Defaults or DMP or both?

Hello, I see here that people are advocating defaulting on loan repayments before or instead of setting up a DMP, could anybody please explain this to me?

We’re looking at applying for a DMP and have not defaulted on anything thus far. 

Thanks for support and advice 
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Comments

  • enthusiasticsaver
    enthusiasticsaver Posts: 15,551 Ambassador
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    We recommend defaulting first on debts if you intend entering some sort of debt solution. This is because it sets the clock ticking and defaults will fall off your credit file after 6 years. If you set up the DMP before you default they take longer to appear. It also gives people a chance to save for emergencies as once in a DMP you will have no access to credit. 
    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 forumteam@moneysavingexpert.com. All views are my own and not the official line of MoneySavingExpert.
  • sourcrates
    sourcrates Posts: 28,801 Ambassador
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    Hi, and welcome.

    What you ask has been covered many times in previous posts, you may want to read through the DMP support thread as it contains a wealth of information for those looking at debt management, it is a very long read, granted, so I can give you a quick basic answer to your question.

    Prior to default, you are still officially required to make contractual payments to your debts, so if you suddenly enter debt management, you run the risk of your credit file been marked as "AP" (arrangement to pay).

    AP markers stay on your credit file for 6 years after you repay the debt, wear as a default will be gone 6 years after the date of default, so potentially AP markers can stay twice as long as a default would.

    Plus once defaulted all interest and charges stop, and it also gives you time to save up an emergency fund, as you won`t have access to credit once in a DMP.

    That`s it in a nutshell, you don`t have  to do it that way, but its more beneficial to you if you do.
    I’m a Forum Ambassador and I support the Forum Team on the Debt free wannabe, Credit file and ratings, and Bankruptcy and living with it 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 forumteam@moneysavingexpert.com. All views are my own and not the official line of MoneySavingExpert.For free non-judgemental debt advice, contact either Stepchange, National Debtline, or CitizensAdviceBureaux.Link to SOA Calculator- https://www.stoozing.com/soa.php The "provit letter" is here-https://forums.moneysavingexpert.com/discussion/2607247/letter-when-you-know-nothing-about-about-the-debt-aka-prove-it-letter
  • fatbelly
    fatbelly Posts: 20,426 Forumite
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    Hello, I see here that people are advocating defaulting on loan repayments before or instead of setting up a DMP, could anybody please explain this to me?

    We’re looking at applying for a DMP and have not defaulted on anything thus far. 

    Thanks for support and advice 
    So are you able to afford the contractual minimum payments? Maybe you don't need a DMP.

    If you want more insightful advice you will need to work on a soa and then post it. Please format for mse

    https://www.lemonfool.co.uk/financecalculators/soa.php
  • No we can’t afford the minimum payments, it’s been a spiral of overdraft and debts increasing monthly to meet the payments. 

    We have started a budget and looked at where our money goes and has been going, and have begun making changes. However we can’t afford the minimum payments. 

    How would we default? Do we just cancel the DD for the loans? Do we need to contact the bank first? 

  • Rob5342
    Rob5342 Posts: 1,445 Forumite
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    edited 27 February at 8:14PM
    You just stop making payments, ignore them completely and wait for them to default. It can take a while, depending how helpful/difficult they decide to be.
  • RAS
    RAS Posts: 32,608 Forumite
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    Please make sure you have a new basic bank account, not associated with any financial group to whom you owe money, into which all your income is paid before you stop paying debts associated with your current bank. 

    You don't want them to use your income to reduce your overdraft, as they could do legally.
    The person who has not made a mistake, has made nothing
  • Rob5342
    Rob5342 Posts: 1,445 Forumite
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    I'd suggest that you start living on your DMP budget straight away and put the money you would be paying towards the debts into a savings account. That gives you a chance to check that the budget is sustainable while also getting an emergency fund in place. 
  • sparks_2023
    sparks_2023 Posts: 175 Forumite
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    One way of looking at it is that you default the debts first and the DMP is simply the 'plan to manage these debts' going forward from there.
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  • LeedsOnTheUp
    LeedsOnTheUp Posts: 31 Forumite
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    edited 28 February at 8:16AM
    Rob5342 said:
    You just stop making payments, ignore them completely and wait for them to default. It can take a while, depending how helpful/difficult they decide to be.

    I am at this stage now with the first payment dates due but the DDs canclled. I know Sourcrates has told me so on my own thread and this is the plan but is that really all there is to it? Is there no kind of action they can take if you just flat out ignore it? I'm flapping a bit because it's all new to me. I was checking through my Novuna loan terms for instance and it said they can bring forth a recommendation or order for bankruptcy (can't really remember which term) and that has spooked me a bit. Is this just the standard threatening jargon?

    I guess my basic concern at the moment is will they just keep trying to charge before defaulting and selling it on, or will my point blank refusal to make any contact have them try to pursue other avenues of getting their money back?
  • RAS
    RAS Posts: 32,608 Forumite
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    By law, creditors can't take legal action until a debt is defaulted, so your fear is not supported by the law.
    The person who has not made a mistake, has made nothing
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