What steps should I take?

stevieyork

Hello, I have about £40,000 in debt and I have been chasing my own tail down this debt spiral for 10 years, with it building up and up. I have never missed a payment in all of those 10 years and have done everything I can to keep on top of things. However, some of my cards are coming out of their interest-free periods including ~£7.2k on 42.10% APR and the interest for that is estimated to be at least £285. I simply cannot sustain it any longer and I am running out of options. I haven't experienced anything close to normality for years. It seems I just exist to pay interest, never making any progress on debt or anything in my life. I first got into debt when I was a teenager but then I was in full-time work and I was gradually paying it down. However, my health deterioriated about a year ago and I am unable to work due to physical disability. Since then, I have just about kept the payments under control (using 0% offers, etc). It's taken a great toll on me, especially as I've had to contend with health problems at the same time.

This Easter weekend, I started the process at StepChange. I put together a budget including things I hadn't even allowed myself to entertain (such as going to the barbers or getting assistance with cleaning my home due to my disability). It quickly became clear that there was no way I could afford to keep these debts going and also have a normal existence. So, I'm here seeking wisdom, guidance and advice!

StepChange's automated process recommended a DMP. I haven't yet spoke to one of their advisors so I don't know why this was the recommendation or whether it's the best option or not. I have been doing some of my own research and I have lots of questions and this forum seems to be a fountain of knowledge.

Are there any major advantages to a DMP? I understand that you could, in theory, build an Emergency Fund and a pot of savings whilst on a DMP. Is it the case that you cannot do this on a DRO? How do you prepare for emergencies on a DRO if you're only allowed £75 at the end of each month? I think that's the bit that confuses me most. Some of the things in my budget are one-off annual payments (but I've split the cost over the year). Are you allowed to do that on a DRO or must you get rid of the 'excess' money each month?

Would it be more sensible to apply for a DRO (once the threshold rises to £50,000 in June)?

I don't know what steps to take and in what order. Do I apply for a Breathing Space whilst I work things out/wait for the threshold increase in June? Do I contact each creditor and see if they'll make interest/payment reductions? Do I just stop paying? Presumably if a default last 6 years, then the sooner I default, the better (is that true for both DRO and DMP)? At the same time, I couldn't bear to be harassed by debt collectors - is that avoided on a DMP and/or DRO? Will I get CCJs and is this inevitable? Are they as scary as they sound and do they have any ramifications for future employment or anything else?

I have a few more questions: are overdraft debts treated differently to loans and credit cards when it comes to debt solutions/actions? Should I open a new current account or a basic/foundation account AND should I do this before defaulting/entering a DMP/DRO? Are any particular accounts better than others? I've been looking at First Direct or Nationwide (they seem to have good reviews generally).

Thanks for taking the time to read my post. As you will probably be able to tell, I'm scrambled at the moment and seeking answers to lots of aspects of this process. Thank you in advance if you respond!



Here's my SOA. Worth noting that the benefits is due to rise with inflation this/next month and that it includes ~£560 Personal Independence Payment (PIP) which I understand is not considered income under a DRO.

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 1
Number of children in household......... 0
Number of cars owned.................... 0

Monthly Income Details
Monthly income after tax................ 0
Partners monthly income after tax....... 0
Benefits................................ 1995.2
Other income............................ 0
Total monthly income.................... 1995.2

Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 755
Management charge (leasehold property).. 0
Council tax............................. 18
Electricity............................. 50
Gas..................................... 0
Oil..................................... 0
Water rates............................. 30
Telephone (land line)................... 0
Mobile phone............................ 42.88
TV Licence.............................. 13.25
Satellite/Cable TV...................... 0
Internet Services....................... 26.49
Groceries etc. ......................... 275
Clothing................................ 25
Petrol/diesel........................... 0
Road tax................................ 0
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Car parking............................. 0
Other travel............................ 43.17
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 52.6
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 16.5
Life assurance ......................... 55.13
Other insurance......................... 0
Presents (birthday, christmas etc)...... 20
Haircuts................................ 20
Entertainment........................... 30
Holiday................................. 0
Emergency fund.......................... 20
(Unnamed monthly expense)............... 0
Adult Care items........................ 51.47
Toiletries.............................. 9.97
Laundry................................. 40
Cleaner................................. 30
Total monthly expenses.................. 1624.46

Assets
Cash.................................... 300
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0
Total Assets............................ 300

No Secured nor Hire Purchase Debts

Unsecured Debts
Description....................Debt......Monthly...APR
Loan 1.........................640.34....214.9.....11
Loan 2.........................5771.67...239.4.....16.4
Loan 3.........................7738.92...228.5.....14
Overdraft......................1782.19...0.........0
Store Card.....................3442.14...0.........0
Store Card.....................38.95.....0.........0
Credit Card 7..................7295.92...300.......42.17
Credit Card 6..................2000.67...60........25.9
Credit Card 5..................2766.2....100.......34.54
Credit Card 4..................1957.72...70........32.9
Credit Card 3..................3242.49...110.......23.9
Credit Card 2..................4872.63...136.......25.9
Credit Card 1..................543.82....16.63.....31.1
Total unsecured debts..........42093.66..1475.43...-


Monthly Budget Summary
Total monthly income.................... 1,995.2
Expenses (including HP & secured debts). 1,624.46
Available for debt repayments........... 370.74
Monthly UNsecured debt repayments....... 1,475.43
Amount short for making debt repayments. -1,104.69

Personal Balance Sheet Summary
Total assets (things you own)........... 300
Total HP & Secured debt................. -0
Total Unsecured debt.................... -42,093.66
Net Assets.............................. -41,793.66

Created using the SOA calculator at www.LemonFool.co.uk.
Reproduced on Moneysavingexpert with permission.

Grumpelstiltskin

A quicky  TV licence went up from 1/4/2024 to £169.50 per year.

How much does a TV Licence cost? - TV Licensing ™

RAS

How likely is it that your health will improve in the next two/three years? Not asking for specifics but are you waiting for an operation, say, or is your health issue permanent?

sourcrates

You have £370 available for debt repayment/disposable income, a DRO requires you to have no more than £75 (rising to £100 soon under new rules) also the current threshold is 30k, and again, it will rise to 50k soon.

But on that budget, you would not qualify, although some of your allowances can be tweaked somewhat.

stevieyork

Grumpelstiltskin said:

A quicky  TV licence went up from 1/4/2024 to £169.50 per year.

How much does a TV Licence cost? - TV Licensing ™

Thank you - I hadn't noticed this. I will update my budget accordingly.

RAS said:

How likely is it that your health will improve in the next two/three years? Not asking for specifics but are you waiting for an operation, say, or is your health issue permanent?

It's not very likely to improve but I am improving at managing the day-to-day symptoms, so it's not all doom and gloom. I suppose it would be considered permanent, at least so far as anyone can tell.

sourcrates said:

You have £370 available for debt repayment/disposable income, a DRO requires you to have no more than £75 (rising to £100 soon under new rules) also the current threshold is 30k, and again, it will rise to 50k soon.

But on that budget, you would not qualify, although some of your allowances can be tweaked somewhat.

Thanks, I had thought that too but I read somewhere that Personal Independence Payment (PIP) is exempt from the income and can be put down as "Adult Care Costs" or something similar. So, it would technically put me in a deficit of about £190. I can't remember now where I read it (one of the debt charity websites, I think). Do you know if this is true? If it is true, is a DRO a good option or is it better to default and then enter into a Debt Management Plan (either self-managed or through StepChange)?

It's hard to find information which compares the different options with their pros and cons. I've been reading through many of the posts on this forum and have gained a lot more knowledge about how the different solutions work. I recognise all your names (so thanks for all your advice on behalf of everyone who browses these forums). It's just not clear to me what the 'best' or 'optimal' or 'safest' option for me would be, in my specific circumstances.

It was also interesting to read other people who feared stopping their payments. I had a lot of payments leave my account just these past few days and they have taken me down to almost nothing again. I want to be able to do something but I don't know what the starting point is and I would regret it if I made silly mistakes at this point. Do I ask for Breathing Space (or are there some unknown consequences to that)? Do I just stop paying and wait until June for a DRO? Do I stop paying and wait for them to default then take some other action (such as a DMP or DRO)?

sourcrates

Ah, sorry yes your income is solely benefits based isn`t it, you are technically correct, but should discuss with a DRO advisor to make certain.

If your struggling you should just stop paying, the debt collection process is stupidly slow, it takes months to get into gear, you might get the odd call or letter between now and June, nothing you can`t handle.

If you opt for debt management you should wait for defaults, DRO don`t bother, just go for it (in June) as all defaults will have to pre-date it anyway as its an insolvency solution.

@fatbelly what are your thoughts??

herebeme

Why do you have life insurance? You have no dependents and no mortgage and no job for which income protection would be relevant. It probably doesn’t cover pre-existing medical conditions either? You might want to review if it’s worth it? 

Have you looked to see if you qualify for attendance allowance which might cover a few hours of care costs? https://www.gov.uk/attendance-allowance

enthusiasticsaver

I would just default and explore a DRO.  I also wonder whether it is worth paying £55 for life assurance given you have no dependants and that is quite high. 

fatbelly

Op is correct about how PIP is treated in a DRO.

PIP means they have care and/or mobility needs identified. AA doesn't come into it even if they are above retirement age, which I doubt.

Presumably Stepchange robo-advice did not recommend a DRO because it is not programmed with the June figures yet and/or not sufficiently subtle enough to detect the PIP issue.

My thoughts are if you qualify for a DRO, go for it. Stepchange won't do them but should refer you

stevieyork

sourcrates said:

Ah, sorry yes your income is solely benefits based isn`t it, you are technically correct, but should discuss with a DRO advisor to make certain.

If your struggling you should just stop paying, the debt collection process is stupidly slow, it takes months to get into gear, you might get the odd call or letter between now and June, nothing you can`t handle.

If you opt for debt management you should wait for defaults, DRO don`t bother, just go for it (in June) as all defaults will have to pre-date it anyway as its an insolvency solution.

@fatbelly what are your thoughts??

So, in your opinion, if the choices are DRO or DMP, then DRO is a better solution? And if I understand you correctly, the DRO will automatically consider all the debts defaulted before the DRO comes into effect (presumably June/July)?

herebeme said:

Why do you have life insurance? You have no dependents and no mortgage and no job for which income protection would be relevant. It probably doesn’t cover pre-existing medical conditions either? You might want to review if it’s worth it? 

Have you looked to see if you qualify for attendance allowance which might cover a few hours of care costs? https://www.gov.uk/attendance-allowance

enthusiasticsaver said:

I would just default and explore a DRO.  I also wonder whether it is worth paying £55 for life assurance given you have no dependants and that is quite high. 

I'm not eligible for Attendance Allowance as I am not at retirement age. My life insurance was taken out when I was working full-time about 6 or so years ago and it was a bit cheaper then (rises with inflation, which is both a good and a bad thing). It will expire in 65 years time and predates my medical conditions, so I'm unlikely to get anything remotely close to it if I were to apply again for insurance in the future so although it is quite a bit more than I'd like to be paying, I would probably end up paying much more for much less down the line.

fatbelly said:

Op is correct about how PIP is treated in a DRO.

PIP means they have care and/or mobility needs identified. AA doesn't come into it even if they are above retirement age, which I doubt.

Presumably Stepchange robo-advice did not recommend a DRO because it is not programmed with the June figures yet and/or not sufficiently subtle enough to detect the PIP issue.

My thoughts are if you qualify for a DRO, go for it. Stepchange won't do them but should refer you

That was what I suspected about the automated StepChange recommendation.

Apologies for showing my ignorance on these matters, can someone to explain to me how DRO works with regards to budgeting? For example, some of budgeted items are annual. Would I be allowed to "save" or "pot" the money for that purpose or would that class as being in excess of the £75 and/or the maximum assets?

Any pros/cons on DRO v DMP would be much appreciated. I've read a lot on both of them but as you might be able to imagine, there's always the fear that I'm missing some crucial detail and will find myself halfway down the process for either a DRO or a DMP and be filled with regret at not having chosen the other option (for whatever reason).

For example, could a DRO (which as sourcrates says is a form of insolvency) have any ramifications for future employment of any type (e.g. qualifying as a solicitor)? Is DMP without those possibilities?

I appreciate these might seem like silly questions to people who handle these matters every day, but any further guidance would be much appreciated.

fatbelly

In your budget, just divide any annual expense by 12. Everything is done on a monthly basis to check you meet the surplus income criterion.

You can have assets, including cash of up to £2000 under the scheme so if your bank balance goes up and down, no problem

There are a few professions where a DRO could be an issue. The record stays on your credit file for 6 years, though you will be through it in one year.

Downsides are few. Debts not listed won't be included. Homeowners can't do them. Some debts like child maintenance, student loans and tv license arrears can't be included.