Step Change

Mooeyboy

Good morning,

I’m new to the forum, so please be kind! 

I have around £32K of debt.  I’ve contacted Step Change and did a budget with them. My take home monthly salary is around £2000, and my monthly outgoings are roughly £2200. Around £1100 goes to unsecured debt ( credit cards/ loan) and the rest goes to secured home loan and car. 

Step Change have suggested a debt payment plan as I live in Scotland. This would protect me in law. Using the budget, I would pay back around £530 pm for 5 and a half years to my creditors. This would be in my name only. I’ve got all the paperwork, and I’m just about to send it to them. 

I have a couple of questions if anyone can give any advice, that would be appreciated. Me and my wife have a mortgage and a second charge loan secured against our home in both our names. The fixed mortgage deal we have with our mainstream provider is due to end in 2 years, and we have 7 years remaining. We normally just accept the new offer from our current provider, as it’s usually a good deal. I’m just worried that my taking out a debt payment plan, this may have an impact on our mortgages.  I telephoned our main  mortgage provider, and they advised that as long as we weren’t looking to borrow any more, this should have no impact on the deal we will be offered. Does anyone have any experience of this? 

Second and final question ( you’ll be glad to hear) is that Step Change have advised me to contact my unsecured debt creditors and advise that I will struggle to pay the minimum monthly term this month. I’ve been in a cycle of paying all my monthly debts and using the credit cards to pay household bills etc. So not paying them this month would certainly afford me some breathing space, but I’m just worried about defaults etc. 

Thanks for any help and advice. 

Suseka97

To answer the second/final question first - whilst I'm not wholly familiar with a DPP, if it is similar to a DMP (which is the same type of debt solution for people in the UK),  then getting your accounts defaulted is inevitable at some point, but more importantly it's what you should be seeking.

To explain, a default means that all interest and charges will be stopped and 6 years from the date it was applied to your credit file, it will then be removed for good.  If a default isn't applied there's a chance interest will continue to be applied and the payment markers on your credit file remain for 6 years after the account is settled which will affect your credit history for much longer than a default would.

As to the mortgage situation - I'm in the UK and was able to switch at the end of fixed term deals with my (then) provider with no issues.  It was all done online and no credit search was carried out - so the deals offered were the mainstream ones available to all.

You clearly do need some breathing space so my suggestion is for you to write to your creditors and explain you are in financial difficulty and are seeking help from StepChange.  Say that you'll be back in touch with them in due course and give yourself a minimum of 3 months, perhaps longer in order to get the account defaulted, before launching into the DPP.  Use that time to put money aside into an emergency fund to cover the future 'unknowns'.

Have a read of the DMP mutual support thread, which is largely about the UK DMP but a lot of the same information and advice applies.  Also there are a couple of very knowledgeable people from the CAB and others with a great deal of experience on there who will help with questions you may have along the way.

Mooeyboy

Hi Suseka97,

Thanks for taking the time to reply and for all  the information, it’s much appreciated.  I contacted one credit card supplier a couple of weeks ago. They were quite helpful, and said they would give me breathing space for a month. They put me in touch with Step Change, and asked that I call them back in a month or so with a reference number from Step Change. I’ll give my other credit card creditors a call too. Just one final question, if you or anyone else can advise? 

I currently have a DD set up for my personal loan ( I don’t with the cards) and was just going to pay this month as normal, as I’d contacted them previously regarding my situation, and they’d agreed to reduce my monthly payments for the next 4 months. Paying this month  will still leave me with a good budget for this month. Should I default/ contact them again  on this one too? 

Thanks again 

Suseka97

Is this personal loan with your current bank and if so, did SC advise you to set up a new separate account to avoid the possibility of an offset?  This is rarely done, and more complicated for a bank if it is a joint account - but the general advise is to not bank where you have debts going into an arrangement.

To answer the specific question regarding the DD for the personal loan, if it is eventually going into the DPP then I'd just stop making the payments now.  But again, it depends on your answer to the first question.

Mooeyboy

Hi Suseka97,

Thanks again for the information. 

The loan is not with my main bank. SC did advise me to contact my bank as I have an overdraft with them that will be included in the DPP. They have said I should ask them if it’s possible to create a basic account with them which any DPP payments and current DD’s will come out from. This account is in my name solely. I’ve yet to do that, but it will be on my list. 

Suseka97

Ah, that's good then.

So, back to the question regarding whether to stop payments to the personal loan debt and I would say yes, you may as well.  The longer you continue to make payments, even reduced ones, the longer it'll be before you stand chance of getting those defaults.  

You should write and advise you are working with SC to set up a DPP and will therefore be stopping payments.  You can always thank them for trying to assist by reducing the payments for 4-months, it does sound like they were trying to help you - but add that you need to address your debt situation as a whole and will be putting the account into the DPP in due course.

Mooeyboy

Thanks again for that. 

Sorry I’m a little confused though. SC advised me to contact my creditors, explain the situation and make small monthly payments of around £10 to each creditor if I could in the meantime. Do you know if  the accounts have to go to default before I’m likely to be granted my DPP?  SC haven’t advised that, and they’ve just asked me to send on my paperwork ASAP as it can take some time to set up. They said usually 6-8 weeks, but with COVID it could take longer. 

Thanks again for any information. 

sourcrates

Mooeyboy said:

Thanks again for that. 

Sorry I’m a little confused though. SC advised me to contact my creditors, explain the situation and make small monthly payments of around £10 to each creditor if I could in the meantime. Do you know if  the accounts have to go to default before I’m likely to be granted my DPP?  SC haven’t advised that, and they’ve just asked me to send on my paperwork ASAP as it can take some time to set up. They said usually 6-8 weeks, but with COVID it could take longer. 

Thanks again for any information. 

A DPP(DAS) is a regulated Scottish debt solution, similar to a DMP in the rest of the UK, but comes with legal protection, and a freezing of interest and charges as standard.

A similar scheme is planned for the rest of the UK, but has yet to be formalised.

Stepchange will always ask you to make token payments if possible, this is entirely up to you, and won`t make any difference in the long run, you can just write to your creditors, tell them your in the process of setting up a DPP and leave it at that.

You really should start to save up an emergency fund, in case its needed later on, as things break, and access to credit will be non existent, that should be your focus now, rather than paying your creditors, but as I said, its up to you.

Mooeyboy

Hi Sourcrates,

Thanks for that. All noted. 

Mooeyboy

Hi, apologies for the continuing questions. 

When I initially had my advice session with SC, they advised me that my current bank wouldn’t try to take my monthly salary as an offset,  while I was receiving help ( I have an overdraft and a credit card with them) However I spoke with them again today, and they’ve now advised me that the bank may try to do so, and that I should move my money to another account I have. Does anyone know how likely they may try to do this? 

They’ve also told me to remove myself from a current account held in both my and my wife’s name, as there is an overdraft ( that we rarely use) attached to it. Again initially I was told I didn’t have to do this, as we didn’t really  use the overdraft. So I’m really confused with the conflicting advice. 

Finally they also said that it would only be my credit rating that would take the hit with the DPP. Now they’re saying my wife’s rating  could have an impact too. 

To say I’m confused and my head is spinning would be an understatement! 

If anyone could offer any advice, that would be appreciated. 

Thanks 

sourcrates

Before you choose any debt solution, you must be pro-active, and pave the way so that all runs smoothly when you finally get the ball rolling.

Basic rule of thumb, is never bank where you have debt.

Banks rarely use the right of set off, and there are rules they must follow when or if they do, but it is always a possibility, and the key to running your debt solution, and keeping it tickerty boo, is to deal with all potential issues beforehand.

So, always open a new basic bank account, for your everyday banking, basic accounts are not always advertised, as no borrowing is allowed, and no credit check is needed.

Nationwide, Coop, Lloyds, to name but three, all do good basic accounts with debt cards.

Any joint account should be closed beforehand, that way your partner is not affected by your debt problems.

Its simply a matter of thinking of potential problems, then ticking them off, one by one.

Remember the 6 P`s - Pre-planning prevents p**s poor performance.