Clearing a small debt before a DMP - worth it?

yelf

Hello. A friend is looking at a DMP. One of their debts is a credit card of about £1,000. I have offered to clear this debt for them (it still wont make any real difference but is one less debt). If they go down the DMP route, which seems inevitable, is there any point in clearing debt? Thanks

gwynlas

If they are on a debt manageent plan through an organisation such as Stepchange paying off a small debt of £1000 will make little difference to regular payments. They will be fair to all creditors and offer appropriate percentages to each. If you pay off this debt would you friend then be able to use this credit card again and increase their debt? if you are in the position to give away £1000 it might be better to keep it and pay towards any unexpected bills they might get in the next couple of years  when they have established a pattern of livng within their means

Grumpelstiltskin

Are they sure they are at the correct point to start a DMP?

Have the debts defaulted?

Have they saved a big enough emergency fund?

These things need considering.

yelf

yes the debts have defaulted. expenditure exceeds income and they are in touch with Step Change who have suggested a DMP. any help would be appreciated

Martico

Does expenditure exceed income even disallowing for servicing the non-priority debts?

Rob5342

If they have defaulted then the interest will have been stopped so there is nothing to gain there 

Paying a lump sum off will reduce the length of the DMP, but it would be better to wait until they are with debt collectors.anf then male a reduced settlement offer..They might be able to pay off a £2000 debt for £1000.or.less for example.

The first priority should be getting an emergency fund in place.

yelf

Martico said:

Does expenditure exceed income even disallowing for servicing the non-priority debts?

no I dont believe so

yelf

Rob5342 said:

If they have defaulted then the interest will have been stopped so there is nothing to gain there 

Paying a lump sum off will reduce the length of the DMP, but it would be better to wait until they are with debt collectors.anf then male a reduced settlement offer..They might be able to pay off a £2000 debt for £1000.or.less for example.

The first priority should be getting an emergency fund in place.

Sorry, theyre not in default - just in arrears. Theres no way to build up an emergency fund as there is zero excess income

Grumpelstiltskin

The advice is to stop paying all unsecured debts, concentrate on rent/ mortgage, utilities, council tax etc and wait for defaults.
If you say he has nothing left over is he working? claiming any benefits he is entitled to?

fatbelly

Are you saying there is no surplus income even though they've stopped paying the non-priority debts?

Then a debt management plan is inappropriate and you should hang on to your £1000. 

They may need an insolvency option.

sourcrates

It`s difficult to advise on a 3rd parties debts, a DMP would require the debtor to have at least enough disposable income to pay something towards the outstanding debts, it would need to be a figure large enough to clear what was owed within a reasonable timeframe, usually we regard this as being 6 years.

If after essential debts have been paid, there is nothing left, then no debt solution that requires any form of monthly payment is going to be suitable, so they would be looking at a DRO or even bankruptcy (depending on circumstances and amounts owed).

Ideally we need a much clearer picture of your friends financial affairs to give any meaningful advice, but I would not rush to throw away a grand of your money just yet.