Stepchange setting up a DMP, is this for the best?

kmt1235

Hi, I have debts with multiple creditors which equal around £9000. 
None of these accounts have defaulted, and I pay them all off monthly, I pay a reduced amount on 4 of these accounts and the interest is frozen on them since Nov 2023 as I was struggling to make the payments. 
I am still struggling greatly to make all of these payments each month and I have to borrow money from family members to pay them, which is resulting in a big debt that I will owe to them once these are paid off. 
I contacted Stepchange and they recommended I set up a DMP, which they are in the process of doing so. I will be paying £151 each month. 
Was this the right decision? Or should I have done something different? And what impact will this have on my credit file, compared to maybe if I carried on with the reduced payments and just reduced them further? I dont have a lot of knowledge about credit and debt management and would appreaciate any advice. Thanks

Grumpelstiltskin

You need to slow down, it seems like the right thing to do to jump into a DMP but it isn't.

You need to stop paying all the debts and let them default. During this period you need to build up an emergency fund - my guess is you haven't got one.

Ask Stepchange to hold fire for the moment and keep coming on here for advice.

sourcrates

If interest has already been frozen on these debts, and the current reduced payments are still unaffordable, then further reductions are needed obviously.

Debt management is just that, no matter who sets up payments, its all the same thing.

I suspect your credit file is being marked as AP (arrangement to pay) not brilliant, as defaults are preferable, due to the time AP markers are visible for (twice as long as a default, so up to 12 years) but you are where you are.

The real priority is getting rid of the debt, its not too bad at 9k, credit file will heal with time.

kmt1235

sourcrates said:

I suspect your credit file is being marked as AP (arrangement to pay) not brilliant, as defaults are preferable, due to the time AP markers are visible for (twice as long as a default, so up to 12 years) but you are where you are.

I have just had a look on Clear Score and the files are marked as 'Special Arrangement' is this the same as AP? Thanks

Grumpelstiltskin

What you want to do is read this thread.

In Debt and Wannabe Debt Free? First Steps! — MoneySavingExpert Forum

It links to  SOA, if you fill one out honestly, format for MSE and post on here we can give you the best advice for your situation, just don't rush into a DMP until you fully understand what you are doing.

kmt1235

Thanks for that thread, it seems so bizarre to me that its better to default on your debts rather than arrangement to pay, it seems so backwards and not what people are taught! But it clearly must work if thats how so many people are getting out of debt

RAS

Yep, it's the perverse result of the current rules. If you stop paying, you'll get a default date and know when your credit rating will be restored.

Meantime, do a proper Statement of Affair (budget), stress test it and put everything you are not using to pay off the debts into a separate emergency fund, because you will need it.

Rob5342

kmt1235 said:

Thanks for that thread, it seems so bizarre to me that its better to default on your debts rather than arrangement to pay, it seems so backwards and not what people are taught! But it clearly must work if thats how so many people are getting out of debt

Once defaulted a debt will drop off your credit report after 6 years regardless of what else happens. If you make am arrangement to pay then the arrangement.to.pay marker will drop off your credit report 6 years after the debt has been repaid which is potentially much longer. Also once a debt has defaulted it is likely to be sold to a debt collector at a fraction of its value, and the debt collector will probably accept a reduced settlement offer.

It sounds completely bonkers at first, but if you ignore the.debt and let it default then you can have a clean credit report in half the time and clear the debts at less than half the cost compared to if you engaged with the creditors.

Stepchange's approach is to get best result for the creditors and the worst result for you. 

fatbelly

It may be worth looking at the whole situation as it is now and not immediately jump into a new strategy

https://www.lemonfool.co.uk/financecalculators/soa.php

would help, if you care to post.

A couple of thoughts I now have are

How are the family debts being treated? The same as, or lower or higher than the credit debts? I think there is a case for making them higher priority

Do you really have £150 spare on an objective assessment? If the figure was£75 or less then it may open the way for a better strategy.

kmt1235

I will complete a SOA tonight after work

The family debt as of right now - they have said I can pay back when I have paid the rest of the debts off or when im in a better situation financially. 

And right now I do have £150 spare, I have come up with this sum after factoring in personal spending etc, why would it be better if it was £75 or less please? Sorry I'm just clueless when it comes to all this stuff! Thanks

kmt1235

I have contacted Stepchange to cancel the DMP now. 
Another question I have, if I were to default on my accounts, what impact will that have on say my phone contract? When it is due for renewal, will they just cancel it and I wont be allowed to carry it on?