Help/Advice for BFF

rosiesposies

All - so much useful help on this board so wanted to pass it on to best friend who is currently struggling. I have given her some advice (having done DMP that helped me settle all debts and rebuild credit rating in 2010s) went on to buy a home solo and now using credit in the best way possible (travel rewards etc)

She is going through a nasty split with partner (he left the home in Jan)  I have done a SOA with her, reduced all the usuals (BB, food shopping even tho its staggering, Streaming, mobile phone, household costs ect)

Essentially, she is going from dual income home to single, and her options are limited for housing. She lives in a 1 bed flat she is currently renting, and given the market/location she is in it makes finanical sense to stay in the property so no reason to move. The split on househould costs she used to have allowed her to pay down debt now looks to be eating up her solo income (rent, bills) so her best option is DMP. (about 35K worth of debt across 7/8 credit cards)

Its the logistics that I cannot quite offer the best advice as its been so long since I was here myself. She can stretch by going into savings to make min payments on all credit accounts for next few months while she decides what to do. 

so my questions are:

should she cease paying all non essential credit accounts to move fast as possible into defaults?
She banks and has cc with lloyds, should she open a new current account elsewhere whilst she still has okish credit history? assming she defaults on the lloyds cc(she has no overdraft luckily)
should she then use spare funds to build up emergency fund whilst waiting for defaults to hit and freeze (say 1-2K?)

and then should she contact a DMP provider? Or should she do this whilst she is still technically on top of her debts (savings could take her until SEpt/Oct but that would wipe it

 I didnt recommend self managed to her, she has a stressful job and with the split (was long term over 10 years together) i think she hasnt got hte mental capacity to take it on herself. Not that it matters, but debt was accrued through overspending, holidays and essentially keeping up with the joneses... she has learned her lesson now and has cleared 5K of it through selling off things on Vinted, ebay etc. 

any help appreciated - just want to give her best advice possible and its been awhile since my DMP journey

Rob5342

If a DMP is definitely the right option then she should stop paying straight away to get defaults as soon as possible and use the spare funds to build up an emergency fund. Unfortunately some lenders can make things very difficult and take a long time to default, but she should hold out until they do as she'll be far better off long term.

Her savings and current account should be with a bank she doesn't owe money to so it would be good to get a new current account now, she might find a bank with a switching deal or Starling and Monzo are nice modern banks with apps that have lots of useful budgeting features.

It might be a good idea to talk to Stepchange or PayPlan now to make sure that a DMP is the right choice and work out a budget, but she should avoid starting it until the debts have defaulted.

Self managing is very easy really, I just used this site to generate the letters budget, sent them off and set up the standing orders and that was it:

https://nedcab.cabmoney.org.uk/dmp.asp

rosiesposies

thank you so much for your reply. I couldnt remember the best way to do it if you were still making payments. 

Its 7/8 creditors and one with her current bank so I will let her know - re Monoz/Starling

DMP definitely the way to go - shes pulled out all the skeletons and due to her job bank/IVA are a no go. 

fatbelly

So insolvency would impact her job but defaults on a credit file are OK?

Just a word of caution - if she is in private rented and does need to move, most letting agencies will do a credit check. Hopefully she's OK where she is.

What length of time are we looking at to repay her debts, roughly?

Floss

Please advise her to hold onto her savings, putting them into a non-related bank as an emergency fund.

Archergirl

Sorry, I don't understand really, but how can you have savings when you are so much in debt? Surely you should be trying to pay off the debt before you have secret savings?
35K of debt whatever has it all been spent on?

fatbelly

For someone with significant debt, any savings would probably constitute an emergency fund/fighting fund.

So that's a precious resource, and not to be frittered away on non-priority debt. OK to use it to pay rent/council tax/food etc if necessary.

Follow Floss's advice

sourcrates

Archergirl said:

Sorry, I don't understand really, but how can you have savings when you are so much in debt? Surely you should be trying to pay off the debt before you have secret savings?
35K of debt whatever has it all been spent on?

The OP states :

"Not that it matters, but debt was accrued through overspending, holidays and essentially keeping up with the joneses... she has learned her lesson now and has cleared 5K of it through selling off things on Vinted, ebay etc". 

Basically what most people waste money on when they are young and silly, its all non priority debt, so not really what you want to spend any savings on, as that may be needed later on for the payment of more essential debts if things get tight, also if she goes into debt management, there will be no access to credit, so if something like the washer or fridge were to break, it has to be funded from somewhere, and that ideally should be from an emergency/savings fund.

rosiesposies

Thanks for all the replies, the savings is roughly 5K, was actually a little inheritance she got just before the split. The 50/50 split of running the home enabled her to pay off debts as they stood, now she has the cost of running a home alone and unfortunately as its one bed she cannot look at renting spare room to split costs. Yes she has already done the necessary with council tax, etc

Yes she could move into shared housing, but she walks to work, lives in london and actually has a below market rent situation which she wants to keep. moving out of current accomodation should be ok as home is owned by extended family member. 

i wont go too much into the details of the debt, but there was an element of this behind the reason for her relationship split, I woud say she wasnt as prepared or armed with the right information at the time and allowed herself to be talked into various purchases she didnt need (or want necessarily) and she does realise she flittered away on things for herself. 

I do not judge anyone getting into debt regardless. people make decisions based on their situation, mental health, etc (as I learned this myself) how she moves thorugh it an then manages money in the future will be a learning. Unfortunately, not all people are taught or learn how to manage money as part growing up. She will learn from this

DMP online budgeting estimates 4.5 years to pay off so its not a monstorious task but she does appreciate her credit will be hurt for some time. 

So my takeaway from all your help is

Open bank account with someone else
keep savings
stop paying priority debts and wait for defaults
start DMP - either self managed or via debt charity

Rob5342

That sounds sensible to me. Once she has got herself into a sustaianable position then she may want to look at making affordability complaints and cca requests to speed the DMP up. Further down the line she could also make settlement offers to the debt purchasers the debts end up with to clear it more quickly.

She should definitely keep the savings and try and app to them as they will be necessary to cover any expenses that come up. If she manages to increase them then she may then want to use some of them towards settlement offers.

fatbelly

That line should read

stop paying non-priority debts and wait for defaults