On a DMP and have spare cash - what should I do with it?

MyLastFiver

Hi all, I started a DMP through a non-profit organization in June after my wife gave up work to have a baby. The reduction in household income meant we could not afford to make min payments on unsecured debts any more. Debts are approx £56000 to 11 creditors. Creditors have all accepted my payments and, when I got a pay rise in September, I increased my payments to them. I'll be getting another substantial pay rise next September and will be able to make another increase in payments. All so far so good.

The thing is, I am in the happy position of having some extra money. I'm not quite sure how it happened, but I put a lot of slack into my DMP budget, and made lifestyle cutbacks, taken on some extra paid work (cash in hand) and basically we have an extra £300 to £400 a month. Earlier in the year a distant relative died and left us £6000, which we used for home improvements (converting the attic into a nursery and fitting a new bathroom) Also, a generous relative has just given us £5000.

We have a mortgage made up of the main mortgage (£93000 owing at 5.75%, 22 years to run) and additional borrowing of which there is £7500 still owing at 6.49%, 7 years to run.

This is my thinking about what to do with the extra:

1. With the money I have in the bank at the moment, I could pay off the additional borrowing from the mortgage. Benefit: I will save myself the payments of £112 per month, plus all of the interest I would have been charged over the next seven years. Downside: The money is gone forever and I will never be able to draw on it again.

2. I could pay the money off my debts. Benefit: It's the honest, "moral" thing to do. Downside: As my debts are not accruing interest it is inefficient - better to let inflation chomp away at this lump of debt for as long as possible. Plus, once I'm committed to giving them the extra every month, we're back to hand-to-mouth living with no "safety net" such as car/house repairs, holidays etc.

3. I could save all of the money in a combination of ISAs and savings account, where it would accrue interest and maintain its real-terms value. Benefit: I can get at it when I want; interest rate will nearly offset the interest charged on my additional mortgage borrowing, I can make settlements to creditors if they take court action further down the line. Downside: By not paying off the mortgage, I will not save £112 per month!


Rough/quick SoA:

Monthly salary £2120
Additional cash earnings: £100
Family allowance/tax credit: £240
Total income £2460

Mortgage £632
Additional mortgage borrowing £112
All bills inc insurances, car/council tax, phones & utilites: £400
Food, cash & petrol: £600
DMP payments: £433
Total outgoings £2177

Monthly surplus: £283
Monthly surplus if I pay off additional mortgage borrowing: £395


We are in our mid-thirties. Our long-term priorities are for my wife not to return to work until our son starts school (his upbringing trumps all financial concerns in our eyes), and for us to get our mortgage and other debts paid off as early as poss, and to live "in the black" for the rest of our lives :j

I appreciate that in many ways I'm in a fortunate position - I'd appreciate any thoughts - thanks.

iriedaughter

If I were in your shoes I would put aside equivalent to one month’s salary just so that I feel secure. Then pay off the extra on the mortgage as quickly as I could to free up that extra money then take it from their. I, of course, am too new at all of this to know if that’s the best course of action and feel sure that someone, in the know, will come along soon and recommend something. Congrats on the baby and good luck with it all.
Irie

chevalier

I agree with the other poster, put aside a months salary as a safety net against unemployement.

BUT I would also like to say that I would worry about the cash in hand money. If whomever is doing this for you, gets caught by the tax man then you will be caught up in that too. Is the extra money really worth the potential issues owing money to HMRC would involve.

I certainly wouldn't offer it as extra money on the DMP because then you would have a problem if you couldn't maintain the increased payments. Also whilst I understand completely about being a stay at home mum that doesn't meant there are not ways of earning. Ie doing competitions, doing surveys online, mystery shopping (can be fitted around the baby), doing AQA in the evenings etc.

chev

Miss_Piggy_2

Hi

Firstly, in your DMP there should be an amount budgeted for car maintenance/tax etc so you should be putting this money by each month anyway.

Yes, you must think of the tax implications of working cash in hand. Especially as it seems to be earning you quite a bit.

Personally I would plough any extra money into my DMP - you are paying a fair whack so your debt should be decreasing fairly quickly anyway. Any extra can only be good -your debt will be gone before you know it!

I also agree with Chevalier, there are things your wife can be doing to earn extra money. I work part-time when my son is asleep at night. I also do on-line surveys, competitions etc. It all helps.

Good luck

Miss P
xx

milliemonster

I would pay off the mortgage and offer the additional £112 a month into your DMP, then you will be no worse off than you are now and still have some leeway within your budget. You need to b e careful here, if at some point your creditors decide to take you to court and it is discovered that you have had a considerable surplus each month and have been putting this in savings instead of towards your debts, the courts may not look too kindly on this

newmum1

could your wife not work part time to help pay off your debts once your baby is of an age to go to nursery- this would help pay your debt off quicker meaning that your baby would then be more comfortable as the baby gets olderwithout mum and dad having to worry about money.

i agree with the other posters about saving one months wage but you said your self what the right thing morally to do is

Gemmzie

If you pay this amount to the DMP or if the savings are found and you can't explain where they are from, you would be in trouble. You need to register as self employed and pay tax on the cash in hand money. Having a bit extra is not worth time in prison for tax evasion.

I'd save it though. We are in financially unstable times, and a fall back is always a good idea. You can always use it for full and finals at some point.

tyllwyd

I agree with the other posters who have said think carefully about what you do (especially about any cash in hand money - apart from tax on that money, there's the tax credits as well, which to me look quite generous on your income). If the creditors discover you've been keeping money back from them, I would imagine their sympathy with your situation would evapourate quite quickly. When you entered into the DMP, was there any mention of what you should do with any windfall money, like an inheritance?

Jesthar

I'd also echo what the other posters say - you NEED to sort out what to do about paying tax on the cash in hand money. I have a relative who works for HMRC, and I know they take a VERY dim view of this kind of thing if they find out you've been holding out on them for any length of time.

From what I see below, at the moment you've only been doing this for a few months, so providing you get it sorted NOW I think you should be OK (and I mean now, I think the grace period is only three months). But if you don't, then when they find out they can demand all back tax to be paid, fine you (you may already have a small fine if you don't declare in time, sorry), and if serious enough it can also lead to prosecution and prison.

I suggest you call HMRC as soon as you can and find out what you need to do - contact list page is here:

http://www.direct.gov.uk/en/Dl1/Directories/UsefulContactsByCategory/MoneyTaxAndBenefitsContacts/index.htm).

Also have a look at this:

http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/WorkingAndPayingTax/DG_10010537

it might help get you prepared to call them.

Aside from that, after you've done that I'd suggest calling your DPM people and asking what they though the best course of action would be if you had a windfall - you really don't want to find youself in trouble again because your creditors turn against you. You may find they can negotiate some F&F payments, which can but help! Or they may have a different suggested course of action. I agree that saving a months wage is a good idea if you can, but make sure the DMP are OK with that, too.

Hope that helps,

~Jes

skintandscared_2

I presume that the additional secured loan is not included in your DMP, otherwise you would not be able to pay that off in preference to the other creditors on your plan?

I think I would probably pay off the secured loan and add the £112 to my DMP.

My OH does some cash in hand work, but he is so ill he barely earns £3k a year in total. It's way below any threshhold to pay tax on anyway. You do need to be very careful, especially when you are claiming tax credits as well!

I did not put my partner's income on my DMP forms because (a) all the debt is in my name only and (b) he can earn, say, £300 one month and then not work for the next two months. It's so irregular it's impossible to guage or guarantee. Same with my overtime. So some months we probably will have a decent surplus - but that will go straight into a savings account. I am TRYING to get together three months' salary as a buffer, in case anything happens to me. I am the sole earner and pay for everything. If my wage gets lost, we are well and truly stuck!

MyLastFiver

Thanks everyone who replied - some interesting thoughts. I agree that it would not look good if it emerged I had been holding out on my creditors. For this reason I'm thinking it would be best to save the money somewhere where I can get at it if creditors demand it.

As for the cash work, there are some pretty dramatic statements on here about prison and so on, although I agree with the sentiment that honesty is the best policy.