May 2014 Debt Repayment Update

Well, compared to April’s exciting debt repayment update, I’m afraid May was rather lacking in terms of getting debts paid off.

We had a couple of setbacks and only managed to pay off £300 in total this month. However, we’re still so happy about the debt repayment we managed in April and the main thing is that the numbers are still going in the right direction. So that’s all good!

Here’s what happened during May.

I earned less income

May was probably one of my worst months ever in terms of earning income from my self-employed business. I ended up not working as much as I wanted to because it’s a quiet time of year and I just didn’t get enough work. What I did earn went towards regular bills and not debt. The good news is that June is looking to be a bit better.

We had to deal with a tricky creditor

You know how we only have one creditor left to pay? Well that’s great of course, but we did leave the beast until last. Our last debt is a loan which was taken out back in 2009 for the total amount of £15K. Guess how much is left on it? £14237.74!

This is because we made the mistake of taking out a front loaded loan. This means that the interest was all added on at the start i.e. the interest was front loaded. So the day after we took out £15K, we owed around £21K. If we wanted to settle the next day, we’d have to pay back the original loan amount plus a lot of fees. I can’t remember the exact reason why we did such a silly thing, but I think it’s because the interest was actually at a pretty low rate across the term of the loan.

You probably know that the hubby and I had no choice but to enter into a debt management plan a few years ago in 2011. We hit rock bottom. Quite frequently, when a person enters into a debt management plan (which means that they can’t afford to pay their debts in full each month), their creditors will try to help them by freezing the interest and stopping the charges.

Of course they are not obliged to do this, but provided they are given the full facts and circumstances of that person, they usually do actually want them to get back on their feet again so that they can repay their debt. Stopping the interest gives a person who is in trouble financially a little breathing space to recover from rock bottom.

Anyway, most of our creditors did this for us (thank you, thank you, thank you!). But not this one. No chance of that because of the front loaded element of our loan. It was already a done deal. Our original payment amount was £192 per month and this creditor did help us by lowering it to £119 as part of our debt management plan.

They carried on charging us fees here and there for a while. If anyone reading this is debating over whether to get a front loaded loan or not, I would urge you to look into the pros and cons of doing so. Just in case things go wrong, like they did for us.

When we paid our other creditors off (yay!), we contacted our last creditor to let them know we wanted to increase our payments to £300 per month – which is what we were originally paying for all of our debts on our debt management plan. We of course made extra payments whenever we could by selling things and earning extra money. This kind of income was unrealiable though and that’s why we kept our debt management plan payment to £300 as standard. Anything extra was a huge bonus.

So we phoned up the creditor full of the joys of Spring that we were about to ask them to up our payment to £300 (not £119 or the even the original amount of £192 per month). Only to be shot down quite quickly.

It pays to be prepared when talking to creditors

The creditor asked for our latest income and expenditure figures which we happily gave them. The creditor worked out that we would have £600 per month leftover and said, “Yes, we’ll take all of that.” Not please, not maybe, just, “We’ll take it all.”

Gulp!! On paper, yes it did look like we had that amount left each month but what the creditor didn’t seem to understand was that my income fluctuates. Take this month for example – we haven’t been able to pay anything extra whatsoever towards the debts apart from the £300. We also realised we hadn’t factored in little things like pet food and some insurances. Also, we had to explain to our creditor that we need a little money for an emergency fund, to which they replied, “What do you need an emergency fund for?”

We then had to explain about our rental property which has something going wrong with it just about every other month, our rusty old car which keeps breaking down and just general emergencies like having a higher bill than expected one month! And then there’s car tax and my self-employed tax that I have to put money aside for too. Ugh. We were not prepared like we should have been and that’s definitely been a lesson learned for next time.

In the end, the creditor agreed on the £300 payment for three months, with a review in August, where they want to see details of my earnings again along with a review of income and expenditure. We’ve decided not to overpay anything during this time even if we do get some money together – we’ll save it instead and pay it off when there’s a lump sum as I get the feeling this creditor won’t understand if we try to make extra payments of £100 here and there. It could get much more messy.

I have to say, this has all been rather stressful. After that phonecall, we both felt rather sick – it almost feels like the creditor has the right to just dip into our account and take what measly emergency fund we’ve got.

It’s pretty scary, having to go through this and I’m so thankful that we’re on the final stretch with this financial hole we dug for ourselves. But now we’re managing our own debt management plan, this is what it will be like I guess. I’m still glad we took it over though, because we’re saving money each month by not having to pay a fee.

So, to sum up the month of May, it was scary and we only paid off £300. But hey, we’re still positive! How was May for you?