Concerns about DMP, mounting debt and no idea how to get out of it

Nomissbocaj

Hi there,
Looking for some general advice regarding debts and DMP I am entering. Basically I contacted PayPlan and went through my budget and my main incomings/outgoings and they deduced that I could afford just over £300 a month to pay back debts. Which I was initially skeptical about as month on month I never have this kind of sum free at the end even with trying to be careful with money. Went back to them and went through budget with a fine toothcomb and they still advised I could afford £300 so I trusted them and agreed to proceed. They also advised to set up a new bank account away from Lloyds (where most of my debt resides) which I did meaning I wasn't constantly living out of my overdraft with Lloyds and can start fresh with a new bank and simply work with Lloyds to pay the overdraft back and other remaining debts. It came to the first payment on the 1st Feb 2021 and panic struck, I realised that I could not afford the first payment as (due to being paid every 18th). Again no lavish expenses just general day to day food, petrol etc. I had £400 left in my account till next pay day and my car required essential work to pass the MOT which eventually cost £330 - leaving me with the option to either go into a brand new overdraft (so again going into more debt to pay debt) or ask Payplan to defer my first payment till payday on 18th (which is the option I chose).

So basically my first month on a DMP with PayPlan has been nothing but stressful and now I am more concerned than ever regarding money and debt issues. I just do not know how I am going to be able to afford to pay back all debts but also ensuring that I have the money remaining in my account for emergencies like car repairs, plumbing, electricians etc. I know now that it is unavoidable expenses such as these emergency works over the past year that have dented my finances (not necessarily living beyond my means). Yet do not know now the best option forward to get out of the debt, hopefully someone can advise. Thanks

Simon

sourcrates

Hi,
OK, try and relax, take a deep breath, you have come to the right place.
Whenever someone decides to enter debt management, we always advise you stop making payments to your creditors for a good few months beforehand, this is so you can ascertain your position, and to save up an emergency fund, so you get yourself prepared for when the DMP kicks in, so there are no surprises basically.

You appear to have jumped in headfirst without thinking things through properly, don`t worry, its a very common error a lot of people make, the process normally goes something like this, you stop making your unsecured credit payments, you write to all your creditors stating your in financial trouble, and telling them you will be taking some breathing space, whilst you take advice from one of the debt charities.

This period of breathing space can be as long as you like, debt collection is a very slow process, and the quicker your debts are defaulted, the better, as all interest and charges are then frozen, so your debt will not increase any further.

Once you are ready, then you talk to payplan or stepchange if you prefer, make sure you budget correctly, that`s another area where people fall down, better to overbudget and have to reduce it, than underbudget and miss out.

Once your happy, start your DMP, its like anything else in life, there is a right way and a wrong way to do it.

Can I just ask, are you a homeowner, or do you rent ?
What is your total debt ?

Good luck.

Nomissbocaj

Thanks @sourcrates appreciate the swift response. So what should I do now I am in the DMP with PayPlan? Remain in it or simply look to speak with them and reduce it? I was originally paying back a total of £100 a month to creditors as this was affordable so I wonder if I even needed to enter the DMP with PayPlan in the first place? Would it have been easier to just leave it as it was it would just take me longer to pay back.

Yes I am a homeowner - and total debt is roughly £10k

fatbelly

The choice of a dmp with Payplan sounds right but you have started too soon and have not had time to prove to yourself that you can live within the budget you have set.

You need to have a chat with them, point out that you have had emergency expenses and ask for the start to be delayed.

They are there to help and so should be OK.

In the worst case you may just have to cancel the dmp and pay non-priority creditors nothing for a bit. That wouldn't be a disaster

sourcrates

If your going to stick with Payplan, then you need to re-visit your budget with them, be insistent, don`t allow them to dictate to you, its your DMP, you should decide who gets what.

If the payment is unaffordable, then say so, and don`t be railroaded.

On the other hand, you can always do this yourself without any 3rd party help, really all Payplan do is act as a payments processor, a bit like PayPal, they present your budget and payment details, to your creditors, and distribute your payments, there`s absolutely nothing stopping you doing this yourself, in fact a lot of debtors do this themselves, they find it much less stressful.

So, food for thought.

daffodil5

sourcrates said:

Hi,
OK, try and relax, take a deep breath, you have come to the right place.
Whenever someone decides to enter debt management, we always advise you stop making payments to your creditors for a good few months beforehand, this is so you can ascertain your position, and to save up an emergency fund, so you get yourself prepared for when the DMP kicks in, so there are no surprises basically.

You appear to have jumped in headfirst without thinking things through properly, don`t worry, its a very common error a lot of people make, the process normally goes something like this, you stop making your unsecured credit payments, you write to all your creditors stating your in financial trouble, and telling them you will be taking some breathing space, whilst you take advice from one of the debt charities.

This period of breathing space can be as long as you like, debt collection is a very slow process, and the quicker your debts are defaulted, the better, as all interest and charges are then frozen, so your debt will not increase any further.

Once you are ready, then you talk to payplan or stepchange if you prefer, make sure you budget correctly, that`s another area where people fall down, better to overbudget and have to reduce it, than underbudget and miss out.

Once your happy, start your DMP, its like anything else in life, there is a right way and a wrong way to do it.

Can I just ask, are you a homeowner, or do you rent ?
What is your total debt ?

Good luck.

This is so reassuring, sourcrates, thank you so much, I've now bookmarked it for when I get panicky moments (at the moment quite often)

I just wanted to clarify that here you say that people need to write to creditors saying that 'I am in financial difficulty and need to take some time to work out how to deal with this, and will be taking advice from the debt charities' I can see this thread is about 3 years ago but just wanted clarity if this would be the right thing to do? If so I'll also tell them that I'd like any communication to be by email preferably or by letter, not phone.

Yet in other threads people suggest not paying and not explaining, and ignoring calls, emails and letters.

Do I need to let the creditors know the situation by letter please? 

Also PayPlan seem to want me to get started straight away with them, when I suggested that I might want to wait a while. They're due to call me on Monday morning and I'm not sure how to play it, so any advice you can give in that would be very much appreciated.

I'll probably end up doing my DMP through them so I don't want to annoy them or do anything that means they may not want to help me in the future, but want to now wait for defaults and build up my emergency fund. They also don't yet know that I've already cancelled all direct debits for debts, they did say that this would need doing when I sign up with them.

I have a bank account where no debts are held, already set up to move the remaining direct debits to, and where I can save my emergency fund, so that's all in hand.

Thanks in advance for any advice.

RAS

daffodil5,  it really is best if you stick to your own thread rather than raising questions on someone else's thread. And you are asking for certainty and clarity that's isn't available.

This is a forum, so people have different views on how situations would be managed. And three years ago was in Covid, which was very different.

What we can say is that if you start paying debt through a DMP (self managed or through an agent like Payplan) without getting defaults your credit record will be damaged for 6 years after the debt is paid off. If you stop paying now and wait for defaults, the debt falls off your credit record after 6 years, regardless of any payments. 

It's your choice which you prefer.

And if you start writing asking for forbearance that will delay the defaults. It's your choice what you prefer.

And that you are entitled to write to the creditors and tell them how you wish them to communicate with you. That is covered by a completely different set of rules That won't affect anything other than their communications.

It's your choice how you want them to communicate with you, other than when they decide to default the record when they have to write to you in a strictly defined way.

sourcrates

@daffodil5.

Debt management is flexible, you can pretty much mould it to how you want to do things, some people prefer informing creditors of their circumstances, others don`t, its down to personal choice, and what you are trying to achieve.

Telling them what`s going on may result in unwanted AP markers (arrangement to pay) as they think they are trying to help by reducing payments, for some who`s situation may only be temporary, that may work, for others it just delays the inevitable.

You must keep in mind that you are just an account number, they are not your friend, and the reason for non payments doesn't really matter, an automated process kicks in once you stop making the required payments, which is all computer generated.

Another thing to keep in mind is the creditors you currently have, might not be the ones you eventually start making payments to, the sale of bad debts is common place, its big business, and your account will likely be sold before too long.

So whether you choose to write to them, or ignore them completely, both paths will eventually lead to the same place, default and potential sale of your account, its just the latter path will get you there quicker, and be less harmful in the long run, to your credit file.

The debt charities do a great job with the majority of folk who can`t help themselves, but they are creditor funded, so have to work within certain guidelines, which don`t always benefit the debtor, those who have been through this process know how it works in reality, and there are many ways to make the journey to debt freedom a lot easier for yourself, being proactive and pre-planning things is key to this as we know how the system works.

daffodil5

Thanks to both @sourcrates and @RAS, that's really helpful. I'll make sure that questions I ask in future are on my own thread, I just was trying to not replicate questions that have been answered elsewhere already but I can see that is not the way to do it now. Thanks again. 

EssexHebridean

Back to the OP - it might help you to put together your SOA (statement of affairs) using the calculator we recommend on here - the link to that is in my signature below. That will mean you can get all your income and expenditure down in an easy to follow format and that in turn will enable you to see where the budget you set via Payplan is currently failing you. Budgeting really isn’t one of those things which you are likely to get right the first time - indeed, even lots of us who have been budgeting for years still routinely resign and adjust things! My suspicions are that good areas for you to look at will be things like grocery spending and fuel for a car as those are often the places where people spend more than they budget without realising it. You also need to be budgeting a monthly amount to cover car maintenance - so servicing MoT test, new tyres when needed, that sort of thing. That will avoid future panics when these sorts of expenses come along. 

If you feel you can, then my suggestion would be to use the “format for MSE” option on the SOA, then copy and paste it in to this thread and we can help you go through it, spot any savings you might have missed and most importantly advise where there are gaps in the budget that might catch you out. 

RAS

One of the advantages of delaying a DMP until you've got an emergency fund and defaults is that it gives you time to stress test your budget first.

We see a few with unrealistically high sums for ents, groceries and media, but more often we see budgets where no allowance has been made for foreseeable annual costs, and some common elements are missing altogether.

So it's worth sharing if you feel able.