Struggling with debt? Ask a debt advisor a question

Kilmaley01 · 8 March 2013 at 12:21PM

One other quick question James. Do I print my name as my maiden name, which they have addressed letter to. Or my married name, which they obviously don't know?;)

dew301261 · 8 March 2013 at 12:35PM

Hi I have a DMP set up and running well. I have been contacted by a company claiming that a debt reduction plan is better than a DMP? Is this legal as it appears that they pile my money into some sort of ring fenced account after removing hefty fees, I might add. They then claim to starve the credirors into accepting a full and final settlement against the debt at a rate of around 50p in the £. Much appreciate your views on this? David

DBB_22 · 8 March 2013 at 1:02PM

StepChange_James wrote: »

Hello,

When it comes to credit files, you're completely right, there never seems to be an easy answer.

In short, partially settling a debt will put a flag on your credit report. This flag might be ignored in the credit scoring process, depending on the lender. Otherwise it may lead to them doing a manual review of your application (using a human rather than a computer).

Whether settling a debt is proof of not handling credit well is a subjective decision, so it's hard to say if potential lenders would
see it as a negative.

You can read more about this here: http://www.experian.co.uk/consumer/questions/askjames261.html.

Whether to pay the debt back in full or negotiate a settlement is a personal choice. If your creditor is willing to offer a substantial discount then it may be worth risking a slightly worse credit rating but that depends on how important a good rating is to you and the size of the discount.

As always, only make settlements after you've received written confirmation that the rest of the debt will be written off.

Kind regards

James

James,

Many thanks. I think I'd rather avoid any sort of markers given my checkered past so I'd rather settle for the full amount.

DBB_22

StepChange_James · 8 March 2013 at 3:33PM

gromit2303 wrote: »

One other quick question James. Do I print my name as my maiden name, which they have addressed letter to. Or my married name, which they obviously don't know?;)

Hello,

They'll not know who you are if you only put your current surname, so I'd suggest doing it in your maiden name or at least making a reference to it somewhere.

Hope this helps.

James

StepChange_James · 8 March 2013 at 3:39PM

dew301261 wrote: »

Hi I have a DMP set up and running well. I have been contacted by a company claiming that a debt reduction plan is better than a DMP? Is this legal as it appears that they pile my money into some sort of ring fenced account after removing hefty fees, I might add. They then claim to starve the credirors into accepting a full and final settlement against the debt at a rate of around 50p in the £. Much appreciate your views on this? David

Hi David,

The general rule of thumb here is that if something sounds too good to be true then it usually is. We've written a more in depth exploration of these schemes here: http://www.lovemoney.com/blogs/debt/debt/19208/debt-schemes-that-prey-on-those-in-need-of-help.

It's the first time I've heard the expression "starve the creditors into accepting" settlement offers. If a creditors doesn't think you're paying as much as you can afford then they could just get a CCJ (County Court Judgment) and the courts will make you pay what you can afford.

You're right to be cautious of these sorts of offers and I'm glad you've checked this out rather than going along with what sounds like a very tempting scheme but could actually end in a lot of heart ache.

Kind regards

James

yvonne1984 · 9 March 2013 at 6:19PM

I received a letter from the Bank of Scotland telling methat that my current overdraft arrangement will be coming to an end. I called them and explained that I would beunable to pay back the £2300 overdraft by the 17th of March. The lady asked me to call back a few daysbefore my overdraft was due to be removed as accounts are reviewed on a monthlybasis and the bank may change their decision and re-instate my overdraft. I called them again today to ask if there wasany update as I didn’t want to wait any longer in case I had to make other arrangements. The lady then went on to tell me that I wouldhave to call back the day my overdraft was removed and then went on to try andget me to apply for a credit card. If myoverdraft is removed I will be charged £5 per day which I can’t afford to pay. Any advice would be greatly appreciated.
I then called Baines and Ernst as a friend recommended them. The debt plan they suggested would be 27payments of £100 plus an additional charge of £150 to begin with and then afurther £40 per year. Surely I must havea better option?

MrMondo · 10 March 2013 at 7:57PM

Does anybody know how much better a settled default is a posed to a default with money still owing?

mum2one · 10 March 2013 at 10:05PM

yvonne1984 wrote: »

I received a letter from the Bank of Scotland telling methat that my current overdraft arrangement will be coming to an end. I called them and explained that I would beunable to pay back the £2300 overdraft by the 17th of March. The lady asked me to call back a few daysbefore my overdraft was due to be removed as accounts are reviewed on a monthlybasis and the bank may change their decision and re-instate my overdraft. I called them again today to ask if there wasany update as I didn’t want to wait any longer in case I had to make other arrangements. The lady then went on to tell me that I wouldhave to call back the day my overdraft was removed and then went on to try andget me to apply for a credit card. If myoverdraft is removed I will be charged £5 per day which I can’t afford to pay. Any advice would be greatly appreciated.
I then called Baines and Ernst as a friend recommended them. The debt plan they suggested would be 27payments of £100 plus an additional charge of £150 to begin with and then afurther £40 per year. Surely I must havea better option?

if your not in a position to clear ur OD by 17th March, - then I would suggets getting a new bank account sharpish and get all your incomings/outgoings - could try a switching service but ask for your OD not to be swithed.

I can't comment re the advice you have had but I would say stepchange is a free charity that does exactly does the same thing - so that £150 1st fee + 40 per year (2 yrs) =£80 - thats £230 that you would have saved straight away and go off your debts, I would suggest filling in the debt remedy plan on stepchange website - think theres a link at the start post and see what that recommends xx

StepChange_James · 11 March 2013 at 11:11AM

yvonne1984 wrote: »

I received a letter from the Bank of Scotland telling methat that my current overdraft arrangement will be coming to an end. I called them and explained that I would beunable to pay back the £2300 overdraft by the 17th of March. The lady asked me to call back a few daysbefore my overdraft was due to be removed as accounts are reviewed on a monthlybasis and the bank may change their decision and re-instate my overdraft. I called them again today to ask if there wasany update as I didn’t want to wait any longer in case I had to make other arrangements. The lady then went on to tell me that I wouldhave to call back the day my overdraft was removed and then went on to try andget me to apply for a credit card. If myoverdraft is removed I will be charged £5 per day which I can’t afford to pay. Any advice would be greatly appreciated.
I then called Baines and Ernst as a friend recommended them. The debt plan they suggested would be 27payments of £100 plus an additional charge of £150 to begin with and then afurther £40 per year. Surely I must havea better option?

Hi Yvonne,

Mum2one's advice is spot on. The first priority should be to look at getting a simple basic account with bank you don't owe money to and moving all your banking over to that.

It sounds like Baines and Ernst have recommended a DMP (Debt Management Plan) to clear this debt. I don't know enough about your finances to say if that's the best option but it's certainly best to avoid paying fees for this kind of service.

If the overdraft is the only debt you've got then it's probably better to negotiate with the bank yourself and save the money. In my experience banks will usually come to arrangements to reinstate overdrafts if they are happy with the payment you offer them.

So if £100 a month is a figure you're happy with then you can just offer that straight to the bank and cut out the middle man. If the bank don't accept this then I'd recommend you get in touch with us and we'll help you plan an income and expenditure budget (for free) and you can use this to show the bank what you can afford and usually that helps with these sorts of negotiations.

If you've got other debts or aren't sure £100 a month is affordable then I'd get in touch with us before contacting the bank. You can get our advice using our online advice tool Debt Remedy (http://www.stepchange.org/msehelp) or by giving us a call (http://www.stepchange.org/Contactus.aspx).

All the best.

James

StepChange_James · 11 March 2013 at 11:17AM

MrMondo wrote: »

Does anybody know how much better a settled default is a posed to a default with money still owing?

Hi Mr Mondo,

Every lender interprets information on credit histories in their own way, so it's hard to give a blanket answer to these sorts of questions as some may interpret things differently to others.

Having said that, it can help to think about it from the perspective of a company trying to decide if they want to trust you with their money. If you've had a debt in default but have paid it off you'll look like a better prospect than someone who's got a debt in default and hasn't yet paid it back.

So it's hard to be 100% conclusive but it's very likely that clearing a defaulted debt is going to be better than still having it outstanding. The default should drop off your credit history all together 6 years after it was put on.

The MSE guide to credit ratings is really good if you've got anything else you're not sure about: http://www.moneysavingexpert.com/loans/credit-rating-credit-score.

Hope this answers your question.

James

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