Consolidation Loan instead of DMP - Good idea?

edited 30 November -1 at 1:00AM in Debt-Free Wannabe
8 replies 2.4K views
MeowMeow Forumite
29 Posts
edited 30 November -1 at 1:00AM in Debt-Free Wannabe
Hi there, I was hoping some of you might be able to give me a little advice.
I had debts of £23k. I defaulted on most of them about 3 years ago and have arranged voluntary agreements with the debt collection agencies who have frozen the interest and I have been paying these monthly. So far I have got the total debt down to £19k but it will take me at least another 7 years to pay them off.
The DMP was meant to be temporary until I could sell my house and go bankrupt. I still can’t sell my house and don’t really want to go for bankruptcy or IVA if I can avoid it. I would rather earn more and pay off the debt.
But if I do it will still be 10-12 years before I can get my own mobile phone contract, bank account etc, I’m 31 now and I want to be financially independent.
I have been offered a loan of £19k by a debt brokerage. If I took the maximum term to pay it off (10 years) it would cost a total of £31k at £260 a month (I currently pay £202/mth but could afford £260).
I know this is expensive but to me it would be worth it to have my debts “satisfied” and the defaults removed from my credit file in 6 years.
I can make overpayments at any time with no penalty to reduce the overall debt.
This makes sense to me, a way to get back into the system. But I would appreciate any advice from anyone who has done this.
Thanks J


  • katsukatsu Forumite
    4.8K Posts
    Part of the Furniture 1,000 Posts Name Dropper Mortgage-free Glee!
    Generally the advice is to avoid loans to consolidate debt.

    If you can afford £260 why not either up your DMP payments or save the extra £58 a month and make full and final settlement offers with it?

    You can still get a basic bank account now, and there are reasonable pay as you go deals.

    10 years is an incredibly long time and it will be £12k in interest according to your figures, which sounds horrendous.

    I believe the defaults drop off after six years anyway - not sure how it works if you are still paying for the debt but someone should be able to advise.

    Good luck.
    Debt at highest: £8k :eek: Debt Free 31/12/2009 :D (ten years and counting :j). Original MFD May 2036, MF Dec 2018. Save £12k in 2020 member #41
  • dancingfairydancingfairy Forumite
    9.1K Posts
    I was going to suggest trying to squirrel small amounts away and seeing if you can get any settlement offers as well.
    Making my money go further with MSE :j
    How much can I save in 2012 challenge
    75/1200 :eek:
  • TixyTixy Forumite
    31.5K Posts
    The defaults will be removed from your credit file after 6years regardless of whether the debts are paid or not.

    There should be no reason why you cannot get a bank account in your own name whilst on a DMP (although it will probably need to be a basic bank account). And you should be able to get a phone contract once your defaults are gone in 3years or so (although PAYG phones are often just a cheap as contract phones these days).

    Presumably this loan you have been offered is secured on your property?

    How many of your creditors have so far frozen interest? I wouldn't want to be paying out an additional £12k when your credit file has already been ruined.
    If you can afford to increase your DMP repayments to £260 a month and they have frozen interest then your debts should be repaid in around 6years, meaning in 6years you would be free from these debts rather than the 10years of you take the loan.

    Another issue is at the moment should your circumstances change (you lose your job etc) then you can reduce your DMP payments or switch to token payments without making your credit file any worse. If that happened once you had taken on a new loan then it would mean defaulting on the new loan and thereby make your credit file worse for longer (plus if its secured could also mean you lose your property).

    How confident are you that the loan offer is genuine and guaranteed?
    A smile enriches those who receive without making poorer those who give
    or "It costs nowt to be nice"
  • MeowMeow Forumite
    29 Posts
    Hi all - thanks for your comments.

    I will not be convinced the loan is genuine until I get the money, I can't believe anyone would lend me anything, let alone £19k, but thought it was worth a try.

    The debt doesn't bother me, the defaults do, is it really true that the defaults come off your file after 6 years? If so then I really don't need the loan. The only reason I want it is to start rebuilding my credit file and get back into the system. A bankruptcy advisor told me that as soon as I entered into the DMP my credit would be frozen as I have effectively told them that I can't afford to pay?

    I would rather squirrel the money away as you suggest. I have just written to all my creditors again to try and renew my agreements and give them a little extra but the additional £60 I will save, settle the first debt, put away the extra money towards the next and so on. If I do this I shoudl be able to have them paid off by June 2015 (assuming I don't earn any more).

    But - I don't want to wait until 2015 for the debts to be "satisfied" if it will then take a further 6 years for my credit to be "unfrozen".

    Sorry for running on.
  • TixyTixy Forumite
    31.5K Posts
    Your defaults and the debts they relate to will go completely from your credit file after 6years from the date of default, that will happen regardless of whether the debts are fully paid, partially paid or all still outstanding at that point.

    However as part of your DMP you agree not to take on any more credit until your debts are repaid in full (that may be what the advisor meant by your credit file being frozen). In theory in 2-3years you could probably obtain some subprime credit but in doing so your current creditors would probably be rather annoyed and might then decide to start charging interest again etc.

    It sounds like you are currently managing your own DMP and paying creditors yourself, is that right?
    A smile enriches those who receive without making poorer those who give
    or "It costs nowt to be nice"
  • edited 28 February 2011 at 12:35PM
    katsukatsu Forumite
    4.8K Posts
    Part of the Furniture 1,000 Posts Name Dropper Mortgage-free Glee!
    edited 28 February 2011 at 12:35PM

    I'm not an expert on defaults, but Tixy is very knowledgeable. You can only have one default for a debt, and defaults only last for six years so after the six years they would come off your credit record.

    Even if you take out the loan, the defaults will still exist for the six years.

    Why are you so keen to get "back into the system"?
    Debt at highest: £8k :eek: Debt Free 31/12/2009 :D (ten years and counting :j). Original MFD May 2036, MF Dec 2018. Save £12k in 2020 member #41
  • MeowMeow Forumite
    29 Posts
    Thanks Tixy & Katsu.

    Yes, I am managing the debts myself. I went to CCCS but they wanted to take my partners income into consideration and I don't want him or his children to pay for my debts, he pays enough extra for me as it is and when the interest goes back up he will have to foot the extra mortgage payments.

    I want to get back into the system because I want options. I am self employed and I have always looked after myself. If my partner and I ever split up I'd be in real trouble.

    I just want to have options. I defaulted on my debts because we overcommited ourselves on our house we bought just before the crash, the mortgage payments doubled and we couldn't sell or remortgage. I defaulted on my debts so I that we could keep paying the mortgage. It was only ever meant to be a temporary thing, I don't want to be in debt for most of my adult life.
  • MeowMeow Forumite
    29 Posts
    Just wanted to say a big thank you - I have doubled checked the defaults thing which I never would have done if you hadn't have told me. I can't believe I nearly took a loan out when I really don't need to.

    I have kept everything very clean, no missed payments, bank charges etc for 2 years so infact in 4 years time everything should drop off my file!

    I will carry on managing my money carefully and get the debts paid as soon as I can.

    I am so happy, thank you xxxx
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