Stopping payments before starting a DMP

loulou1570

Hi I have realised I finally need to manage my finances and was already to set up a DMP with step change today after using their online calculator and it recommending a DMP. Until I was reading forums on here regarding it was best to stop payments and build up an emergency fund. Not sure if I am been daft or not but surely if I cancel payments loads of interest charges and late fees will be added? And then by the time they do default and the interest and fees are frozen the debt will be considerably higher due to all the charges/interest been added in the months I didn't pay nothing? 

fatbelly

That will happen anyway. Guidance says they should default you after 3-6 months of missed payments. The sooner you get the defaults, the sooner you can move forward

loulou1570

Would it happen though if I started the DMP straight away ( I know it may happen for a couple of payments) once step change ask them to freeze the intrerest etc. I'm just worried as I've done the budget etc put in what I owe and been told a dmp but when I do it calculations after waiting for the defaults to happen the amount I owe will be much higher and I'm worried step change will say its not enough to cover the payments I now owe with them been a lot higher as the interest on my accounts are high.

sourcrates

Lets just break down what a DMP actually is, as you appear to be a tad confused as to how it all works, and what Stepchange`s role in it is also.

Stepchange, as a recognised debt charity, will organise a debt management plan for you, all at no cost, but what does that actually entail ?

They simply write to your creditors, or more likely these days email them, giving your name/address/account number, a brief rundown of your circumstances, a copy of your budget, and a generic few lines about stopping charges and interest accruing, that`s basically it.

They will then make payment to your creditors on your behalf, each month, until the DMP ends, or you stop it for some reason.
That payment is based on what your available disposable income is, not on how much of a balance is outstanding on any particular account, or what any minimum payment used to be, debt management favours you, not your creditor.

It`s a whole different way of thinking.

Non of this is beyond the scope of the average person, so self management is common.

Starting a DMP too early may result in arrangement to pay markers, which will stay on file for 6 years after the debt is settled, were as defaults disappear 6 years after the default date, so potentially a lot sooner, plus that emergency fund is a vital tool, that you will need, as you will have no access to further credit for some considerable time.

Allowing all accounts to default first, will be to your eventual benefit, oh, and that emergency fund you will have been saving can be put to good use further down the line, when settlement offers start coming in, so that interest that was charged initially, can be offset by the savings you can make by settling for less than what will be owed.

loulou1570

Hi thank you for explaining sorry its all new to me but it's just when I do the budget and add an extra couple of thousand from the late fees and interest on what I owe which it could end up been by time they do eventually default them. When I add these onto the calculator it says I shouldn't do a dmp as I owe too much and says about iva which I don't want really. Where as at the minute with what I owe currently without the extra interest and late fees it's showing a dmp is suitable.

Sorry for sounding daft and I appreciate you taking the time to explain it to me it's so confusing and scary never done anything like this in my life before  

sourcrates

It can be confusing, as you must look out for yourself, and do things the right way, and in the right order, but it should never be scary, think of it as a challenge, a learning curve if you like.

The stepchange "debt calculator" throws out solutions based on the amount of debt you have, its quite a blunt instrument, and doesn't take any variables, such as I mentioned earlier, into account.

You may have greatly exaggerated the amount of charges you may get, but as explained before, if you have 2k of interest added until default, you can still save say 4k by making a settlement offer later on.

Honestly, that is not something you should worry about, it doesn't matter how much interest is added by the original creditor, at some point, they will sell that debt, and it will be bought by a company that pays less than 25p in the pound for it.

So they will be willing to accept almost anything above that figure in settlement later on.

You almost never end up paying your full outstanding balance, the majority of people either make settlement offers, get their debts written off for affordability issues, or lack of compliant paperwork, or a creditor will make a commercial decision and simply write off the debt, its all down to how you handle things, your personal circumstances, and how much knowledge you have on this matter.

fatbelly

Remember no-one can force you into an IVA (though many will no doubt try) and that if the free dmp providers (stepchange, payplan, cap) don't agree, you can easily go self- managed

peteuk

Although my DMP was some years ago, I was advised of two actions which I could take.

1) Contact my creditors and advise them of the up coming dmp.
2) Make a token gesture payment (£5) until the first payment was made through CCCS (now step change)

However (and please someone correct me if I am wrong as this is how it used to work) if you make your payment to Stepchange on 01 July, they will distribute it at a given day of the month eg. 20 July.  So somewhere along the line someone is going to get a late payment.   It took a few months for all my creditors be to 100% happy. 

The quicker the account defaults, the quicker it drops off your credit file.  

sourcrates

Payment due dates are there mainly to comply with the terms of the consumer credit act, once you enter debt management, your accounts will almost certainly default, and therefore break the terms of your contract irreversibly, so they become much less relevant than before.

Especially if your using a debt charity, whose payment cycle, as you say, runs to there own timescale, not the creditors.

If they are not happy, they sell the debt to someone else, it`s not really your concern, all you have to do is maintain your payments, whenever it suits you.