# Advice request: high income, poor credit rating



## Stormy beach (3 Jan 2008)

*DETAILS*
  Age: 45
Spouse’s/Partner's age: Separated

*INCOME*
  Annual gross income from employment or profession: €90,000 pa, 
  Monthly net income: €5200
Annual gross income spouse: N/A
Type of employment: 3rd level lecturer 

Expenditure pattern: In general are you spending more than you earn or are you saving? Struggling!

*DEBTS*
  Rough estimate of value of home: €800,000
Mortgage on home €180,000
Mortgage provider: Permanent TSB
Type of mortgage: Tracker 
Interest rate 5%

Other borrowings – car loans/personal loans etc
  Credit Union Loan: 25000
  Term Loan BOI: 15,000
  Term loan GE Money 4000

Do you pay off your full credit card balance each month? Yes, just about!
If not, what is the balance on your credit card? 
  Ulster Bank: 14,000
  MBNA: 20,000
  Permanent TSB: 4000
  AIB 4000


*MONTHLY EXPENDITURE*
  Mortgage: 1400
  Credit Union: 500
  BOI term loan: 350       
  GE Money term loan 200
  Credit card minimum payments: 1000

  Total:  €3450
Savings and investments: None

Do you have a pension scheme? Yes, defined benefit – final salary scheme

Do you own any investment or other property? No

Ages of children: 23

Life insurance: Convertible term policy, ~ €300,000 assured, premium €95 pm


*What specific question do you have or what issues are of concern to you? *Until a few years ago I was in a very comfortable financial situation. My wife and I  both had good incomes, we owned our home outright, had no debts and had savings and investments set aside over the years.   In rapid succession I separated from my wife and suffered a long term physical illness and severe mental stress/breakdown.  At the time I opted to raise a modest mortgage to buy out her share of the house and left the investment portfolio with her.  I was comfortably able to service the mortgage until I became ill, ultimately going on to half pay and then disability benefit for about a year. During this time I ran up huge debts, about 44k in loans and 42k on credit cards.  I had no difficulty in getting the money as I had a good employment and good financial history over the years.  However that has now changed.  I simply couldn’t face up to my problems and just took out one loan after another to keep going.  Eventually I fell into arrears and started missing the monthly payments.  I just ignored the flood of warning letters and eventually just stopped opening the familiar envelopes.  

  Fortunately I am now back at work and back in control again.  I am making the minimum payments to all lenders and have staved off threats of court action.  But these repayments amount to over two thirds of my net income and the interest rates are huge.  I am left with about 1700 per month out of which I pay household bills and run a car.

  I would like to consolidate my short term debt by getting a top-up mortgage or remortgage.   Repayments on 86000 at mortgage rates would come to about 550 pm.  This would bring my total repayments to under 2000 leaving me with a comfortable 3200 pm clear.  However, my credit rating is now appalling and shows a history of missed payments and so on.  Permanent TSB have refused to top up my mortgage and BOI and Ulster Bank have refused me term loans to clear the credit card debt.  

  It looks like they are happy as long as the credit card debt is being serviced at exorbitant interest rates!  I don’t expect people to feel sorry for me, I’m a grown adult who got myself into this mess but I would be very grateful for any advice or thoughts as to where to go from here.  Should I approach other lenders?  Mortgage brokers?  Sub-prime lenders??    Many thanks for reading this far!


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## Brendan Burgess (3 Jan 2008)

There is no magic wand, but here are a few ideas.

1) Speak to MABS. They have the most experience in dealing with this type of problem. They will speak to the creditors on your behalf and may be able to get the loans converted into an interest only basis. 

2) Don't speak to sub-prime lenders. You will end up paying a higher interest rate on your entire loan.  MABS may be able to speak to the permo on your case. 

3) The Credit Union is expensive, but they might be cheaper than some of the credit cards. 

4) As a last resort, you could trade down. The stamp duty costs and other costs are very high in doing this, but it would relieve the pressure. This is a last resort. 

Brendan


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## Thrifty (3 Jan 2008)

I'd second Brendan's advice and in particular in relation to the Credit Union. Most are not on the credit bureau list and so what ever way you look at it they are the best/ most reasonable (costwise) credit source for you for the future. Stay building up a history with your local credit union and they may allow you to start low piecemeal borrowing to gradually start clearing each debt - starting with the highest APR. May take some time but you will be no worst off.


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## jhegarty (3 Jan 2008)

Here is my suggestion ... 

Sell the house and pay off all debts... At a glance that leaves you with over 500k to buy a new house mortgage free.... that will still buy a nice enough house even in Ireland....

You may not want to take this action , but at the moment you are struggling to make minimum payments, and I presume spending a lot of time worrying about the problem..... is living in a slightly better house really worth it ?


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## Flax (3 Jan 2008)

I wouldn't remortgage. You have 1700 per month after paying your debts. You should be able to live on this.

Are there some basic things you could stop spending money on, like cable or expensive restaurants, etc.?


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## xman (4 Jan 2008)

Do you really need this 800k house? Do you live alone?

I'd be selling the house, paying off all my debts, sticking 500k into the highest fixed interest account I could find and rent something nice for a couple of years with your considerable income. 

With over 500k in the bank, no debts and a couple of years savings history and a 90kpa job with defined benefit - your credit rating will be solid gold again.

You still have 20 odd years to retirement.


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## Stormy beach (4 Jan 2008)

Many thanks for all your kind replies - there is much food for thought there.

On balance, Brendan's approach seems best suited to my circumstances.  I think the idea of converting the loans into interest only is good.  Especially the mortgage.  This would free up some money which could then be used to pay down the credit card debt which is the real killer in terms of interest rate.  If I could get the mortgage and the BOI loan interest only, these repayments would reduce to about 750 and 125 per month, a saving of 875 per month. This could be used to tackle the credit cards and should clear them in a few years.  The GE loan has less than 2 years to run anyway.   Then I can resume full repayments and this should be more manageable then.  Does this make sense?

I'd still prefer to remortgage/equity release but the local ptsb branch manager, who knows me well and was very helpful, said there was nothing he could do, "headquarters" had vetoed it on the basis of my ICB credit file even though I had managed to keep up payments on the mortgage and had never missed a single payment to them.  Could mabs really convince them to do something that the local manager couldn't?

Selling the house would be an absolute last resort.  I'd do it if i had to but I'd still need to buy some house sometime and the stamp duty/fees would be penal.  Its not a huge house, its a fairly basic semi-d, albeit in quite a nice area of Dublin and a short walk to where I work.  My 23 year old lives with me - I believe the technical term is KIPPERS!  I don't see the point in selling, sticking the money in a bank account and then renting? The rent would come to about the same as the best rate of interest available!

I may also approach the credit union for a top up loan.  However, they have already loaned me more than their normal criteria would dictate so that may not be fruitful.

Again, my thanks to those who have offered advice. This is an excellent site and you are a credit to it.  I shall further reflect on your ideas and try to put a coherent plan into action.


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## Brendan Burgess (4 Jan 2008)

You have nothing to lose by going to MABS. 

If they point out the background and point out that you have kept up your repayments and have a  big income, they just might be able to swing it for you. 

Brendan


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## Stormy beach (9 Jan 2008)

Again, many thanks for the helpful replies.  In the meantime, I've made some progress.  Permanent tsb have agreed to an interest only arrangement.  They are not willing to allow a complete payment holiday.  I don't really want to take up SPC100's suggestion of enforcing it on them - I want to be able to repair my credit rating after all!!

BOI asked me to put the interest-only request in writing and "they'll consider it sympathetically."  GE Money are due to ring me back but they seem quite helpful too.  

Also spoke to a mortgage broker about transferring the mortgage and getting an extra 80k.  They are not very optimistic but will try!  I asked about getting a second mortgage from a different lender (even at a higher rate) for the topup amount only.  Broker was adamant this can't be done.  I got the impression he was holding something back and that his reluctance was driven by thoughts of getting a commission for moving the entire amount.  

I also found a long forgotten "paid-up" life policy with a surrender value of €8k.  This will immediately be put to clearing the ptsb credit card (might impress them?) and paying something off the others.


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## Purple (9 Jan 2008)

What about a lodger? €10k a year would pay off two of the credit cards and they should be the priority. After that considering your equity, your income and your job security you are not in bad shape.


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## Stormy beach (9 Jan 2008)

Purple said:


> What about a lodger? €10k a year would pay off two of the credit cards and they should be the priority. After that considering your equity, your income and your job security you are not in bad shape.


No!  I value my privacy too much.  I finished my house-sharing days 20 years ago and I'm not going back.


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## Brendan Burgess (9 Jan 2008)

Stormy - that is all good news. 

I don't think that you can get a second mortgage on a house.



> I also found a long forgotten "paid-up" life policy with a surrender value of €8k. This will immediately be put to clearing the ptsb credit card (might impress them?) and paying something off the others.


Just check that you are not losing out on a massive terminal bonus before cashing it. 

Brendan


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## Marie (9 Jan 2008)

S-b I endorse your determination to hold onto your home.  It's not a property, it's home for yourself and your 23-year-old dependent.  Secure emotional refuge is unquantifiable in monetary terms; relocation and disruption the last thing you need at this juncture after your recent experiences (which incidentally are not you screwing up, but real-life circumstances!)

Changing to an interest-only mortgage and channeling the difference into paying off credit-card debts will speed that up and be more manageable.

Making a ruthlessly-honest weekly inventory of your spending-pattern - everything you buy and the cost - is always useful and surprising.  There are a number of old threads on AAM with advice on how to cut out unnecessary or 'luxury' items and find more a more economic life-style till you're clear of debt.  Small changes like bringing a flask of coffee and sandwiches to work instead of buying lunch or sandwiches from a coffee-shop or workplace refectory represents a meagre saving alone; put together with other small and easily-achieved economies the difference each month is considerable.

Good luck with it and I look forward to hear how you get on.


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## Stormy beach (9 Jan 2008)

SPC100 said:


> To make your money (and the extra money from the mortgage) work smarter for you, treat it rationally and not emotionally.
> 
> Don't pay one simply to get "rid" of it. or to impress them.
> 
> List all borrowings in order of APR. Throw all your spare money at the borrowings with the highest APR first. (assuming there are no penalties for paying early)


Yes, I guess that's true.  I thought that paying off my Ptsb credit card might encourage them to top-up my mortgage, perhaps not immediately, but after some time of getting my affairs in order.





SPC100 said:


> Also, did you do some research for credit cards with 0% balance transfers?


I did.  Not a snowball's chance in hell with my current record!


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## Stormy beach (9 Jan 2008)

Brendan said:


> Just check that you are not losing out on a massive terminal bonus before cashing it.


Thanks! I hadn't thought of that.  I'll check it out.  Although I don't think it applies to the type of policy I have - its a unit linked policy with Canada Life?


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## z109 (9 Jan 2008)

Stormy beach said:


> Yes, I guess that's true.  I thought that paying off my Ptsb credit card might encourage them to top-up my mortgage, perhaps not immediately, but after some time of getting my affairs in order.


Unfortunately that might have been the case when you were an individual at the mercy of a branch manager. Now they (mortgage and credit card) are wildly separate departments - if it is anything like BoI. Nothing good you do for one branch of a bank will filter back to the other branch. Do anything bad and they're all gossiping about it for months! It's as bad as the SCR.

So, as SPC100 says, pay down the loans that are costing you the most, in percentage terms, first. Keep paying the minimum amount on anything that has a cheap interest rate while you clear the expensive ones, but target the expensive ones first.


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## dobsdave (10 Jan 2008)

yoganmahew said:


> Unfortunately that might have been the case when you were an individual at the mercy of a branch manager. Now they (mortgage and credit card) are wildly separate departments - if it is anything like BoI. Nothing good you do for one branch of a bank will filter back to the other branch. Do anything bad and they're all gossiping about it for months! It's as bad as the SCR.
> 
> So, as SPC100 says, pay down the loans that are costing you the most, in percentage terms, first. Keep paying the minimum amount on anything that has a cheap interest rate while you clear the expensive ones, but target the expensive ones first.


 
For someone who is trying to get out of debt and in so doing release extra cash per month, is it not a beter idea to clear the debts in order of size?
i.e. pay off the smallest debt and release the committed outgoing, and then target the next highest and so on.


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## ClubMan (10 Jan 2008)

dobsdave said:


> For someone who is trying to get out of debt and in so doing release extra cash per month, is it not a beter idea to clear the debts in order of size?
> i.e. pay off the smallest debt and release the committed outgoing, and then target the next highest and so on.


No - it makes sense to tackle the most expensive debts first.


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## z109 (10 Jan 2008)

dobsdave said:


> For someone who is trying to get out of debt and in so doing release extra cash per month, is it not a beter idea to clear the debts in order of size?
> i.e. pay off the smallest debt and release the committed outgoing, and then target the next highest and so on.


As Clubman says:

I have two debts:
1000 @ 12% = 10/monthly interest
100 @ 6% = 0.50/monthly interest 

Total interest payment/month = 10.50

I have a spare 100 to pay off some debt:
If I pay off the small debt, the total interest I am paying goes to: 10/month

If I pay 100 off the large debt, the total interest I am paying goes to: 9.50/month.

Leaving me 0.50 more cash available each month.

Simplistic, but I hope it gives the idea (I hope the sums are right! I have a poor history in working out interest rates! ).


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## dobsdave (11 Jan 2008)

yoganmahew said:


> As Clubman says:
> 
> I have two debts:
> 1000 @ 12% = 10/monthly interest
> ...


 
First of all, sorry to go off topic op.
To the two responses to my question, I understood the logic of paying highest apr first,because in the long run you will have paid less but...
Payoff the lowest(Debt 1) debt first
Dont have to service that loan any longer
Free up extra cash for loan 2 etc etc
Would this also look better for possible lenders aswell? i.e. less loans and loans cleared as opposed to total amount of money owed?
Just a question, suppose it depends on the cicumstances.

Dave


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## ClubMan (11 Jan 2008)

Lenders will look at the overall picture - i.e. the amount outstanding and the rates charged on different loans. I don't think that the number of loans alone will make that much difference. It still makes sense to start with the highest cost loans and tackle them first. Consolidating higher cost loans into few lower cost loans *over a term similar to that which remains outstanding now *may also be another option.


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## z109 (11 Jan 2008)

dobsdave said:


> First of all, sorry to go off topic op.
> To the two responses to my question, I understood the logic of paying highest apr first,because in the long run you will have paid less but...
> Payoff the lowest(Debt 1) debt first
> Dont have to service that loan any longer
> ...


No, no, and no.

You don't pay anything to service a loan except the cost of the interest. 

In the example above, you are only freeing up half the cash by paying off the lowest apr debt first than you would if you paid off the highest apr debt first.

Nobody gives you any credit for having a small number of debts. If you free up more of your monthly income from loan repayments (in terms of overall repayments) you will look better than if you have fewer bigger loans - credit rating looks at the overall amount of debt you have, not at the number of loans.

The idea is to get out of debt, not to make yourself look attractive to get new loans. 

dobsdave, I suggest you look back at the example. What you are suggesting is a cosmetic action to make oneself feel better about the number of loans outstanding (I have fewer loans, therefore I am doing better), when what one should be focusing on is the amount of interest that is being paid on those loans and how to reduce that.


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## RainyDay (13 Jan 2008)

Is the KIPPER 23-year-old a help or a hindrance financially? If a hindrance, you'll need to convert them into a help!


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## Marie (13 Jan 2008)

I, also, wondered about the 23-year-old's position.  If s(he) is still in university or vocational training or some kind might there be a contribution soon from that quarter to your joint commitments? 

Attitudes are very different these days but in the 1960's the conditions set by my parents when I was offered a secondary-school scholarship at a time when few working-class kids had schooling beyond 14 was that I make (or pay for the making of) the school uniform and that I get paid work during school holidays to contribute to the slender family income.  Shop and factory-work and fruit-picking were definitive experiences for my subsequent employment career.


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## Stormy beach (15 Jan 2008)

Hi all and thanks again for your replies.  The debate on which loan to pay off first has clarified my thinking enormously.  I have firmly come around to the Clubman/Yoganmahew point of view whereas I would previously have instinctively veered towards Dobsdave's analysis.  

Also, the KIPPER is half way to a PhD and picking up a little lecturing/tutoring  en route.  He had Sky+ installed and pays the bill.  He also buys some groceries and treats his Da to the odd pint and an Indian!  He does his share of household stuff, is a dab hand at DIY and looks after all his own expenses and I wouldn't expect any more from him.  (He'll be a great catch for some lucky young one some day)


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