Which path would you take?

abby1234519

Hi,

I am actually asking this question on behalf of a friend, she has asked me this question but I am not sure where I stand on it. I am probably biased as I am not in a DMP.

Basically she has about 15k of debt between her and her partner, I think its pretty evenly split. She can make minimum payments of £410 for 6 months and then after the 6 months she can start over paying, I think she meant that the overpayment will vary. Ie one month could be £200, next month nothing, next month £400 etc. Her OH is paid 4 weekly so that's why the income varies (once a year gets two wages) but he has a base line of income every month.

She asked me whether I would suggest entering a DMP and paying less money so about £300 in total (no overpayments) thus probably defaulting. But it would improve their quality of life as at the moment they do not have spare money for clothes (ie necessary ones for children) and have to put car maintenance on credit.

So her options are a DMP - lasting 6 years but defaults and so can't look to buy a house



or minimum payments for 6 months and then overpay to the max meaning she will have her debt paid off by December 2016 - which means credit rating intact and not having to rebuild their credit history. But being unable to take her children swimming, days out, new clothes and shoes (which are currently bought by the grandmother). Unable to save to forsee circumstances such as car breaking down.

I personally have not entered us into a DMP, I am overpaying a little at the moment but can't do lots because I am still paying for our August wedding. Once our august wedding is over I can overpay by £400 a month (hyopthetically) and then be clear of debt in two years. I am doing this because we also want to buy a house one day and I feel I can't risk ruining our credit rating. I put all car costs on the credit card but in my head it saves interest because I'll put £600 on card over a couple of months but then spend £200 on car maintenance as opposed to never putting the money on the card and paying higher interest. I know what I mean!

So I would have told her to not enter a DMP if its manageable but I wondered whether I am giving bad advice?

sourcrates

Always difficult to give advice via a 3rd party without knowing all income/expenditure details etc, as you are a "veteran" of this forum, im sure any advice you gave was good !!!!

Tixy

What is going to change in 6months? is the higher level of income guaranteed (not the variable part but the amount that means she definitely can make a bit more minimum payments and be able to afford essentials without re-using credit)?

If she can manage all essential items for the 6months then I would try to avoid the DMP. By essentials I mean being able to afford clothes for children as required.

Has she really carefully looked through her expenditure to see where she may be able to save money to better see her through the next 6months (e.g checked all her utilities/insurance etc are the best deals, tried the downshift challenge on groceries etc)?

Do you know if she has spoken to one of the debt advice charities about a DMP? If she has spoken to someone have you checked with her its not a fee charging DMP provider (I'm assuming she isn't familiar with this forum).

If she doesn't go for a DMP then in terms of this

or minimum payments for 6 months and then overpay to the max meaning she will have her debt paid off by December 2016 - which means credit rating intact and not having to rebuild their credit history. But being unable to take her children swimming, days out, new clothes and shoes (which are currently bought by the grandmother). Unable to save to forsee circumstances such as car breaking down.

I'd go for a middle ground, not overpay to the max but have space in the budget for some of these costs, even if repaying the debt takes another few months.

NHS_worker_bee

Would your friend be willing to post up a SOA?

abby1234519

NHS_worker_bee wrote: »

Would your friend be willing to post up a SOA?

I will ask her for her details when I see her later, I'm sure she will be okay with it. I had asked her if she didn't mind me asking for advice on this forum for her as I didn't want to go talking about her life willy nilly. Even though its an anonymous forum to an extent!

National_Debtline

Hello there,

A DMP is only likely to be an option should your friend not be able to meet her contractual minimum payments, so *if* the debts are manageable then it may be an option that could be avoided - and therefore keep her credit file in good shape.

It would certainly be worth completing a comprehensive financial statement, as some outgoings such as the car costs should be listed within her outgoings. As the others have mentioned, a SOA would be really useful.

There is also a very good budget sheet on our website, you can find it here: https://www.nationaldebtline.org/EW/steps/step2/Pages/Step_2_11.aspx

Best wishes,

David @ NDL.

Growurown

abby1234519 wrote: »

So her options are a DMP - lasting 6 years but defaults and so can't look to buy a house

or minimum payments for 6 months and then overpay to the max meaning she will have her debt paid off by December 2016 - which means credit rating intact and not having to rebuild their credit history. But being unable to take her children swimming, days out, new clothes and shoes (which are currently bought by the grandmother). Unable to save to forsee circumstances such as car breaking down.

The second option sounds the best but is it achievable? They would have to be very strict with the finances, budget really carefully and not have any quality of life for a couple of years. Are they really going to put that money towards the debts if the children need new things? What are they going to do if an essential household item breaks down like the boiler or the washing machine? How are they going to keep the car on the road?

I agree with Tixy, there needs to be more wiggle room in their budget to make it viable, but ultimately this means a longer time to pay off the debt.

abby1234519

Tixy wrote: »

What is going to change in 6months? is the higher level of income guaranteed (not the variable part but the amount that means she definitely can make a bit more minimum payments and be able to afford essentials without re-using credit)?

Tixy wrote: »

If she can manage all essential items for the 6months then I would try to avoid the DMP. By essentials I mean being able to afford clothes for children as required.
Has she really carefully looked through her expenditure to see where she may be able to save money to better see her through the next 6months (e.g checked all her utilities/insurance etc are the best deals, tried the downshift challenge on groceries etc)?
Do you know if she has spoken to one of the debt advice charities about a DMP? If she has spoken to someone have you checked with her its not a fee charging DMP provider (I'm assuming she isn't familiar with this forum).
If she doesn't go for a DMP then in terms of this
I'd go for a middle ground, not overpay to the max but have space in the budget for some of these costs, even if repaying the debt takes another few months.

Her other half works with my partner, they get paid the same every month unless they work at night in which case they get paid the nightly rate (which can boost income for £50 a night for example). They do a couple of these a month, everyone has to share the load out. Also if they've done overtime which is not often but bank holidays. I don't know what her partner earns as he isn't at the same level as my other half but I will get those details. Oh and as I said a 13th wage a year

　
We did talk briefly about what they spend their money on ,by the sounds of it she spends about £200 on food etc she has a 3 year old who goes to nursery with my son so I'd imagine he is still in nappys. As we already changed her tariff with her current energy provider to the cheapest, she could switch but she has a small balance to work off first. We also looked at her car insurance but she has only been driving for a year so pays quite a bit for insurance. Her other half doesn't drive at all.
　
We did the Stepchange online thing and it recommended a DMP because it estimated her costs as being higher than in reality they are. It recommended £358 for food etc and then clothes etc etc.

I personally did not go for the DMP as I was prepared to struggle through for 2 years. My LO's grandma buys him clothes and we don't buy ourselves new clothes. If I have to buy OH some work trousers it goes on the CC (which is slowly going down). I just wasn't sure whether I wanted to ruin my credit file, my idea being once the debts cleared it will show we've paid it off. No idea if I am right on that though

Tixy

If she can realistically pay off the debts within 3years then avoiding a DMP should be managable and would be preferable.

Its just a case of seeing whether those first 6months are something she can get through.

In terms of the 'recommended' spending for someone on a DMP, then for most people they can spend less in those categories than the DMP providers would allow.

If you are going through her finances with her have a look at what other savings she could make using the money make over - http://www.moneysavingexpert.com/family/money-help

This family money saving tips link may also help
http://www.moneysavingexpert.com/family/family-money-saving

abby1234519

We've done her SOA, she didn't want the names of the credit companies listed for some reason. One is an adverse credit company, 1 is CO, the other two are bank credit cards (the biggest balance of which is with her main bank). Her loan is with her main bank. The overdraft is her OHs as he was a student recently, he has a year at 0% then they start reducing the interest free part. He doesn't use it as his main account.

I am trying to get her to join the forum but she is "scared" of people she knows recognizing her. I did explain its not likely to happen but I guess she is pretty anxious so I am just trying to assist however I can!

As I said, the reason things like car maintenance are not listed is because she puts it on her credit card. The balance looks like it is going down despite this. So she has no idea what she spends on things like this

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 2
Number of children in household......... 1
Number of cars owned.................... 1

Monthly Income Details
Monthly income after tax................ 1281
Partners monthly income after tax....... 974.98
Benefits................................ 330.37
Other income............................ 0
Total monthly income.................... 2586.35

Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 600
Management charge (leasehold property).. 0
Council tax............................. 124
Electricity............................. 35
Gas..................................... 35
Oil..................................... 0
Water rates............................. 23
Telephone (land line)................... 32
Mobile phone............................ 70
TV Licence.............................. 0
Satellite/Cable TV...................... 0
Internet Services....................... 0
Groceries etc. ......................... 200
Clothing................................ 0
Petrol/diesel........................... 180
Road tax................................ 15
Car Insurance........................... 70
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 701.25
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0
Haircuts................................ 10
Entertainment........................... 0
Holiday................................. 0
Emergency fund.......................... 0
Total monthly expenses.................. 2095.25


Assets
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 1000
Other assets............................ 0
Total Assets............................ 1000

No Secured nor Hire Purchase Debts

Unsecured Debts
Description....................Debt......Monthly...APR
Credit Card 1..................730.47....40........59.99
Credit Card 2..................1492......100.......39.99
Credit Card 3..................661.29....18........21.94
Overdraft at 0% stude..........1600......0.........0
Sofa Loan No interest..........843.9.....31.31.....0
Credit Card 5..................4850......120.......16.95
Credit Card 4..................1928.16...70........17.9
Bank Loan......................1907.21...89........19.9
Total unsecured debts..........14013.03..468.31....-


Monthly Budget Summary
Total monthly income.................... 2,586.35
Expenses (including HP & secured debts). 2,095.25
Available for debt repayments........... 491.1
Monthly UNsecured debt repayments....... 468.31
Amount left after debt repayments....... 22.79

Personal Balance Sheet Summary
Total assets (things you own)........... 1,000
Total HP & Secured debt................. -0
Total Unsecured debt.................... -14,013.03
Net Assets.............................. -13,013.03

Created using the SOA calculator at https://www.stoozing.com.
Reproduced on Moneysavingexpert with permission, using other browser.

abby1234519

I am going to unashamedly bump this. I'm seeing her again tomorrow after work so I'd like to sit down and show her this thread