Question

Hi, and I hope you can provide some advice.

I have over £20,000 in debts, arranging from a car on finance, 3 credit cards, a personal loan, and a loan I took out for my daughter.

I have recently been made redundant, but am hopeful to find a new job soon. I am in IT, and things are still busy in that sector.

I own a property, which has a mortgage balance of £70,000, and is valued at £165,000.

I have savings of around £5,000, which I am using each month to supplement the Universal Credit I am receiving.

I know bankruptcy is not a way out for me, as I will lose my home.

What advice do you have for me?

Jason

Answer

Jason,

Thanks for the detailed information, and I am also hopeful you will find suitable work soon. And finding suitable work is the key here.

Yes, I agree, bankruptcy is not an option as your property would be an issue.

Technically, you are not insolvent, as you have more than enough equity in your property to clear your debts.

So while you may not want to hear this, you do have a way out of debt in an extreme, by selling the property. With that being said, let’s look at your other options.

Using your savings as a “sinking fund” will only last so long. You can continue to do this, but you need to calculate how long this will last at your current burn rate, and hopefully have a new job by that time.

Your other options will involve damaging your credit and credit score.

You could contact your creditors and set-up a token payment plan of say £5 or £1 a month until you return to work. The accounts will be frozen to interest and charges, and unfortunately this will hurt your credit.

You could also consider a Debt Management Plan, again making payments of what you can afford each month. This also will affect your credit and credit score.

In both these instances, it is usually best to be in arrears prior to making the request of your creditors to make these concessions. That does not mean you must be in arrears, you can be proactive and contact them while still current, but being in arrears shows your creditors you are struggling.

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