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“My £3,000 of payday loans are now £13,000,” and “I have £60,000 on four credit cards paying just £1 per month, what can I do?” These were just two of the calls to my recent Money Hour on LBC, Sunday 1 July 2018.

Wednesday, 4th July 2018

Well this was a of a belter of a show, not just because it was a hot day, more as a result of the first and last callers. See link at foot of page to listen to free podcast with topics and timeline.

Payday loans spiraling out of control

First up was Cara who said she took out three payday loans last Christmas, just signed the application forms as she was so desperate and didn’t really read the small print. Cara now says the £3,000 debt has spiraled up to £13,000, this in just a few months! I was able to spend more time than usual with Cara as there was quite a lot I could do to help her.

First payday loans were capped back in January 2015, among other restrictions for the lender they can no longer charge more than 100% of the amount borrowed in fees and interest irrespective of the charges applied or however long the debt lasts. This means that the amount you owe will never ever be more than twice what you borrow. For example, if you borrow £1,000 and experience difficulty in paying this back then the debt is not allowed to go past £2,000, this includes fees, interest and late payment penalties. More on payday loan rules here New payday loans rules from 2 January 2015. Whilst speaking with Cara I did wonder whether she had all the correct information, that said I suggested she first make contact with the payday lenders, confirm the balances outstanding and then say she is looking for 30 days grace, like a moratorium, whereby the payday lender is to cease all debt collection so as enable her to take debt advice.

Did the payday loan lender break the affordability rules?

Another avenue I was looking at was perhaps the payday lender may have broken some rules here and that the loans may not have been affordable at the time they were taken out by Cara back in December, I say this because Cara said she was working self-employed and so desperate for the money as her income was low.

I suggested Cara speak with the Financial Ombudsman Service, (FOS) who once they identify a complaint will act for free for Cara, if they feel there is the possibility that the payday loans were unaffordable then the FOS has the power to seize all the correspondence, loan agreement, subsequent debt collection letters and also listen to any telephone conversions. If the FOS rules that the payday loans were unaffordable then they have the power to make the payday loan lender put Cara back into the position she was prior to taking out the payday loans, this means, write the debt off.

£60,000 of credit card debt and only paying £1per month each one!

The other standout caller to the show was Peter (4). He said he had £60,000 on four credit cards and had had been paying £1 pcm since 2008. All the £1 pcm has done is keep the Limitation Act alive and the clock ticking, so if he stopped paying today he would have to hope no court action is taken over the next six years and then he could claim the debts are statute barred. More on Old Debts and Limitation Act .

Peter’s options

I went through Peter’s options bearing in mind he resides with his mum, is of retirement age, out of work and pretty well down on his situation. Bankruptcy is a serious contender but he would have to do this online through an arbitrator and find £680 to pay for going bankrupt, in my view a lot of money when it is only £200 in Scotland! I went through how someone going bankrupt can be asked to pay towards the administration of their case. In 2017 one in six of those going bankrupt actually paid for three years under an Income Payment Agreement (IPA) after being reviewed.

Another option I mentioned to Peter was an Individual Voluntary Arrangement, (IVA). IVAs are funded in two different ways, either monthly or by way of a lump sum. Because he said he had very limited income then the lump sum could be considered.

Lump sum IVA? Could this work?

I threw in a figure of a possible lump sum being somewhere between £10,000 - £15,000 and explained how this could work, plus how his mother could help influence the vote as an associate creditor. This means that Mum could vote in the IVA and if her vote helped towards achieving the 75% requisite majority then there would have to be a second round of voting, this time mum would be excluded to vote but the required majority to accept is reduced to 50%. I referred Peter to National Debt Line for more information.

As time was tight and Peter being the last caller to the show I was unable to offer a third solution, either keep paying the £1 per month or just stop and say to the credit card companies he has nothing, little income, no assets and I would be very surprised if any of them would make him bankrupt, after all the credit card companies would be throwing good money at something they are unlikely to see a return from.

I really hope Peter does more research on his options and trust he is now in a better place after plucking up the courage to make that call. It’s surprising what you can achieve in just seven minutes, as that was all I had time to speak with him but I know it would be a good grounding for him to start getting that debt advice and importantly, getting his life back.

Debt Solutions Explained & Debt Solutions Comparison Table

If you are unsure of your debt options then maybe our very popular and bespoke Debt Solutions Explained & Debt Solutions Comparison Table will help. Here we have detailed the six options available to you when debt problems arise, all these options, except for No.3 where you pay creditors in full, will affect your credit rating.

We also have our very own easy to read debt solutions table. This chart illustrates a summary of possible debt solutions, you can compare the options available to you. We detail which options freezes interest and those that can stop the creditors chasing you for the debts!

You can listen to the whole show or any section that interests you by visiting our media page with the full topics and timeline and it’s free Podcast now available - LBC, 8-9pm, Sunday, 1 July 2018 

Next show booked for Sunday, 8-9pm, 5th August 2018.

 

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