ELI5: DMP Self-Managed

mowglimangan

Hey wise ones,

*For context, I am in Scotland*

Please help me understand the process of starting to manage debt yourself.

I was actually advised to take a debt payment plan (DPP/DAS) by Business Debtline. I called Stepchange and went through the whole rigmarole of appointments/budgets again only to be told three weeks later that they don't deal with people who are self employed. The majority of my money comes from full employment but I freelance on the side.

The lady at Stepchange also gave me the heebies a bit about the DPP as she said remember that a DPP is a legal agreement that you can't just step away from. And even if your situation improves and you earn more, that extra will go to debt repayment and not to making your life easier so be sure about realistically budgeting for the next 11 years. And if you earn less and the DPP fails then you're back to square one.

She said I might want to go for the more informal debt management plan with BDL because my income varies. So back off I trot only to be told that BDL can't do a DMP for me because it can't include my priority debt (just a monthly tax payment) and that leaves me with insufficient funds for any repayments so they pointed me at Citizens Advice for a DPP....

Now I'm feeling a bit emotionally drained and rather confused and am wondering whether to sack them all off and just do it myself in order to keep the control and flexibility but I have NO idea how that works or where to start. My breathing space with most lendors ends next week and my brain is frazzled and tbh, I'm a bit scared of the interest being unmanageable if I don't go with the DPP. Or being hounded down or things getting worse if I'm not under an official plan of some sort.

SO, could someone please very gently explain the steps to these things so I can try and formulate a plan?

Thank you

sourcrates

Easy as pie to do it yourself.

3 easy steps, 

Step (1) work out a budget that you can live with, see what disposable income you have left, total up your priority debts, as they must be paid, rent/mortgage/council tax(Scottish equivalent) food etc etc. If new banking facilities are needed, sort that out as a priority.

Step (2) total up your non priority debts, then divide a payment to each of them by the amount of your disposable income, next write to your creditors telling them you are in financial trouble, you have taken advice, and are looking at your options.

Step (3) you can stay in this phase for a good few months, saving up an emergency fund is an essential part of debt management, it also allows your debts to default, so interest stops, and gives your credit file a clear 6 year window till recovery.

Then, when you are ready, you can start paying the companies who write to you, these may not be your original creditors, as sometimes debts are sold on, or managed by other 3rd party companies, you pay the amount your budget says you can pay, over a longer period of time, payments are easily made online, through debt collectors websites, no questions asked.

And that`s it really, in a nutshell, it`s really very similar to paying your debts normally, except you don`t pay a minimum payment, you pay what`s affordable, but not by any particular date, you just pay what you can, when you can, for as long as you need too.

Interest may still be added for a while, but will stop if defaulted, and you can always write and ask them to stop charging you due to you being in debt management, further down the line, settlement offers may be offered, so that old emergency fund may come in useful, and it may offset any interest added at the start.

mowglimangan

What a calm and simple response, thank you

So I've done step 1 several times with different advisors so should be good on that. New bank account is set up and running. Even managed a switching bonus for it (it was an old account with no DDs attached)

Step 2 should be straightforward when I look at the budget with different eyes.

Step 3 is the bit that worries me. I keep seeing people talk about defaulting but I don't really know what that means? Is it the equivalent of the creditors saying "I give up"? How will I know when they default? And what if a creditor doesn't default me? Does it apply across loans and overdrafts as well as credit cards?

I have a company called arvatofs that have started emailing me. Is that a good sign or do I ignore them for now?

Sorry for so many questions, I'm sure you answer the same ones all the time. I already feel so much better talking about it though. Thank you again.

sourcrates

When you take out any financial product in the UK, it`s most likely going to be regulated by the consumer credit act 1974.

You sign an agreement to make regular monthly repayments etc, by a specific date, and for a specific amount, be it a loan, credit card, they all work in a similar way.

If for any reason you fail to make such payments, you will get into arrears on that account, if the payments continue to be missed, then you will be deemed to be in default of your obligation to make monthly payments in a timely manner, and after 6 missed monthly payments, a creditor, at their discretion, can say enough is enough, we will give you 14 days to bring your account up to date or else we will end our relationship with you, you will be in default of your payments, and a default will also be placed on your credit file.

This is called a default notice, and if you fail to make that payment, the financial relationship between you effectively ends, and the account goes to debt collection, plus your credit file status for that account is marked as default, which will show as that status for 6 years regardless of what happens next.

That is the process, simplified of course, but more or less what happens.

It`s difficult to judge how long to hold out for defaults, the whole process is governed by guidance you see, not hard and fast laws, these days creditors are reluctant to default you, as they see it as a bad thing, and the FCA want them to treat those in debt fairly, so a contradiction in terms really.

There is a lot to learn about defaults/arrangements to pay/DMP`s etc, its best to do what you think is best for you, and ask for advice if you need too.