Is DMP for me?

Indebtj

Hi, Today, after being rejected for a loan to consolidate some of my debt I decided I have to change something or my finances are going to crash. I plucked up the courage and called step change and discussed the possibility of a DMP.

I have about £13,000 of unsecured debts that I could incorporate into the DMP across 9 creditors and these debts are only increasing where I have found I my outgoings to be higher than what I am bringing in and have had to start using cards with higher interest rates to get by.

from what has been discussed I am encouraged that I could be debt-free in the next 3-4 years but I am worried about the long term implications of setting up a DMP. I'm 27 and not getting any younger, living with my partner's parents. we want to be able to rent in the next few years and I don't want to damage my credit history for 6+ years to a point we wouldn't even be accepted to rent even after finishing the DMP had finished.

I Haven't missed any payments to date but have been prompted into action as that may not be the case in 3-4 months time, I understand that some of my creditors could default my accounts if I enter a DMP and some posts on this thread seem to want their accounts to default but these would damage my credit files past the DMP completion.

Would a DMP be right for me? as recommended by another user I have opened a new thread and have incuded my SOA below

Statement of Affairs and Personal Balance Sheet

Monthly Income Details
Monthly income after tax................ 1271
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 1271

Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 241
Rent.................................... 150
Management charge (leasehold property).. 0
Council tax............................. 0
Electricity............................. 0
Gas..................................... 0
Oil..................................... 0
Water rates............................. 0
Telephone (land line)................... 0
Mobile phone............................ 20
TV Licence.............................. 0
Satellite/Cable TV...................... 24
Internet Services....................... 12
Groceries etc. ......................... 160
Clothing................................ 25
Petrol/diesel........................... 110
Road tax................................ 12
Car Insurance........................... 26
Car maintenance (including MOT)......... 20
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 8
Pet insurance/vet bills................. 30
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 25
Haircuts................................ 10
Entertainment........................... 40
Holiday................................. 0
Emergency fund.......................... 0
Work meals.............................. 50
Savings................................. 20
Bank account fee........................ 17
Contribution to partners finance ...... 16
Total monthly expenses.................. 1016


Assets
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 1
Other assets............................ 0
Total Assets............................ 0


Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 0........(0)........0
Hire Purchase (HP) debt ...... 10500....(241)......6.1
Total secured & HP debts...... 10500.....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Barclaycard ...................6500......160.......15.9
MBNA...........................2300......60........18.9
Aqua...........................1300......30........34.9
Paypal.........................330.......15........14.9
Argos..........................299.......0.........0
Halifax Overdraft..............600.......0.........0
Halifax Loan...................380.......190.......28.9
Klarna Finance.................438.......25........0
Klarna Finance.................725.......26........14.9
Total unsecured debts..........12872.....506.......-


Monthly Budget Summary
Total monthly income.................... 1,271
Expenses (including HP & secured debts). 1,016
Available for debt repayments........... 255
Monthly UNsecured debt repayments....... 506
Amount short for making debt repayments. -251

Personal Balance Sheet Summary
Total assets (things you own)........... 0
Total HP & Secured debt................. -10,500Total Unsecured debt.................... -12,872
Net Assets.............................. -23,372

Willing2Learn

Indebtj wrote: »

...I have about £13,000 of unsecured debts that I could incorporate into the DMP across 9 creditors and these debts are only increasing where I have found I my outgoings to be higher than what I am bringing in and have had to start using cards with higher interest rates to get by...

...from what has been discussed I am encouraged that I could be debt-free in the next 3-4 years but I am worried about the long term implications of setting up a DMP. I'm 27 and not getting any younger, living with my partner's parents. we want to be able to rent in the next few years and I don't want to damage my credit history for 6+ years to a point we wouldn't even be accepted to rent even after finishing the DMP had finished...

There are no long-term implications to a DMP. It does however, trash your three credit files for six years from the date your creditors default you.


A good way to encourage creditors to default accounts, nice and early, is to withhold payment for three-to-six months. This allows you the breathing space to build up a sizeable Emergency Fund (EF). An EF is a vital component of all successful monthly budgets. You can write to your creditors asking them to freeze interest and put your accounts on hold for the 3-6 months. This is not recommended by StepChange but we have found it very helpful guidance to people beginning their DMP journey. Below is a link to a template letter you could tweak to request your accounts are put on hold.
https://www.nationaldebtline.org/EW/sampleletters/Pages/Hold-action-on-your-account-%28sole-name%29.aspx

While I am here, why are you spending £17/month on a bank account. You cannot afford it. And £50 on work meals too. Are you not able to take sandwiches or a packed lunch with you instead? Also, you have £241/month HP. What is that for as you do not have a car? And what is the petrol and motoring costs for? (I am assuming you do have car and that is just a typo).

MovingForwards

Food can get cut back, buy own brands, shop somewhere cheaper.

Clothes, wear what you own and only buy when something is worn out.

Work meals, as said above take your own food in.

Presents, token gifts, it's the thought that counts.

Bank account fee, drop to one you don't pay for.

Contributions to partners finance - what's this for? Is this the car? Or something else?

No mention of car but outgoings for one. Repair cost allocated won't cover much.

Indebtj

Thanks for your reply, It is indeed a typo I have a car that is financed. Based on what has been recommended I will be able to build an Emergency Fund for two months giving me some breathing space since the plan wouldn't start until November. many of the company's said they could only do a maximum of 30 days at a time.

I Will admit since yesterday I have already started contacting my creditors and have arranged 30 day freezes on all of them other than aqua who won't agree , I found it difficult explaining my situation to the creditors as up to now I haven't missed any of my payments and they seemed perplexed as to why I was doing this.

I was thinking I could do some damage control since up to now other than my high balances there are not too many blemishes against my file but it seems like its inventable my file will be highly damaged for at least 6 years.

Also, thanks for your advise on cutting spending, it is my understanding to set the budget to a standard that can be comfortably met and keep aside savings to add to the debts rather than coming short and causing problems.

Willing2Learn

Indebtj wrote: »

I will be able to build an Emergency Fund for two months giving me some breathing space since the plan woudlnt start untill November. many of the company's said they could only do a maximum of 30 days at a time.

I Will admit since yesterday I have already started contacting my creditors and have arranged 30 day freezes on all of them other than aqua who won't agree , I found it difficult explaining my situation to the creditors as up to now I haven't missed any of my payments and they seemed perplexed as to why I was doing this.

You should not talk to creditors on the phone. It is too easy to be panicked or to get flustered. I strongly recommend you only correspond in writing.

You could add to the holding letter that I linked to in my last post, that the DMP start date is xx/03/2020 (or xx/12/2019). As long as you have that in your letter then your creditors, including Aqua, will have no option but to accept.

You are going to be breaking the terms of your credit agreements. Your finances don't allow you to continue making minimum payments. If you are going to break your agreements you might as well go the whole hog and have defaults listed on your three credit files. Defaults are much less damaging than Arrangement to Pay (AP) markers or DMP markers.

As for an EF. This is about protecting from the unknowns. You car may need a new clutch or some other unknown expense. You need an EF to keep you from overspending when an emergency arises.

Indebtj

Thank you for your advice. honestly, the actions recommended by yourself and step-change worry me, not because they are wrong but as I will be going from having everything paid up to date to defaulting on debts and no doubt starting to receive countless letters requesting for payments would be completely new to me.

The last thing I would ever want to happen was to start being threatened with further action and people coming to my partner's parents house demanding money and the like.

Since I have already contacted the majority of my creditors would I be able to send further written correspondence to extend any freeze and would I have to tell step change i would look to be starting the DMP Later?

the current arrangement seems to be that I have told them to freeze for 30 days, I am filling out all the details for step-change they will get back to my creditors telling them they will start the DMP in November.

The £16 payment to my partner's finance is a bed she has in her name but I have agreed to pay half.

Willing2Learn

Indebtj wrote: »

Hi, Today, after being rejected for a loan to consolidate some of my debt I decided I have to change something or my finances are going to crash. I plucked up the courage and called step change and discussed the possibility of a DMP...

Indebtj wrote: »

...honestly, the actions recommended by yourself and step-change worry me, not because they are wrong but as I will be going from having everything paid up to date to defaulting on debts and no doubt starting to receive countless letters requesting for payments would be completely new to me....

Your "finances are going to crash". Those are your words. Your income is too low to continue to service your accounts. You are not able to continue satisfying the terms of your contractual obligations as your SOA does not add up. Your SOA says that this month you will be short by £251. You are about to breach your contractual obligations one way or another.

A DMP is a method to break your credit agreements in an orderly, yet informal manner. A DMP will leave your credit file in tatters, but since you cannot afford to keep to the terms of your agreements this month, then that does not really matter. A DMP is a plan that allows to break free from the terms of your credit agreements in a way that will keep your creditors happy.

Yes. Your creditors will write to you. A lot. Yes, they may phone you. A lot. (But you can reject the phone calls and write to your creditors telling them that you only consent to written correspondence.) This is your 'window of opportunity' to turn things around.

The DMP method that I describe means all your accounts will default. But the defaults will occur right at the beginning. The defaults will remain on your file for six years, at which point they will be automatically removed. If you enter into a payment arrangement (AP) with your creditors then your credit file will be in tatters for up to an extra six years on top. Double the amount of time.

Indebtj

Thank you so much for your advice, I felt like there might have been a middle ground of sorts since I have been of good standing up until now.

My thought process now is that I could probably continue meeting my minimum contractual payments barely by constantly dipping back into the cards I am paying back and one of the loans ending in November which will free up £190 pm. but by doing this would i even be able to pay back the money in 6 years?

Or I can do as I have been advised and set up a DMP with bonuses, overtime and trying to save money where I can I could probably be done with the debt in around 3 years. maybe a little longer if I wait until next year to start the DMP and set up an emergency fund. I have warmed to the idea as it will ensure the success of the DMP so unexpected costs do not get in the way. I could build up around £2000 if I did this.

I even want to look into voluntary termination on my car finance next year when I have paid 50% of the balance on it. I and my partner both work at the same place and don't really need two cars.

My main concern is my debts affecting my partner or her family I couldn't deal with bailiffs coming round or anything like that. could it get to this stage?

Willing2Learn

As long as you keep to the terms of your informal DMP repayment schedule, then the debt collection agencies won't bother going down the enforcement route (ie courts and bailiffs). It won't impact your partner or family at all.

Just on rough calculations, you should be able to repay all your debts in just over 4 years with an affordable DMP. This is assuming you keep the car and keep paying the car finance.

Indebtj

What should my next steps be considering i have already spoken to them and arranged 30-day freezes? since I wouldn't want the DMP to start until next year. do I just stop all the payments? get back to step-change later next year when the companies have defaulted me?

Since step-change don't recommend waiting and building up a EF is it worth getting back to them now?

4 years 3 months is what I have been told based on the numbers in my original SOA, I think i can easily make improvements to my budget but would look to set the DMP on that basis any savings can go towards flexibly paying more when I can. and im confident I can make an extra £3000 a year on overtime & bonus.

Willing2Learn

If it were me, I would write to all your creditors (via Royal Mail), using the letter template I linked to in post #2. Where it says the bit about freezing your account for 30 days, change the duration to either 3 months or 6 months. You could add in your scheduled DMP start date will be DD/MM/YYYY. And another line to say that you only consent to correspondence in writing, via Royal Mail.

And you would then cancel you existing payments (your DDs and any debit card CPAs).

Whether you start your DMP in November, December or March is a choice you need to think about. I cannot stress how important it is to have a sizeable EF saved up before the DMP begins. You will be so relieved to have that buffer available when some unexpected expense occurs. You can get back to StepChange once you are about 30 days before the DMP start date.