Payment plan or default?

Palpitations

Currently looking at ways of getting out of the never ending debt cycle! At the minute I have enough income to pay minimum payments however this could change in next 6-12 months and after several years of trying to be debt free after relationship ended it feels never-ending. I've been looking at some of the threads with interest and one of the confusing issues for me is whether it is better for my credit rating in the long term to have a payment plan or to default? So two of my more unmanageable debts are a £5k overdraft with barclays (£100 per month charges) and £10k barclaycard (£188 pm min payment). Can I arrange with Barclays and Barclaycard to have a payment plan and how would this work would they maintain the current payments and freeze interest for a certain period? Alternatively I've read that by defaulting you can make arrangements to pay with the credit agency and your rating will be repaired in half the time?! This is only a small part of my muddle, absolute minefield and advice appreciated!

January2015

If you make an arrangement to pay less than the contractual minimum payments, creditors will mark your credit reference agency (CRA) files with arrangement to pay markers. These will stay on your credit file for 6 years after the last payments has been made. So, for example, if you take 5 years to clear the debt, the arrangement to pay markers will remain for 6 years after that. So 5 + 6 = 11 years of these markers on your CRA files.

If you default the account and the creditor issues a default (not just a letter advising they may default you), then the default marker stays on your CRA files for 6 years. After that, all records of the account are removed from your CRA files.

Both markers have a negative impact on your credit rating. If you are going to default on 2 accounts then you should consider some form of debt management plan, debt relief order etc. and put all your debts into the plan.

It might be worth you completing the Stepchange debt remedy tool which will give you an idea of options available to you.

You could also post a statement of affairs (SOA) on here and people will give you advice and support.

Palpitations

Thanks for this - at the minute I can afford the minimum payments; do you think it would be more viable to ask for some reduction on the interest charges - so for instance I am paying £100 charges for the overdraft (which is joint but there is absolutely no point trying to get ex to pay) obviously if was not paying as much interest I could reduce the amount owed?

January2015

Hi

I personally have no experience of asking creditors for interest rate reductions. I guess it wouldn't hurt to try.

My debt was massive (as you can see from my signature). We could afford the minimum payments but were just treading water - the debt was reducing at miniscule amounts because most of our payments were going towards interest every month and very little was reducing the actual debts.

Palpitations

Sorry for sounding thick January2015 but how does the DMP work then? My debt is around 50k at the moment and I can afford the minimum payments but as you've said feel like for most of them I'm not actually reducing the debts. I've completed the tool with Stepchange which has recommended this.
Thanks in advance.

January2015

Palpitations wrote: »

Sorry for sounding thick January2015 but how does the DMP work then? My debt is around 50k at the moment and I can afford the minimum payments but as you've said feel like for most of them I'm not actually reducing the debts. I've completed the tool with Stepchange which has recommended this.
Thanks in advance.

Hi

With a DMP, your creditors agree (or not) to receive reduced monthly payments. Most agree, some don't - but even if they don't agree there's not a lot they can do about it. Most creditors freeze all interest and charges. Again some don't but not many. For example Barclaycard didn't freeze interest for us. We stopped paying them and complained and they refunded all interest and charges back to the start date of our DMP and now we pay them again.

If you use a charity like Stepchange to manage your DMP they write to all your creditors for you. You make a single monthly payment to Stepchange and they then distribute that payment amongst your creditors.

Entering a DMP was the best thing we ever did. Our life is so much happier now. We have money to live a quality life and our debts are actually reducing. We have absolutely rubbish credit ratings but we never want credit again anyway so that doesn't bother us. Being with Stepchange taught us to live within a budget and to plan for things like annual expenses (car servicing, insurance etc.)

When we entered a DMP we had never missed a single payment, nor been late with a payment to any of our creditors. We had just reached the point we couldn't cope with the level of the debt and it not increasing. We had also reached the point of borrowing from Peter to pay Paul as the saying goes.

DMP is not the right option for everyone - but for us it was definitely the right choice.

fatbelly

Palpitations wrote: »

Sorry for sounding thick January2015 but how does the DMP work then? My debt is around 50k at the moment and I can afford the minimum payments but as you've said feel like for most of them I'm not actually reducing the debts. I've completed the tool with Stepchange which has recommended this.
Thanks in advance.

That's the sort of situation that works with a debt management plan, as long as it's a fee-free one. As long as interest gets frozen, paying something like £1500 a month (which is probably what your minimum payments are) sees you debt-free in under 3 years