Stepchange Debt Management Plan

Hi,

I have recently decided to sort my life out after managing to rack up £31k worth of debt through loans and store card and credit cards.


I have signed up with Stepchange and the recommended me to take out a DMP.

I have also applied for a 60 day breathing space while my DMP is being set up.

And I have cancelled the direct debits that paid my debts.

I have made a fresh new bank account for my wages to be paid into and non debt bills to be paid from that account as well as paying Stepchange monthly.

I have a few questions that I am not sure of.

I have 3 credit cards with £1500 limits on but I haven’t used them and the balance is £0. I did not tell Stepchange about them on the online website as I thought that it would be for accounts I own money to.

Will this affect the DMP? I was going to contact companies that I have £0 balance on them and close the accounts and leave it as that? 

Is this ok to do? I don’t want the temptation to use the £0 balance accounts or jeopardise my DMP

Also while the DMP is being set up I assume I am allowed to save some money for emergencies, this money would be from what I would have paid towards my monthly debts I own.

Any help is much appreciated.

Thanks

«1

Comments

  • enthusiasticsaver
    enthusiasticsaver Posts: 15,329
    First Anniversary First Post Name Dropper I've been Money Tipped!
    Ambassador
    Yes you should save for emergencies while you wait for  the defaults and for the DMP to be set up.  Make sure the accounts are defaulted before you start paying. I would close the credit cards. They won't affect the DMP but it is normally against the rules to use further credit once a dmp is set up and removing temptation sounds like a good call. 

    I’m a Forum Ambassador and I support the Forum Team on the Debt free Wannabe, Budgeting and Banking and Savings and Investment boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing [email protected]. All views are my own and not the official line of MoneySavingExpert.
    Link to soa: https://www.lemonfool.co.uk/financecalculators/soa.php

    #1 1p savings challenge 2024 £91.80/£671.61
    #1 Save £12k in 2024 £2850/ £12000
  • stu12345_2
    stu12345_2 Posts: 800
    First Post Name Dropper First Anniversary Combo Breaker
    Forumite
    in your dmp you will also have a monthly allowance for emergencies 
    pay your debt at your rate.not what the creditor demands.cos they have no power.they aren't the police.
  • Debt2022
    Debt2022 Posts: 3
    First Post First Anniversary
    Newbie
    in your dmp you will also have a monthly allowance for emergencies 
    Thanks do I have to apply for this as I don’t remember it asking me in my budget or will they tell me the amount?
  • Debt2022
    Debt2022 Posts: 3
    First Post First Anniversary
    Newbie
    Yes you should save for emergencies while you wait for  the defaults and for the DMP to be set up.  Make sure the accounts are defaulted before you start paying. I would close the credit cards. They won't affect the DMP but it is normally against the rules to use further credit once a dmp is set up and removing temptation sounds like a good call. 
    Thanks, how long does a DMP take to set up? I feel like that Stepchange will send me the monthly bill to pay them way before the accounts I own money to default?  But I dont want to tell Stepchange to wait until my accounts default as I want this sorted out.
  • stu12345_2
    stu12345_2 Posts: 800
    First Post Name Dropper First Anniversary Combo Breaker
    Forumite
    you design the dmp so you generate cash pile, whilst paying off debts, eg always maximise limits  eg clothes, food, petrol, leisure,  even if you don't fully hit those limits monthly, cos  stepchange only  like a little put away monthly for emergencies eg £50, but design dmp so you can  save lots for future full and final settlement offers. most say only spend about 70% of your designed budget, and save the other 30%
     
    pay your debt at your rate.not what the creditor demands.cos they have no power.they aren't the police.
  • Rob5342
    Rob5342 Posts: 1,363
    First Post First Anniversary Name Dropper
    Forumite
    edited 23 January at 7:27PM
    I'd suggest that you wait until the accounts default before you start the dmp. It's understandable to want to get started early, but following Stepchange's advice can result in your credit report being harmed for much longer than it needs to be, and costing a lot more overall that it needs to. Having been through the process I'd say it's much better to do it yourself, Stepchange cause as many problems as they solve. If you do it yourself you have the flexibility to do things as you went instead of having to stick to their wey.of doing things.
  • RAS
    RAS Posts: 32,467
    Name Dropper First Anniversary First Post
    Forumite
    Debt2022 said:
    in your dmp you will also have a monthly allowance for emergencies 
    Thanks do I have to apply for this as I don’t remember it asking me in my budget or will they tell me the amount?
    Please relax. A DMP is an informal arrangement. Stepchange and other charities have their own rules and quirks. A lot of people prefer paying one sum and getting someone else to sort it out despite the odd wrinkle. Others prefer to self manage and like the flexibility.

    Based on lots of people experience, MSErs are more likely to get into short-term panics if they rush into a DMP, or any other set solution.

    If you are going to successfully live with no credit cards, you need to have an emergency fund, preferably in an interest bearing account. That funds the replacement cooker, the cost of attending a family emergency, etc.

    Having stopped your DDs, you need to divert all the spare money after covering budgeted costs into your emergency fund, until you actually get the default letters and they are recorded on your credit record. That means your credit record recovers in 6 years time. It also allows you to stress test your budget. Have you got monthly sums for contents insurance, even if you pay annually? Have your budgeted for Christmas and birthdays?

    If you are in rented accommodation, you need enough to cover the deposit on a new rental, which you can repay into the emergency fund when you get the old one back, for example. And then you add a bit every month until you could cope for a month if you lost your job.

    There's no need to panic again if the car breaks down, your phone claps out or you coat is stolen. It hurts, financially as well, but it doesn't cripple you for weeks or months. And you're not scrabbling for high cost short term loans to resolve them.
    The person who has not made a mistake, has made nothing
  • stu12345_2
    stu12345_2 Posts: 800
    First Post Name Dropper First Anniversary Combo Breaker
    Forumite
    edited 25 January at 3:20PM
     I went straight to dmp with step change, I never got the chance to save up an emergency fund, 3 times I had car repairs.

     I had to stop the regular dmp payments temporarily and let step change make  absolutely tiny payments  to creditors.
    step change explained to creditors my car issues.

    eventually I gave up with stepchange and run my own dmp, and set my monthly repayments that suit ME that allows  me to save up monthly in a emergency fund at a fast rate
    pay your debt at your rate.not what the creditor demands.cos they have no power.they aren't the police.
  • tigergambit
    tigergambit Posts: 66
    First Post Name Dropper First Anniversary Combo Breaker
    Forumite
    Debt2022 said:
    Yes you should save for emergencies while you wait for  the defaults and for the DMP to be set up.  Make sure the accounts are defaulted before you start paying. I would close the credit cards. They won't affect the DMP but it is normally against the rules to use further credit once a dmp is set up and removing temptation sounds like a good call. 
    Thanks, how long does a DMP take to set up? I feel like that Stepchange will send me the monthly bill to pay them way before the accounts I own money to default?  But I dont want to tell Stepchange to wait until my accounts default as I want this sorted out.
    Hi Debt2022, a DMP takes about a week to set up but as enthusiasticsaver and Stu have told you it is much better to await for all your debts to default before you start it. I know it is a huge relief to find that there is a way out but there is really no need to rush into things with Stepchange - they will still be there once you have your defaults.

    Regarding defaults the time they take will depend on who your creditors are. Some, like Barclays, will default you straight away (i.e.3 months) others will take 6 monthes or more. Use this period to get your budget right and save up an emergency fund. You can then go to Stepchange and get the DMP that's right for you (See Stu's post of 23 January - this is good advice).

    So, in summary, don't worry about sorting it out quickly. If you'd like someone to do the negotiating with you use Stepchange or Payplan or one of the other FREE DMP charities but don't be rushed into starting payments before you are ready.

    Good Luck with this!

    TG
  • Rob5342
    Rob5342 Posts: 1,363
    First Post First Anniversary Name Dropper
    Forumite
    edited 27 January at 9:31PM
    Debt2022 said:
    Yes you should save for emergencies while you wait for  the defaults and for the DMP to be set up.  Make sure the accounts are defaulted before you start paying. I would close the credit cards. They won't affect the DMP but it is normally against the rules to use further credit once a dmp is set up and removing temptation sounds like a good call. 
    Thanks, how long does a DMP take to set up? I feel like that Stepchange will send me the monthly bill to pay them way before the accounts I own money to default?  But I dont want to tell Stepchange to wait until my accounts default as I want this sorted out.
    So, in summary, don't worry about sorting it out quickly. If you'd like someone to do the negotiating with you use Stepchange or Payplan or one of the other FREE DMP charities but don't be rushed into starting payments before you are ready.
    Stepchange don't do any negotiating, they simply tell the creditors the figures that came out of your budget and send those payments to the creditors
     How someone handles it is a personal choice, but they should be aware that there is no negotiation involved.

    The choice of self managed or Stepchange doesn't really matter to begin with as you can switch between them at any point. The important thing is to default before starting the DMP as following Stepchange's advice to start repaying immediately can have some serious long term negative consequences for your credit report. 
Meet your Ambassadors

Categories

  • All Categories
  • 341.8K Banking & Borrowing
  • 249.7K Reduce Debt & Boost Income
  • 449.2K Spending & Discounts
  • 234K Work, Benefits & Business
  • 606.2K Mortgages, Homes & Bills
  • 172.5K Life & Family
  • 246.8K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.8K Discuss & Feedback
  • 15.1K Coronavirus Support Boards