DMP question on potential worse situation if DMP doesn't work out

BDeluxe

I've been struggling with a 30k debt (2x CC's and loan) which I recognised and have tried to tackle on my own over the past year, the debt hasn't grown in that time but it has not reduced either because I earn almost exactly what my regular outgoings are and life just doesn't allow for a perfect month of zero spends when I have a family to support. My wife already soaks up a lot of family expenditure and I really need to start making inroads for the sake of family harmony.

I have low interest deals on my CC's but some of them (various transfers on both cards) will come to an end soon and I know the interest (24%) is going to only make the situation considerably worse, I've managed to juggle between them up to now but the balance transfer deals have stopped and and I have had zero success trying to get another 0% card.

Supposed I apply for breathing space with a view to setting up a DMP with StepChange and for whatever reason a DMP can't be agreed, surely the CC companies are going to immediately terminate any balance transfer deal I had and I'm going to be stuck paying 24% on all my CC debts?

I'm trying to be proactive here because I can see in the breakdown of my MBNA card statement that a £5500 0% deal will end in October and that is going to bump monthly payments by an additional £100+ and that is not going to be something I can cope with.

fatbelly

The way dmps work is that if you can't afford all the contractual payments then you or the dmp company work out what you can afford and split it pro-rata amongst your non-priority creditors. Everyone agrees eventually because they don't have any other option.

So if you can't afford contractual payments and you are a homeowner that's likely to be the way forward. Stop paying and start to save an emergency fund while they default you. Make sure you are banking where you do not have debts and let  anyone who has joint products with you know because they will be affected too.

I would save Breathing Space for if you really need it. All it's going to do here is delay and complicate things.

enthusiasticsaver

If you have not been able to make inroads into the debt over a year with 0% interest then realistically you cannot afford all your debt repayments especially if interest kicks in and presumably you will not be able to get any more 0% BT deals.  I suggest you fill in an soa (the link is in my signature) for us to advise further.  As @fatbelly says there is no reason a DMP won't go ahead as these creditors cannot get money out of you if you cannot afford it.  You need to default before setting up the DMP though. 

BDeluxe

I'm struggling with the idea of just defaulting when I've never missed a payment in my life.

My CC providers both have sections on their respective apps where they urge you to contact them if you're in financial difficulty, is there any point in doing that first?

flipflopflo

If you do that they will put you on an arrangement to pay and mark your credit file as such. An arrangement to pay stays on your file until the debt is repaid which could be many, many years of it affecting your credit file. 

If you do as suggested and cancel the payments you will get a raft of letters urging you to pay or else and then they default and get a collection agency to send you a raft of letters to pay or else. Then it goes to the next agency who sends a raft of letters telling you to pay or else. Notice the pattern here? Not a lot gets done. 

Anyway the point of defaulting is the interest stops and the default will fall off your credit file in six years and disappears forever. 

As @enthusiasticsaver says let’s see a SOA and see if we can give you some more tailored advice. Click on the link in her signature and fill it out, format it to MSE and copy and paste in the thread. 

RAS

An arrangement to pay (AP) marker stays on your credit record for 6 years after you pay off the debt, and the interest usually keeps on accruing.so it takes for ever to clear the debt.
 
A default might take 6 months to a year to get but after that the interest is frozen, no fees added and you know you will have a clean credit record 6 years later, whether or not you've cleared the debt.

Both will damage your ability to get more credit, so you use the time before getting the default to save up an emergency fund and tweak your budget.

An SOA is essential. There's no requirement to share with us but you can if you wish. The last one I commented on had some very high spends and other essential areas for which there was no budget allowance.  But if you go with a debt charity to manage your DMP, they will need your SOA and you need to make sure it is realistic.

sourcrates

BDeluxe said:

I'm struggling with the idea of just defaulting when I've never missed a payment in my life.

My CC providers both have sections on their respective apps where they urge you to contact them if you're in financial difficulty, is there any point in doing that first?

This is the first thought most people have when faced with debt management.

It requires a different way of thinking to what you have previously known.

Card providers only offer short term options when debts become unaffordable, the balances you have will require a much longer term solution, anything over 6 months and they will just refer you to one of the debt charities, as card providers do not want to get bogged down with debt advice, that`s not what they do.

With debt management you pay a reduced amount, according to your budget, over a longer period of time, hopefully with all interest and charges stopped, there is no acceptance of it or otherwise, it is what it is, if a creditor doesn't like it, they just sell the debt to someone else, you just make your DMP payments via the debt charity, or you can self manage if you wish.

If a DMP is the right choice for you, then you just implement it, no one has to agree to anything, it just goes ahead.

Others have already mentioned defaults being preferable to "AP" markers in the long term, you also need to consider an emergency fund, and new banking facilities, if you have debt with your current bank.

BDeluxe

Thanks for all the advice so far, one more question....

If I go into a DMP how is it going affect my wife's credit rating? I've talked to her about my plans and she is terrified it's going to affect her squeaky clean record to the point she will not be supportive if it affects her. I'm not sure how I'm supposed to move forward if it's going to be a problem.

RAS

What joint accounts do you share with your wife?

BDeluxe

RAS said:

What joint accounts do you share with your wife?

Just our mortgage, nothing else.

sourcrates

BDeluxe said:

Thanks for all the advice so far, one more question....

If I go into a DMP how is it going affect my wife's credit rating? I've talked to her about my plans and she is terrified it's going to affect her squeaky clean record to the point she will not be supportive if it affects her. I'm not sure how I'm supposed to move forward if it's going to be a problem.

If you have a joint mortgage, then unfortunately your financial behaviour will be linked, so defaults etc will have some effect on her credit file, there is no avoiding that.

The thing is, this will happen anyway, regardless of what you do, if you can`t meet your financial obligations, your credit file will reflect this, and so will hers, so how you both deal with that is a matter between the two of you.

The situation will not last forever, after 6 years, negative information is removed.