What’s better? Default or Arrangement to Pay?

MrLolly

I can’t seem to find the answer to this question anywhere...

I’ve just started a Debt Management Plan with StepChange. A couple of my creditors have defaulted me, and another has said they won’t put a default on my credit file- just mark that I’m on an arrangement to pay: ‘AR’.

At first I thought the least amount of defaults on my file the better, because of the six year length. However on reflection, is it actually better to have the defaults so that 6 years from now everything drops off my files even if I haven’t finished paying them off?

Essentially I don’t want credit now or any time soon. But obviously small things such as a mobile phone contract or even sim only deals require credit checks so I’m anxious about ruining my credit file. I want to give myself the best chance.

Anyone’s thoughts on this?

Willing2Learn

A default is tons better than an AR. This is because, in a worst case scenario, an AR remains on your file for six years after the account is settled. Whereas a default is removed six years from the date of default.

You want to force the two creditors into defaulting you. This can be done by reducing the DMP payments to the two creditors to just a token amount (£1/month). If you do that, then the creditors should consider their AR Arrangement as being broken. Then they should default you instead, once the account is 3-6 months in arrears.

This is clearly stated in the guidelines. Have a look for yourself (see principles 3 and 4):
http://www.scoronline.co.uk/sites/default/files/high_level_prinicples_document_final.pdf

boo_star

Defaults have a higher impact but go after 6 years, AP's have less of an impact but tend to stick around for longer.

As you've already defaulted just get the rest of them to default you. The damage is already done.

Willing2Learn

boo_star wrote: »

Defaults have a higher impact but go after 6 years, AP's have less of an impact but tend to stick around for longer.

I do not agree. I consider both an AR and a default to be equally toxic when recorded on your credit file. After all, they both signify that the debtor has broken the terms of their original credit agreement, (even though with an AP, you would now have a new agreed payment arrangement). Obviously, my point of view is subjective...

boo_star

Willing2Learn wrote: »

I do not agree. I consider both an AR and a default to be equally toxic when recorded on your credit file. After all, they both signify that the debtor has broken the terms of their original credit agreement, (even though with an AP, you would now have a new agreed payment arrangement). Obviously, my point of view is subjective...

An AP shows a willingness to negotiate with your creditor, defaults tend not to. But it's much of a muchness, one is highly toxic, one is less so but will be around longer. The end result is probably the same.

Either way if I were the OP I'd be pushing for a default on the other debts. Once you have one you might as well go for a full house.

MrLolly

Thanks for your input folks. I contacted the creditors who told me that they won’t default the accounts because they’re accepting the £5 per month payment from step change.

Therefore the only way to default on them is to force their hand by neglecting the debts for a few months? I cancelled my DMP with stepchange and I presume once the defaults come through, that’s when I should re set up a DMP (or self-administer one)? Am I correct?

boo_star

MrLolly wrote: »

Thanks for your input folks. I contacted the creditors who told me that they won’t default the accounts because they’re accepting the £5 per month payment from step change.

Therefore the only way to default on them is to force their hand by neglecting the debts for a few months? I cancelled my DMP with stepchange and I presume once the defaults come through, that’s when I should re set up a DMP (or self-administer one)? Am I correct?

There's really no "right answer" to this.

It's possible that you can negotiate with your creditors after defaulting. Alternatively they might go for a CCJ.

Which way the wind is blowing isn't something anyone on here can comment on.