Steps Before Starting a DMP

TinyDiamond1122

Long time lurker here finally taking the first step towards pulling my head out of the sand and facing up to the hole I find myself in...

In the past four years I have accumulated around £18k in credit card debt as a result of poor budgeting during a house purchase, 2 maternity leaves and loss of income due to reducing my working hours. It has now got to the point where I simply cannot meet the minimum payments each month after making sure my priority debts are taken care of.

Before reading this forum, I had started the process with Stepchange, however hadn't actually got to the stage of setting up the DMP. Now that I have read a number of posts here, I think I'm aware of what steps I should take prior to setting up the plan, but I just want to double check and make sure I haven't missed anything...

So my understanding is that now I simply just stop all payments to my creditors and wait for my accounts to default is that right? This seems like the most daunting step of the whole process which is why I keep second guessing it.

I then need to ignore all contact from creditors until I hear that the accounts have defaulted? 

Should I apply for breathing space at any point or will this delay things?

At what stage do I need to contact creditors to let them know I will be starting a DMP? And how should I do this? At this stage I am leaning towards still doing the DMP with Step Change when the time comes as I'm not sure I have the capacity to manage this myself...that being said, I am open to having my mind change by the many inspiring posts I've seen on this forum!

Is there anything I've missed or anything else I need to be aware of? I feel so terrified of taking this step, but realistically it's the only option I have right now.

TIA

Rob5342

What you are planning to do is what we'd normally recommend, as bizarre as it sounds, you get treated much better if you ignore the creditors until you default and then start the DMP. I don't.see any point in you applying for breathing space as that will just slow everything down. 

You tell the creditors once you have defaulted and plan to start making payments. Stepchange will take care of.sll they for you or if you self manage.you just contact them yourself and tell them what you'll be paying. 

I'd recommend managing it yourself so you are in.full control. Stepchange work in the creditors best interests rather than yours, and their approach is to get you to pay the maximum possible to the creditors with the worst possible impact on your credit report. Having said that, you could use them to manage the payments initially one you have defaulted, and then manage it yourself when you have got more confident with the process. If you are able to make a lump later then definitely do that yourself. Stepchange would want you to.simply.split it between everyone, but if you do it yourself you could negotiate a reduced settlement with one.of the credits and save yourself a significant amount of money. There was a post on here recently where someone had a lump sum from an inheritance and Stepchange advised them to split the whole lot between their remaining debts, by negotiating themselves they could probably have settled them for half the amount or even lessz and kept the other half for themselves. Advising thet is criminal iny view.

stu12345_2

imo from experience doing it with step change does Infact stop interest and charges almost immediately.( creditors love stepchange, cos they are all part of the big credit Industry)


most creditors default you within 2 to 6 months on the plan, cos technically you are no longer making the agreed min payment .

if you do go with stepchange you set up a direct debit if you fancy, but you can set the first date up to 3 months away from plan set up , eg 10 July, they collect on 1st or 10th.( gives you time to use that 3 months to keep that cash as the start of your emergency fund)

if you go with them, you can click the button apply for breathing space, you can't get it on your own  self run dmp, has to be via an organisation, like step change.

it gives you 2 months where creditors can't hound you or add late  fees .
and if you ever come into a lump sum that will clear debts, repost at that time for advice
 my tip is maximise all your living expenses so you have leeway in your plan,. eg state food at £250 when you can use say £190 if you are very frugal 

cos access to credit will stop on a dmp. and your only source will be money you are putting away by overestimating your living costs, but in reality  are probably lower.

as you are building up a emergency ,savings pot at your rate, cos stepchange only advice £25 a month emergency fund allowance 

and maybe a couple of so years down the line your savings, emergency pot may be big enough to pay off some creditors at a haggled reduced full and final offer made by you, some offer 50% , even after only 18 months on a dmp.plan, if you contact them

I've done self run dmp and a step change dmp, yes it's easier via stepchange, but my wife and I had 12 creditors and hence took more than  a bit of effort to arrange a self run dmp.

sourcrates

Like you say, there are two options with debt management, go with a debt charity, or go it alone.

Both have their advantages, and disadvantages, it really depends on how much input you want to have in the process.

Stepchange/Payplan are both creditor funded, and yes interest and charges do get stopped pretty quickly, but your accounts almost certainly get marked as AP (arrangement to pay). AP markers stay visible for 6 years after you repay the debt, potentially twice as long as a default, if that doesn't matter to you, then go with the debt charity.

The downside is creditors can re-start interest if your payments equal the original min payment or more, as remember, if it doesn't default, technically you are still contracted to your original agreement, and anything less than full contractual repayment is entirely at the creditors discretion.

If you allow your accounts to default first, it takes away all the uncertainly of the situation, all that will happen is the collection process will swing into action, letters/calls/texts etc, debts may be assigned to debt collectors or sold to 3rd parties, there are a lot of different scenarios that could play out.

Self management is simple, you do as you did before, just pay your bills yourself, individually, except this time you pay what is affordable according to your budget, the creditors may have changed, you may be paying a debt collection company, they may all be DCA`s, but you just pay as before, it can be done on each companies website, very easy, no need to say who`s getting what, you just set up the arrangement and go with it.

So there are a number of ways to do this, its entirely up to you which players you choose, and how you play the game, the one thing you will need is a good emergency fund, so no matter who you go with, or how you choose to manage this, save up that EF first, a good 6 months creditor payments should be sufficient to start with, then look to add to it monthly.

stu12345_2

like to echo what sourcrates wrote regarding interest potentially coming back on.

I discussed this with step change once. eg let's say your normal payments are £500 a month on credit cards, loans, but you can only manage £400 on a dmp.

if they all don't default quickly ( interest can never be added on after that point). and your payments in your dmp start to reduce the outstanding balances and it then the £400 you make equals the min normal payment, then yes potentially , you don't need a dmp and the creditors see you as paying normal required min payments 

bank loans, payday loans get a bigger amount per month via stepchange as it's based on the contractual amounts 

so if you have any of these loans, it could be they get paid off first, then the money you give stepchange or indeed on your own run dmp , eg the £400, then equals the min on the credit cards  that haven't defaulted, runs a risk of interest being started again, if you do them make the min monthly amounts that you should have been doing before your dmp 

Grumpelstiltskin

TD Have you read this thread?

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

The best thing you can do is to complete a SOA honestly and with the interest rates on your debts and then we can give you the best advice for your situation
When you have completed the SOA format for MSE and copy and paste on here.

TinyDiamond1122

Thank you all for your helpful advice so far! I have found the link to the SOA so I will start gathering all the information I need to do that properly over the next couple of days!