Debt, dmps and options

Jd2015

Hello

First post so be gentle.

In a nutshell I'm struggling with debt (mainly credit cards) and not sure of what to do.

Quick background my girlfriend ( now wife) and I had our first child quite young. She was still doing her masters and I was only a trainee accountants wage. So slowly but surely we've racked up debts. We have two kids now.

We have approx 23k in credit card debt, 3k on a low interest loan and 2k for dfs. We pay just under 1k per month servicing these debts.

I have a 135k mortgage on a house approx 190k value. My credit is very poor, 1 according to noodle.

At the moment we're just making minimum payments etc and not really getting anywhere.

Is a dmp right for us? Will a dmp put heavy restrictions on my spending? My spending is already obviously heavily restricted but I am concerned our kids will lose out I.e. clubs, hobbies, Xmas presents etc.

Is there a better option? Any advice would be greatly appreciated.

John

sourcrates

Hi,
There are a number of options open to you, my suggestion would be to have a look at the National Debt-line website, they have tons of good information on the options that may be available to you.

https://www.nationaldebtline.org/

The options for repaying debt, that are laid down by statute, are :

*Debt management plan

*Debt relief order

*Individual voluntary arrangement

*Bankruptcy

If you are in Scotland, they have different names.

Which solution would suit you best would depend on your level of debt, your available money to service your debts, and various other factors.

Jd2015

Hi thanks for the reply . I owe more than 15k and have assets so a debt relief order (as I understand it) is not available to me. I am not at the IVA/bankruptcy stage which leaves me with dmps (again as far as I know) but I'm worried they'll restrict my spending so much that my kids miss out massively at such a young age.

I spend 1k a month already paying off debt but the problem is that it isn't going down.

In an ideal world I would like to make my loan repayment outgoings to around £700 but crucially see my debt going down. I can't get loans to do this so feel I've no options....

KLou

Hi JD,

If you're struggling financially it's worth seeking some advice as to what options are open to you.

The point of DMP is to allow you to live comfortably (although not excessively) and allow you to lower repayments to unsecured debt to enable you to do so.

There are creditor guidelines as to amounts they would expect someone in financial difficulty to be spending in different areas such as children's activities but there is an allowance and each case is addressed individually so if there's substantial justification for an overspend this will be taken into account.

In terms of Xmas, birthdays etc. I find that I don't allocate part of my income every month to a 'birthdays' pot. When these things come around I cutback in other areas to afford birthday presents. There's no reason why someone on a debt management plan can't do the same.

If the debt is your priority it would be useful to address all your spending and work out what you can afford - I know nobody wants to cut back on their kids, but being responsible and realistic and financially secure is something your children will appreciate more in the future than going to brownies/ballet/gymnastics every week (in my opinion!)

Good luck x

sourcrates

Jd2015 wrote: »

I am not at the IVA/bankruptcy stage which leaves me with dmps (again as far as I know) but I'm worried they'll restrict my spending so much that my kids miss out massively at such a young age.

Well the good thing about a DMP is that basically, you call the shots, its an informal agreement between you and your creditors, you decide how much you can afford to pay each month, then tell the creditors.

One thing to remember, if you go the DMP route, go to a free debt advice charity such as step-change or a company called Pay-plan, neither of whom will charge you any fees, do not be tempted to sign up to any debt management company who make claims that they can do wonders for you, as they will charge you a hefty fee every month for the privilege, you do not need to pay anyone for this service.

Of course, if you are confident enough to self manage, then thats a good way to go, you retain all control of how much you pay to each creditor, for more piece of mind, but initially i would find out the best option for me first.

Jd2015

Yeah I was going to contact step Change, pay plan or Christians against poverty.

Would any of them be better than the others?

mrs_w

I've been with Payplan for 5 years and have absolutely no complaints

Karen777

Hi - welcome. Sounds like a dmp might be a good option. Read the DMP support thread - most of us are going through it and feel much better since taking the first steps. I started with payplan and then went self managed after a year as felt more able to manage things myself but had no problems with them. I think they have a business arm as well as charity arm - selling insurances but I just said no thank you and all was fine. good luck!

National_Debtline

Hi

As KLou says, you can allocate monthly amounts for things like hobbies, clubs, and gifts. It’s a case of making sure the spending is reasonable.

I’m sure the free DMP providers will clarify that for you when you contact them.

James
@natdebtline

Jd2015

Ok so I've now spoke with StepChange and went through a budget but I'm speaking to Nationwide on Thursday evening to renegotiate a new fixed rate so I cant fully finalise my budget until that figure is locked down.

I do however have a number of queries that I thought I would ask in here before asking the StepChange advisor next monday.

1) If our overdrafts are to be included in the debt in the plan, how does this happen in reality? i.e. if overdraft is taken out of pay we cant live
2) Do we have to setup new bank accounts? Is there anyway to keep our existing bank accounts or at the very least stay with same provider?
3) How do we deal with emergencies/exceptional items? Emergency fund?!
4) Further to point 5, in the budget we allocate a set amount of money each month for things in the future, what if these allocations have not saved enough before the expense arrives? for example we say we budget to spend £200 on car repairs each year this works out at £16.66 per month, what happens if £200 of repairs are needed in month 2?
5) In any given month can we change the debt repayment figure at all (up or down)?
6) Further to point 7, if we become significantly better or worse off will this amount be changed? is it reviewed periodically?
7) When will our credit rating improve? Asking because this directly affects what rate over what period I agree the mortgage on.
8) What happens if some or all our creditors reject our debt management plan?
9) The advisor suggested in the coming weeks/months before the DMP is up and running I should consider making less than minimum payments to some of my creditors to highlight the fact I am struggling to cover costs, is this advisable?

Many thanks

sourcrates

Ok, lots of questions, so, overdraughts, you need to set up newe basic bank accounts with a bank you have no debt with, then the OD's become just another debt added to your arrangement, and you start to use your new account, a basic account is available to anyone, as there is no lending facility, hence no credit check, but they are not widely advertised, so you have to look for them, you need this in place first, before you do anything else.

If you continued to use your old bank, they could use the right of "off set" to take any funds you paid into it, to service the debt you owe them, this applies to any other account you may hold with the same banking group, very important to check who owns who.

Emergency fund always a bone of contention, you must budget correctly, lots of people don't, and when an unexpected expense crops up, the wheels fall off, the best way of going about this, is to :

(1) open new basic bank account
(2) make token payments to creditors for six months, yes six months
(3) this allows you to gain a reasonable sum of money for emerergencys, you should then look into entering a DMP

many people rush in thinking it's the answer to there problems, but don't allow enough time to build a sufficient emergency fund, which is something you must do.

Creditors may or may not accept your offers, you pay them anyway, if they don't like it, they will just sell on the debt, and the dance starts again with the new creditor, your credit will be trashed for six years, longer if you don't get defaulted.

my advice would be to get all accounts defaulted first, either by token payments or no payments, that then draws a line in the sand, if you don't get defaulted, you get what's called an "AP" marker, arrangement to pay, this can stay on your file for six years after you have finished paying off the debt, so potentially a very long time.