Consolidation or debt management ? Help please

Lauramags64 · 26 February 2017 at 9:58PM

Hi,
I've just had a baby & we are going to struggle paying unsecured debt as my hours in work have changed & also the cost of childcare is high. We have spoken to one loan provider (from their money worries contact number) who said they could only help if we show we are struggling and had missed payments...they could offer us a high interest loan over a longer period...so much for us being proactive & getting help from them!! In total, we are in £40,000 debt. If we could get a loan for that amount at 5% over 6 years, we could afford to pay it back... however, any loan I apply for offers higher interest due to the debt I'm in. Does anyone know if this low interest loan agreement would be possible - we would rather this as it would mean we would also have spare money each month to put aside for savings/emergencies etc without then having to put anything on credit. It's a vicious cycle isn't it :-(

If the loan isn't possible...the step change website suggested a debt management plan based on our circumstances and that we would be debt free in 4 years 9 months paying £950 a month. Can the time be extended so we can pay around £600 each month? I would love to have another baby and I'm not getting any younger so ideally if we paid less each month, we could save to cover my maternity leave and for nursery fees... or is it easy to change terms of the DMP if I fall pregnant? I really don't want to wait 4 years to try for a baby.

Sorry for all the questions and such a long post. Debt is so horrible, just need to get out of it. But would hate to look back in ten years time and regret that I didn't have more than one child because of paying off debt... anyone in the same boat/been I'm same boat? Help please!

sourcrates · 27 February 2017 at 12:39AM

Hi, we move threads if we think they’ll get more help elsewhere (please read the forum rules) so this post has been moved to a new thread. If you have any questions about this policy please email forumteam@moneysavingexpert.com.

January2015 · 27 February 2017 at 2:05AM

General advice from this forum (and definitely from me) is don't consolidate.

How did you get to be £40k in debt? I'm not judging - see my signature I got to £95k in debt (was over £100k at one point). Most of this was through consolidating and then racking up credit cards or loans again and again, and probably again.

To get to £40k in debt you have not been living within your means. Consolidating will be a quick fix and you will probably find yourself struggling again each month very quickly. I lied to myself everytime we consolidated. We would only pay one monthly payment, we would be able to save for emergencies, holidays etc. etc. Didn't work for us.

If you go down the DMP route and do have a second child you can adjust your monthly payments as and when your circumstances change. It's very easy to do. If mortgage/rent payments go up, DMP payments go down. If childcare payments go up, DMP payments go down. Priority payments get first dibs at your income and DMP payments get what it left. Creditors can't have what you don't have - simples.

DMP is not the answer for everybody, but it works for us.

Lauramags64 · 27 February 2017 at 3:14PM

Thank you for your reply! Urg, the debt has just got higher & higher from being a student trapped with the student overdraft, then car, wedding, honeymoon, house etc... the 40k would cover everything & it's our joint debt (mostly hubbies, mine is £17k) and yes, we keep getting consolidation loans & have survived... but now our monthly outings on unsecured debt alone is £1,200. With me going part time & paying childcare, we just can't cover it :-(

With a DMP, can the amount you pay be agreed mutually so there's a possibility of having some spare cash each month to save or is that just pushing it? We would like to save monthly so that when an emergency comes up, we don't then have to pay for something to be repaired on finance...it's just such a vicious cycle! Do you have a mortgage? Did the DMP affect it in anyway?

Thanks again for taking the time to reply :beer:

worriedDan · 27 February 2017 at 4:09PM

Hi

Well done for taking fist step

i am am in a similar position to you. Can I ask what your joint monthyl income is?
Dan

Lauramags64 · 27 February 2017 at 4:17PM

Joint income is £3,329 but outgoing before paying childcare are £3,427...so we are in trouble!! :-s How about you? Have you taken a DMP?

sourcrates · 27 February 2017 at 4:30PM

The thing about a debt management plan is that its totally non regulated, which means there are no rules, only guidelines, those guidelines state that you must treat your creditors fairly, thats why they normally get a pro rata payment, so everyone is happy.

If you go through stepchange, they will have predetermined amounts for most categories of your budget, but ultimately, as long as its a reasonable amount, its up to you how much you budget, and for what.

But i must stress this is something you must get right, to avoid problems in the future, when something needs replacing. The more experienced folk on here, will tell you to stop all unsecured creditor payments for a good few months in order to build up a good emergency fund, and i would recommend you do that to, then start your DMP.

desperado88 · 27 February 2017 at 4:38PM

sourcrates wrote: »

The thing about a debt management plan is that its totally non regulated, which means there are no rules, only guidelines, those guidelines state that you must treat your creditors fairly, thats why they normally get a pro rata payment, so everyone is happy.

If you go through stepchange, they will have predetermined amounts for most categories of your budget, but ultimately, as long as its a reasonable amount, its up to you how much you budget, and for what.

But i must stress this is something you must get right, to avoid problems in the future, when something needs replacing. The more experienced folk on here, will tell you to stop all unsecured creditor payments for a good few months in order to build up a good emergency fund, and i would recommend you do that to, then start your DMP.

Do you think that would be good advice before starting a DAS as well sourcrates?

January2015 · 27 February 2017 at 4:39PM

If you decide DMP is right for you then definitely stop paying all creditors now. Start saving that money for your emergency fund. Work with StepChange (SC) to sort out your DMP but delay the start date of making DMP payments for several months. Explain to SC that you need to build up an emergency fund. If you start the process now (March) I would recommend delaying DMP payments until at least July or even August at the earliest. You will not be able to access credit once you start a DMP. Your credit files will be trashed. This is not a bad thing but you need to be prepared for when cars/washing machines etc. etc. break down.

The thought of entering a DMP can be daunting. Seriously, it has been the best financial decision we have made in years and years. Life is much better, less worries and we do have enough money to live on. We budget for things now rather than rashly put costs onto credit cards.

I've sent you a PM as well.

sourcrates · 27 February 2017 at 4:53PM

desperado88 wrote: »

Do you think that would be good advice before starting a DAS as well sourcrates?

A DAS, or "debt arrangement scheme" is i believe the Scottish equivalent of an IVA.

Your budget is scrutinized much more closely in a regulated agreement, *so the advice would apply even more, but asset limits apply in some cases, so you need to be aware if that applies to you or not.

(*with the exception of Bankruptcy and Debt Relief Order)

Lauramags64 · 27 February 2017 at 6:07PM

Thanks for all your advice! I'm terrified of losing our house. We only bought it last year. Can having a DMP in place make us lose the house in any way??? Or are we safe as the mortgage is secured debt?

Going to ring step change tonight but just wondering in the mean time! Feel like a massive cloud of debt is hanging over us, it's horrible! Can't sleep, worrying about it :-(

Consolidation or debt management ? Help please

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