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Credit History: "Debt is a Prison Sentence,
Sometimes Worse"

Poor Credit Rating - QUESTION

I have a poor credit rating insomuch as a company I had agreed a debt repayment programme with registered a default because the payment was not the same as the original payment I had taken out with the initial debt.

I was unaware that companies could do this and had only just come up from my life sentence of 6 years with a CCJ and only managed to keep my credit clear for one/two months because of the registered default. The only way to get the default off I am told is to pay the debt off, problem being I don't have a spare £700!

Next I have a store Visa card with an agreed repayment plan of £31 per month - I have discovered that at a reduction of £31 per month the existing debt of £1,103 will take 8, yes 8 years to clear as the debt only reduces by £9 per month and the rest is going on interest and insurance and I have worked out that at the end of the 8 years the debt of £1,103 will have cost me £3,400 or thereabouts!

I want to borrow (again) - to clear the £700 and the Visa £1,103 and raise a little extra to do desperate home improvements (eg need a new toilet as my existing one floods around once a week - nice task to come home to after a hard day's work! I need fresh guttering, I have rotten back window frames, my shed is leaking as it needs a new roof, not really too expensive home improvements but coupled with my above debts and other little loans I have worked out that if I don't borrow to clear the £700 and the £1103, these will take me 8 years to clear at their current reduction rate. So I will still be in debt and I might as well take out a loan for £5K over 10 years pay these off, be able to buy a cheap car or repair my existing one and raise money desperately needed to do my little home improvements.


 
on Debt Management and Bankruptcy
  
 

Please respond to this email, as I don't want to take any further silly actions which are going to put me longer in debt and because of my poor credit rating it seems that if I borrow again the actual repayment cost of a loan would be near on double? Any suggestions or help?

Reply

As you say, “only just come up from my life sentence of 6 years” just for some individual to send you a Default Notice thereby giving you another 6 years of credit application hell. I am disgusted at the simplicity of creditors to affect a persons credit rating by issuing a Default Notice. I have been the creditor in many such situations and seem abuse of the system beyond belief. If you are saying in your message that the creditor defaulted you after your arrangement, I would tell them to remove it NOW! The only reason I can think of for sending the default is so that:

A) The creditor can take immediate legal action should you not adhere to the debt arrangement, but once you adhered to the payment arrangement the default should be scrapped, or removed from all credit reference agency files.

B) Or that they terminated the account (i.e. the agreement is no longer in force whereby you pay x amount per month, but that the whole balance is payable immediately and they accept a payment proposal). To terminate the agreement the creditor must send you a Termination Notice. No notice means no termination. Ask for a copy.

By the way the default information will not be removed if you pay in full: you can only get a note placed beside the default saying ‘satisfied’.

As to your existing debts. You cannot suffer further from your existing creditors: unless your situation changes and you fail to ‘play ball’ with your creditors and up your monthly payment. With a £5,000 loan costing between £140 - £175 per month over 5 years (you probably, if passed, paying the £175 per month). One year at £175 per month is £2,100, enough to clear your debts if you put this money into paying off your current creditors.

Personally, I would take the opportunity to settle all debts and maintain a credit balance with my bank. I would send a letter to my bank outlining what I was doing and say that you are looking for their support in providing a loan in twelve months time. This last bit is not advice, just an observation. With the many problems you have with your house and car it is likely that you will not have sufficient money to rectify the faults to a satisfactory level: satisfactory would mean not having the same builders in within 12 months. One of the biggest mistakes in money management is to attempt to repair faults that will reappear: sort out the faults on your house and car when you can afford permanent solutions.

I know the above is not exactly what you want to hear, but it is the quickest solution and the best option from a personal finance view. A loan is tempting in the very short-term, but will quickly turn into a millstone of little or no benefit.