impact on credit score

[chimchimina]

I have a lot of credit card and loan debts. Im still meeting all the minimum payments but find myself using more credit cards to pay everyday bills like food shopping by the end of the month. So the debt is increasing and getting out of control.

I may want to get a mortgage in the future so although I know whatever I do will impact on my credit rating adversely I'm wondering if it makes a difference as to how I deal with it?

For example, would coming to an arrangement directly with each of my creditors to look at freezing the interest for a period be less harmful to my credit score than setting up a DMP through someone like Stepchange?

Look at the debt forums on money saving expert. Loads of good, practical advice there. By general advice is to move as much debt to 0% interest or lower interest, then focus on paying down the highest interest amount.

If you do anything other than pay the debt as per your contract, ie at least the minimum on credit cards and the monthly payment on a loan, it will impact your credit score. If you come to an arrangement to pay like you suggest it goes on your credit file as you have broken the agreement regardless of whether you are still paying.

If you can transfer the debt to 0% you will be able to pay it off more quickly as no interest, but if you're really stretched you might not be offered further credit.

Best thing to do is to sit down and work out your finances in detail to stop using the credit cards. Then decide what's your best option.

I suggest the money saving expert debt free wannabe forum, there are lots of people on there who can help you out having been in the same situation themselves.

If you can transfer to 0% deals, it will help by reducing the interest cost.

But using credit to pay your normal living costs is a danger sign that can quickly spiral out of control.

Can you increase your income or reduce any other costs to make more money available to reduce your debt?

Have a look at https://www.moneysavingexpert.com/family/money-help/ and do everything that's relevant before risking damaging your credit rating for years by needing to ask for frozen interest either directly with the lender or via a third party.

Thanks for your replies. I'm going to need a handhold here. I went to look at MoneySavingExpert website and absolutely panicked. I'm totally ashamed and panicked about how bad my situation is. I can't face it.

Don't think I'll get a 0% credit card as I have so much credit already. I'm too scared to see what my credit rating is now. It was about 500 ish last time I looked which was classed as "ok" but my borrowing has gone up since then. I should probably try though.

Not sure if I can increase my income. I'm a single parent and work full time and also care for my 80 year old mum.

I feel sick and want to continue burying my head in the sand.

I just feel totally overwhelmed. I'm coping by ignoring it. But it's coming to get me.

Definitely post on the Debt Free Wannabe forum on moneysavingexpert - people there are really supportive.

Thanks Dora. I'll try.

Also have a look at myfrugalyear on Instagram. She has a couple of books that are really helpful too.

I completely understand you might not want to but can you tell us what your incomings and outgoings are?

Income:
Salary take home pay £2800
Child benefit £145
Child maintenance £30
Universal Credit £95

Outgoings:
Debt repayments: £1200
Rent: £825
C Tax: £180
Gas and electric £280
Car Insurance, road tax, maintenance £100
Dentist and prescriptions £60
School meals £ 80
Car lease £242
Food £ 480
Petrol £75
Internet and tv £65
Mobile phones £60

Essentially my outgoings exceed my income by quite a bit.

I haven't even included in the above clothing and shoes. My son goes through shoes and trousers at an alarming rate.

the biggest expense is your dept , how much is your dept . I’m not an expert but I think you should try speak to the companies you owe to and ask for help maybe freeze interest or if possible move all dept to a zero interest account.

You have a good income. Hopefully the sooner you can get help with the dept your life will get much better. It’s just so difficult to actually start the process of dealing with it, instead of burying our heads in the sand .

I would contact stepchange www.stepchange.org/?gclid=Cj0KCQjwmN2iBhCrARIsAG_G2i6-LikVsMJFagXYj6X16r2CHPOVPKfVWF6b0Qye_9sutCDU41VTRjUaAkAzEALw_wcB&gclsrc=aw.ds

Also, why such expensive car payments? Can you trade the car for a cheaper one?

You need to contact stepchange to get some free advice as to what your options are.

Realistically the only way to not affect your credit worthiness is to repay the debt per the contract. If you can't do it, you can't do it, it's that simple.

Honestly it will be fine - you've taken the first step by posting here, just keep going. Better to face up to it on your own timetable than to have it forced on you when the wheels inevitably fall off.

You're not the first and you won't be the last. Stepchange are lovely and they are there to help people in your situation.

Be careful you're using the right website tho as there are lots of scam ones for debt consolidation etc. Do not pay for advice or help as it is available free (by services part funded by the govt).

Also look into "breathing space" which is a new debt management tool designed to suspend action on debts for a short period while you get your long term solution together.

If it helps, I still got a mortgage. I just used a specialist broker
That was with several defaults and a fair amount of debt

Stop worrying about your credit score, and concentrate on paying off the debt. Every extra penny makes a difference.

And for two people that is a lot of food money. You could save a lot here.

And on phones.
A £10 a month phone and reducing food to £300 a month gives you an extra £200 for the debt repayment

Obviously your debt payment is unmanageable. Contact stepchange, you’re never going to get a mortgage if you can’t clear the debt better to deal with it and move on.

Things that stand out from your list your maintenance is really low unless he is doing close to 50/50. It is hard to raise children on a single salary. Can he take on buying of clothes or lunch payments or is he an arse?

Phone/ internet. BT do a social tariff at £15 a month for phone and unlimited broadband. You qualify if in receipt of universal credit.

Agree re phones too - my phone is £10./month on Giffgaff (I used an ancient handset )

Contact Stepchange, they are understanding and very supportive. They explained to me how to deal with bayliffs and how to organise paying £1 a month to my creditors.

Essentially my outgoings exceed my income by quite a bit

Especially as you say you haven't included things like essential clothes and shoes for DS.

Look at the bit about the debt spiral and repayments taking up all your disposable income on Moneysavingexpert. This is where you are now or have now passed.

The other problem is that interest will be taking up a lot of what you pay, which puts you at risk of paying thousands in interest and not really getting anywhere or only getting there very slowly.

This will further push back your debt free day and the time you'll be able to buy a house.

While it probably doesn't feel like it, that is like to mean that it's time to pull the trigger now and do what needs to happen to get you out of debt as it also starts the clock ticking towards getting the bad information off your credit file so you can get a mortgage after you've saved a deposit.

I think it’s 3 people, £145 child benefit is for 2 children.

The order you've put your expenses in shows that you're looking at this the wrong way.

You need to list all your essential expenses including annual and irregular expenses like insurance and school uniforms etc, and a small amount for emergencies like replacing the washing machine.

The amount you have left after this is what you can use to pay your debts. Also don't skimp on groceries. The amount you're allowed is quite generous as it needs to include sundries like batteries and light bulbs .

You're not expected to live a very parsimonious life while getting out of debt.