Help me avoid defaulting on a bank loan and ruining my credit score in the UK
March 9, 2012 12:34 PM   Subscribe

Large debts, and I'm about to default on a bank loan. Panic ensues. (UK filter).

This is for UK MeFites.

Summary: large debts, and I'm about to default on a bank loan. Panic ensues.

Aged 38, I graduated in September 2011 with a supposedly vocational degree. Since then, work in this field has spectacularly failed to materialise despite considerable effort on my behalf. Graduating in a global recession sucks. I'm not prepared to say exactly what field I graduated in, but let's pretend it's physiotherapy. Practice is private only, I have no option to work within the NHS. While I appreciate many people here will want to know more and offer advice on how to get this job being productive, I'm working hard on that with colleagues and would prefer to focus on what I mention below. Much appreciated :)

Anyway, to cover the last 2 years of full time education, I took out a professional development loan from NatWest amounting to £20,000. It hadn't been my plan, but I had no option if I was to complete my studies. This was a second degree for me, so I was not eligible for government loans or any other aid.

Now my loan repayments are due, and I am about to run out of cash. I can no longer afford to make the loan repayments. In addition, I have a credit card debt of £3000 with HSBC, and an overdraft with NatWest that is close to the £2000 limit. I'm going to look into transferring the credit card debt to a 0% interest card. If I can't do that (transfer fees, or other unforeseen hassles) then I'll phone HSBC and plead with them to reduce the interest rate. Wish me luck.

My total monthly repayments (loan, credit card, and other sundries) are probably close to £500. My income is variable, but I'm claiming Job Seeker's Allowance, so as you can imagine I'm absolutely incapable of meeting the loan repayments.

Having spoken to NatWest about the loan several times, they say the repayments cannot be delayed. Even if they refactor the loan (spread the repayments over 10 years instead of 8, but at higher interest rates) the monthly repayments reduce only by £20 or so. This is the only offer they have put on the table.

So currently I'm facing defaulting on the loan. This would adversely affect my credit score, potentially preventing me from getting a mortgage in the future, any loans e.g. for a car, or becoming a company director (something I may wish to do in a year or so if my career ever picks up), as I understand it. I would very much like to avoid this.

I'm trying to contact my local Citizens Advice Bureau, but they are extremely difficult to get hold of. I'm also going to investigate the Consumer Credit Counselling Service Is there anyone else I should (or shouldn't) be speaking to?

In the mean time, if any MeFites have words of wisdom for me, I would be hugely grateful. A friend has suggested declaring myself insolvent, I think it's called an IVA. Would this be of any benefit to me at all? Would it harm my ability to operate as a sole trader in a partnership, or potentially starting a limited company in the next year or two?

I am also speaking to family about getting help covering my repayments until I can afford it myself. This is galling, since I've lived independently for the past 20 years, but I'm swallowing my pride and doing it anyway. I doubt they'll be able to cover the full repayment amounts even if they wanted to, and anyway I'd end up owing them the money.

I appreciate that Y-probably-ANAL, but any advice would be helpful. I'm currently totally lost and experiencing sleepless nights about this. Personal stories from people who are or have been in similar situations would also be helpful. I shall also be joining Money Saving Expert where I'll ask the same question, and trawl through the forums. Needless to say I'm Googling my heart out and making phone calls.

Reading through this MF thread is proving entertaining! I currently work two weekdays and a Saturday, so other work would have to fit into this. I also live in London, where travel costs are significant.

Since people may not wish to share personal details on here, you're welcome to email me here:

Many thanks for taking the time to read this sorry tale :)
posted by anonymous to Work & Money (9 answers total)
I'm not from UK but when I had large debts I did credit balance transfers onto low interest cards every 6 months to avoid high interest - be wary of the lowest offered rates as annual fees & late repayment charges are usually higher and may cost more than a slightly higher interest rate.

My other advice for you is to consider finding a job in a bar / restaurant / other as many hours as you can in the meantime of finding permanent work. Even if it's cash paid, that can help with your living expenses and you can put more of your income into the debt.
posted by Under the Sea at 1:21 PM on March 9, 2012

I'm sorry you're in this situation. Try Christians Against Poverty, who offer a free debt management service - they have been helpful to friends of mine and didn't proselytise whilst doing so. They work out a budget and repayment plan and then do all the negotiations with creditors. One caveat - there was a several month wait for an appointment in my friends' geographical area, but I would think it's worth contacting them and explaining your situation as they may be able to see you sooner.
posted by paduasoy at 1:26 PM on March 9, 2012

As well as Citizens Advice and CCCS, you could also try giving National Debtline a call. There is a fair amount of info on their website as well which might be helpful.
posted by shiny shoes at 1:27 PM on March 9, 2012

Just to add, I'm not a debt adviser so I can't speak as to whether an IVA would be a suitable option or not, but another option that an adviser might suggest is a Debt Relief Order - these are open to people with less than £15,000 of debts and less than £50 a month surplus income.
posted by shiny shoes at 1:35 PM on March 9, 2012

Do you have a local credit union? They might be able to offer help - perhaps a low interest loan to pay back the credit cards.

Do you have an online presence? I have seen some people in dire circumstances offer a plea to friends and fans and it can have good results - requires a bit of pride-swallowing though.

An IVA will stay on your record for six years just like a bankruptcy, so could still make life difficult for you. A friend of mine resorted to IVA and she has been OK renting properties though, so it does not make life impossible, but I'd definitely leave it as last resort.

Is there any way you can use your training in another way? For example, could you write guides to physiotherapy and self-publish on Amazon?
posted by KateViolet at 2:17 PM on March 9, 2012

It looks to me as if you're only working three days a week???!

Perhaps your energy would be better directed at making yourself fully employed no matter what the field and thus increase your income. Stack shelves in Tesco if you must and/or pull pints down your local when you're done doing that.

You talk about running your own business or going into a business partnership - if you're not prepared to take such basic steps to fix your cash flow I'd personally be reluctant to go into business with you, but that's just me I guess.
posted by koahiatamadl at 11:43 PM on March 9, 2012

Get down to the Citizen's Advice in person - there's likely to be a queue, but you're much harder to ignore in person than over the phone.
posted by Coobeastie at 1:45 AM on March 10, 2012

There aren't easy escapes from this sort of problem, it's mostly about getting the basics right and swallowing your pride. As your situation gets more desperate, so you have to adjust your standards.

So, as koahiatamadl says, are you maximising your income over the week? There are always cleaning jobs and even at UK minimum wage, 20 hours of work a week will give you £500 a month. Have you got a clear idea of your outgoings and are there any (probably unpleasant) steps you can take to reduce them? You mention London transport costs; can you reduce those by switching to a bike? Are you still eating, drinking and socialising like you have a decent income? Time to switch to supermarket value brands and a strict limit for non-essential purchases.
posted by Busy Old Fool at 4:00 AM on March 10, 2012

If (when?) you default on the loan, Nat West may take payments from your overdraft account to cover the loan account. This is money you don't have, and could pile on overdraft charges and suck away your income. If you're about to default, you need your income paid into an account with a clean bank.

By the way, a debt advisor will want to be clear on just what your income is, 3 days work while on JSA doesn't quite tally...

If your income is going to improve in the near future, and in the meantime you have no significant assets that make you worth suing for (eg a house), then you may need to just accept the default, bumble along on token payments, and then get it back on track later. If you have a more fundamental debt problem, a couple more links to show the options that may be available to you:

Citizens Advice

Insolvency Service
posted by wilko at 5:27 AM on March 10, 2012

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