Is a debt management plan right for me? 11 February at 10:24AM in Debt-free wannabe 18 replies 1.2K views

kpols

Hi all, 

I hope you're well.

I don't want to be judged as I know that I've made some mistakes with money and just want to work towards a new future.  I'm 28 years old with £13850.00 in debt.  I make £2650 per month with £345.00 free to be paid towards a plan.

My credit rating is poor due to delayed payments and over utilisation of credit (currently around 95%+) of all available limits 

I mostly owe money to reputable lenders and its a mix of overdrafts and credit cards. 

Til now, I have managed to avoid any of my credit accounts being passed to collections agencies. StepChange advised me that this is a possibility with the DMP

I am concerned about collections action being taken against me and would like to avoid this. 

What's the likelyhood of this happening on the DMP with stepchange?

SusieT

Firstly well done for seeking help, it is a big step. The best thing for you to do before you go any further is to do the SOA https://www.lemonfool.co.uk/financecalculators/soa.php so that people can help you fill in blanks and where you may need to budget different amounts, nobody here is judgemental, the vast majority have been in your position and are working through or are out the other side of where you are now. 
Before you do a DMP it is worth stopping payments completely and waiting for defaults, while putting away what you would be paying to Stepchange so that you have an emergency fund if the car goes bang, washing machine/fridge etc break, but not for things that should have been budgeted for. This stops interest and the whole account will be gone from your credit history 6 years after the default date, rather than 6 years after the debts are repaid. 
Stepchange are good (make sure it is the charity rather than one that sounds like them but charges a fee), and they will help you through it, and once you are signed up the creditors will deal with them. Collections can happen, but when you are on a DMP it is a lot less likely as they will know they are getting their share of what you can pay, so are less likely to take any action since they would not get a higher amount. They could bombard you with letters at first, but these are computer generated, and are designed to frighten you with anything that could or may happen if they do not get paid NOW, in reality it is normally more letters with words in big red letters instead of black font!
I would hit the overdraft first, it is a very expensive way to borrow, and can be recalled at any time, so the bank could use your wages to repay it all if that happened. It could be well worth you opening a new account that is in a banking group unrelated to any debts, and have your income paid into it - do not use the switching option - then transfer any direct debits for NON DEBT payments to the new account. That will give you a new start and the ability to have a budget that you know you must stick to. It may be a good idea to find a bank account that has pots you can use for things you save for like insurance, presents or holidays to make the budgeting easier
Good luck with it

fatbelly

Debt Collection Agencies just work through their standard letters then pass the debt back to the lender. You learn to ignore them.

Yes it sounds like a dmp would clear all your debts in about 3 years so that's the way forward.

Susie's advice is good, above.

sourcrates

Lenders do not always have the time or resourses to manage bad debt accounts, which is why they tend to farm them out to debt collection agencies to collect payment on there behalf, its pretty much normal practice.

Where debt management is concerned, you should expect defaults, or arrangement to pay markers, having accounts sold or passed to debt collection agencies, all as par for the course, and what you would pretty much expect to happen, so you can`t really avoid it.

Non of that should worry you, the whole point of debt management is to rid yourself of unaffordable debt, your credit history will mend itself with time and good management, it has to get worse, before it gets better.

kimwp

It's a risk that your debts will get passed to collections agencies, but that doesn't then mean that there will be bailiffs pounding at your door. 

If you share the names of the "less reputable" lenders that you are worried about, then posters can share their experiences of them.

Rob5342

There is no judgement from me, I ended up with £42,000 on credit cards. The important thing is that you are dealing with it and can get it all sorted out.

Debt collection agencies sound very scary but actually they aren't usually anything to worry about. Whether they are just collecting a debt or have bought it, they usually just want to get a payment arrangement in place and would probably be quite satisfied with what Stepchange arrange. Three of my debts are with collection agencies and they just take the payments no problems at all. Creditors are well within their rights to take legal action, and you can never completely rule It.out, but in practice they are normally quite happy having a payment arrangement with you. Any legal action is only likely to result in you making the same payments to them, and they know that, so legal action wpuld cost and effort for no returrn.

Some people ignore the collection requests for a while to try and get a default, which is much better for your credit report in the long term. A lot of the posts you see here about people being hassled by collection agencies because they have chosen to do that. Whether you do that or not is your choice, but as long as you actually start paying them in the end you can get out of this..I had lots of concerns before starting my dmp but it has all gone very smoothly.

kpols

kimwp said:

It's a risk that your debts will get passed to collections agencies, but that doesn't then mean that there will be bailiffs pounding at your door. 

If you share the names of the "less reputable" lenders that you are worried about, then posters can share their experiences of them.

I owe money in order of amounts to: 

Barclaycard: £3750
HSBC £2500 (CC: 500, OD: 1800) 
Santander  £1800 (OD) 
American Express: £1000 (CC)
Paypal Credit: £1000 
Very Group: £750
Vanquis: £500
JD Williams: £450
Zopa: £300
Capital one: £200

sourcrates

kpols said:

kimwp said:

It's a risk that your debts will get passed to collections agencies, but that doesn't then mean that there will be bailiffs pounding at your door. 

If you share the names of the "less reputable" lenders that you are worried about, then posters can share their experiences of them.

I owe money in order of amounts to: 

Barclaycard: £3750
HSBC £2500 (CC: 500, OD: 1800) 
Santander  £1800 (OD) 
American Express: £1000 (CC)
Paypal Credit: £1000 
Very Group: £750
Vanquis: £500
JD Williams: £450
Zopa: £300
Capital one: £200

They are all mainstream lenders, and will all adopt a similar policy to deal with unpaid debt.

That policy will usually mean your accounts marked as default or arrangement to pay, some lenders may keep the debt in-house, others may farm them out to collection agencies, and some accounts may be sold, this is why we have a debt collection industry in the UK.

fatbelly

None of those are anything to worry about but you will probably find the amount of paperwork generated is in inverse proportion to the size of the debt!

kpols

fatbelly said:

None of those are anything to worry about but you will probably find the amount of paperwork generated is in inverse proportion to the size of the debt!

I also want to ask another question -  my old job paid almost £50,000 per year, whereas my current one pays £35,000.  At some point during the plan, its likely that I'll try and go for something better paid and matching with my skills and experience. 

What happens then in terms of the debt management plan? Obviously, I would then be able to afford the contractual repayments and would likely be paying over that amount. 

I'm perfectly willing to do this and actually would prefer to finish that quicker.  StepChange couldn't really answer this question 

fatbelly

A debt management plan is an informal solution so you can do what you want.

If you're asking what difference it will make to your credit file, the answer is probably none. After 3-6 months of payment below the contractual minimum, you will be issued with a default. This removes the t&Cs so there is then no contractual minimum. The default stays on file for 6 years and then the whole entry is removed.

So if you do become better off during the dmp our advice would be to save the surplus into a separate pot and use the lump sum to do full & final settlements