DMP advice

stevetuk

Hi everyone

I have been quite overwhelmed over the past 12-24 months and hoping for some advice and words of reassurance.

Over the past 14 years I have accumulated £24K of credit card debt in the form of 0% offers that ultimately expired and while I moved them from card to card for a while and continued making payments, since 2021 I no longer have any offers and they've all come out of interest-free repayments. The minimum repayments have been crippling me. I pay around £1000pcm on just covering the minimum. I've been struggling like this for around 12 months but knew there would come a point when it wasn't sustainable, and that's now happened - I have two (Virgin Money £188pcm and Tesco £156pcm) that have bounced because I don't have the funds. Barclaycard put me on a paydown plan for £78pcm over 4 years to pay off £2.5K of this £24K debt.

£6K is due each to Virgin Money and Tesco Bank (so half of the total debt basically).

I called Tesco and Virgin and they said they wouldn't offer a paydown plan like Barclaycard. They would reduce my monthly payments, freezing the interest, but would default me on the debt which would show for 6 years.

I spoke with PayPlan in the meantime and we worked out affordability on repaying the full debts, and advised the same - that I'd be in default for 6 years.

I spoke with my mortgage provider (YBS) who were lovely and they reassured me I'd be able to port my mortgage - if, for example, I sold my property and used the equity to pay off the £24K debt - but they obviously said I'd not be able to borrow more etc (fine by me!) and that they wouldn't make me homeless in the situation.

So my questions are:

1. Since Tesco/Virgin are saying they'd default me anyway, would I be best going with the DMP route that PayPlan advise?

2. What if I pay off the debts in say 1-2 years in full following the sale of my house - will I still be living with a 6-year black mark against my name?

Grumpelstiltskin

OK Good that you have faced up to your problem.

Firstly don't rush into a DMP until you are happy you fully understand what is happening.

Nothing terrible is going to happen if you don't pay anything on your unsecured debts for months.

Start with this thread.
In Debt and Wannabe Debt Free? First Steps! — MoneySavingExpert Forum

That gives you the link to the SOA. Fill one out honestly, format for MSE and copy and paste on here. Then when we see the full picture we can give you the best advice.

Our basic advice is to stop paying all unsecured debts and use the money to save up an emergency fund.

2 reasons, there will be an emergency in the future, washer will break down same week as MOT due etc. and you will have the cash to cover these things and you will have some money to maybe in the future offer much reduced payments to clear your debts.

It is important you do understand the debt process before you start making any payments and if you don't have many creditors you may be easily able to run your DMP yourself instead of involving any one else then you have full control over it.

Rob5342

On number 2, defaults stay on your credit record for 6 years after they have been applied regardless of whether you pay the debt off in full, partially settle it or ignore it completely.

I'd think very carefully about selling the property. If you went on a dmp for example you could clear all the debts in five years by paying £400 a month. Once defaulted the debts would likely be sold to debt collectors who would be open to settlement offers, so you could clear them in shorter time for less. 

RAS

Agreed. First breathe, slowly and deeply.

Find yourself a new basic bank account with no overdraft. Some people like accounts like Monzo and Starling, others prefer the Co-op or Barclays, but it must be unrelated to any of your creditors. 

You need three types of of money.

Monthly spends like the mortgage, CT, utilities, food, essential travel costs, with a smidgen of fun if you can afford it.

Annual spends, in a separate wallet or account. So Christmas and birthday presents, professional fees, insurances unless you can get them monthly without paying a penalty, holiday/visiting friends and relatives, car costs, basic house maintenance. Stuff you know is going to require money over the year. 

Emergency funds, as Grumpelstiltskin says. For when major things need repair or replacement, plus dealing with life issues. Ideally enough to pay those essentials, depending on your employment and industry security, eventually anything from a couple of months to 6 months. Earn interest from this, possibly an ISA allowing a small number of withdrawal annually?

You need time to stress test this SOA and start building the emergency fund. It's quite likely that your first effort will be unsustainable, because you are spending money that you haven't budgeted for, or under estimate some costs. Check at least the last 6 month's statements. This year, you may also need to try and get ahead on some accounts like insurance if you currently pay monthly, so on renewal you've most of the money needed to pay annually at a discount.

You may also need to review your suppliers, move to cheaper deals, sell stuff you don't use, wear etc, consider your social commitments. 

So open those accounts, move your income and stop paying. It's going to be several months before some default, perhaps even 18 months. If you get a default, offer a low monthly payment if you can.

There will be scary sounding letters containing warnings about what may happen, texts and phone calls. These are computer programmed so just let the creditor go through their process. Tell your creditors to communicate in writing only. Once a week, open the mail, file it by creditor and then do something to de-stress. Defaults and letters before action must be posted, come here for advice.

Brie

And adding on to the great advice already given....if you don't want to manage the debts yourself or feel that you need some help go with a known debt advice agency.  NationalDebline and StepChange are the biggest and deal with things over the phone so that may be convenient.  CMA (Community Money Advice) mostly deals with things face to face.  All of these can help you deal with creditors and help you to help yourself. 

But all of them are going to need something like the SOA already suggested so that's a great place to start and then once it's filled out if you don't want to post it here you can take it to one of these agencies to start things off with them.   

stu12345_2

in a perfect situation it would be pay as little as possible to creditors and to try save up and ask for a discounted full and final settlement offers later on.

this is what I am doing, initially I went with a debt charity like step change, they want proof of earnings, wage slips , contracts, hence no way to adapt earnings of what you fancy, they also limit you to a suggested £25 emergency fund per month.

so I turned it all on its head, I refuse to give any creditors my financial income outgoings, I set up 
 standing orders, how to pay info is on the payment slips you get, never ever go direct debit, did it in my own accord, I'm paying about 20% of what I could pay if I went the step change,payplan method

I'm saving up about the other 80%, £900 a month  and then going to hit creditors for 30% settlement figures when I have enough saved up, potentially saving me £15000 if I had went the step change payplan way who are connected to creditors indirectly

kimwp

I suspect the Barclay pay down plan will result in an arrangement to pay marker on your credit history btw, which will stay there for six years after the debt is paid off.

13thlegion

kimwp said:

I suspect the Barclay pay down plan will result in an arrangement to pay marker on your credit history btw, which will stay there for six years after the debt is paid off.

This was my initial thought as well. If you are concerned about 'black marks' an arrangement to pay marker is much worse than a default. We are in a ludicrous system where things to help you tend to be worse, and the things that seem like the scariest options are actually the most helpful. 

There is lots of great advice here, and in the pinned thread about initial steps. Remember this is a marathon not a sprint and if need support this forum is great for that.