Hoping for advice on which debt plan is right for me?

oatsinthewater21

Hi everyone,

I'm currently in £20,148.53 worth of debt comprising of 2x loans, 1x credit card, 1x balance transfer card, 1x store card and a vets bill, plus £633.06 owed to a friend, so all in all £20,781.59.

Over the last 5 months I've been in contact with CAB, National Debt Helpline and now StepChange to try and find a solution to all of this and start my journey towards being debt free again.
StepChange seem to be the advisors I have found most helpful and supportive throughout this process, so I have taken a lot on board from them. 

Under SC's advice, I asked my creditors for informal holds on my accounts consecutively for 3x months which were all accepted. I then applied and was approved for government Breathing Space (which is coming to an end on 5th August). I know I should have chosen a plan when I first started getting advice but the stress of having to document every expense in my life and it being picked apart and questioned why I was spending what I was spending is something that got too much for me in the beginning and I had to take a break in order to come back and try again. 

Up until the informal holds I was completely paid up to date each month with my debts, as I have watched my family go through the stress of bailiffs and court letters in the past due to money struggles so this is something I wanted to avoid at all costs. In doing so, I was keeping up with all my monthly debt payments but was leaving myself short for food and rent etc so ended up borrowing money from a friend to survive until it all go too much to deal with anymore.

Anyway, StepChange have suggested a few different options to me based on my spare income and situation but I am so stuck on which will be the best option for me. I have read threads upon threads here and tried to research as much as physically possible to find out what I will be up against with any small print that hasn't been discussed with me by my advisor etc.

They have suggested either a DRO, Token Payment Plan or possibly a DMP if I cut costs in places and have more to spare.

The DRO is what I was hoping for and is what I feel after researching would be best for me.
The problem I face is that there will definitely be financial changes in my life over the next 12 months that I'm worried will revoke the DRO.

I am due to have my official probationary review for my job on the 2nd August where my pay increase will be discussed (informally confirmed that I have passed probation but the review is still needed to discuss pay etc). I currently earn £22,750 per annum which I was told was my starting salary and will increase after my probation, to what degree I don't know just yet but would assume in the region of £24,000 based on conversations I've had regarding the pay cut I took to join the company (at that point in time I was happy to take the pay cut as the company values, treatment of staff and environment are so great). So this is a figure that will change in a matter of weeks.

I currently rent privately with an unrelated housemate, my tenancy finishes in April 2025 and I would be looking to move out of my current property and rent somewhere with my boyfriend or if money was still too tight I could move back in with my parents for a while, they have already said that if I needed to move back in with them that they wouldn't charge me any rent or expenses etc until I was back on my feet. So expenses there would also go either up or down but I don't know a figure just yet. If everything else pointed towards a DRO as the best option but the only issue would be moving out, I could possibly extend my tenancy after April 2025 for another 6x months which would take me past the 12 month period for the DRO to finish, so if worst came to worst this could be option.

In turn, because of this, I am wondering if the Token Payment Plan or DMP would therefore be best? I don't feel the TPP is a long term solution due to the informal agreement which can be denied at any point and I would then be back to square one again. The option I don't really know much about is a DMP, I know that you do pay your debts off bit by bit which can essentially last your whole lifetime if the repayment amount is fairly small which mine would be. Does this then mean I would always have issues trying to buy or rent a property or finance a new car etc? I don't want to be in my 70's and still tied down to debt I got myself into in my 20's.

My current budget is as follows: 

Monthly income - £1,680.61

House Rent - £512.50
Storage Container Rent - £150 - (I only have a double bedroom at my property and the rest is communally shared, so my container has my original household items like a sofa, fridge etc that I will need when my tenancy runs out and I can move again but I have no where else to store it)
Council Tax - £84.62
TV License £7.10

Electricity - £22.62
Gas - £22.62
Water Supply - £18.37
Water Waste - £10

Groceries - £300 (including pet food, laundry detergent and household cleaning items)
Vet bills and Insurance - £16.99

Home Phone, Internet, TV Package - £19.89
Mobile Phone - £12
Hobbies, Leisure or Sport - £25
Gifts - £300 - Per Annum

Car Insurance - £36.89
Car Tax - £17.50
Fuel, Parking, Road Tolls - £300
MOT & Ongoing Maintenance - £240 - Per Annum

Clothing & Footwear - £120 - Per Annum
Toiletries - £20

Other Essential Costs - £40 - to the friend I borrowed money from

Total spare each month: £9.51

I have a car worth £690 as an asset and no savings.

Please could I have some advice about the options I have been offered?

I know I should have made a decision sooner as my Breathing Space is running out fast, it's no excuse but I admit I got very overwhelmed trying to deal with all of this and still live a normal life, alongside working a full time job etc and it's finally dawned on me that I need to get my head out of the sand and stop hiding from this, as it won't go away! Thank you 

fatbelly

Don't worry about Breathing Space ending. It's not going to make much difference. It's just something SC like to use a lot, as they lobbied for it.

My usual attitude is if you qualify for a DRO, go for it. It's a clean start and definitely the best change made to the debt scene over the past 20 years. It's a shame SC have fallen out of doing them as they used to do a lot.It's a decision I'd like them to reconsider.

As your wage will shortly be going up you may want to wait until you know your new wage and can do the sums. But as things stand you are well within the criteria.

As for the rent situation, an Assured Shorthold Tenancy has a fixed period, then goes to a periodic one automatically. Unless the landlord issues a notice seeking possession, you can continue beyond the 6 months. If you're a good tenant, there is every reason just to keep you on. I've never heard of a tenant being evicted just because they got iva, dro or bankruptcy if they are up to date with rent and looking after the place. 

Ps. You friend has to go in as a creditor if you owe them money. Your surplus is 49.51

oatsinthewater21

@fatbelly Thank you so much for your comment, this has helped loads!
I'd love nothing more than a fresh start and that is one of the main reasons why the DRO is so appealing to me, I'm 27 now and if I could be debt free before 30 that would genuinely change my life.

They are a great charity, it's a huge shame they don't do them anymore as they've been so nice to deal with! Would I be referred from SC to a company who do DROs in this case?

Would it cause many issues if I waited until after my Breathing Space ended to choose a debt option? As you say definitely more sensible to do the sums with all the correct figures and get it right the first time, I just don't want it to have a worse impact if creditors can take action again while I'm waiting

Oh wow I had no idea! (First time renting so I'm a bit clueless haha!) Thank you for letting me know as this will definitely help

Ah that makes a lot of sense! Thank you so much!

2021rdsunshine

Hi! At first glance DRO looks appealing. However, you can only have £75 spare after your expenses and if your finances are going to get better it might not be an option then. Also I don’t think they would be happy with your monthly payment to your friend. 

I would look at the possibility of finishing the tenancy early and accept your parents kind offer of moving back home for a while. Then pay your friend back in full and look at your debts again in a few months. Nothing horrible will happen if you stop your creditors now. Yes there will be phone calls and letters asking for payment but there is nothing they can do if you don’t have the money to pay them. Your debts would eventually default and a payment arrangement as a DMP is then a good option. Bear in mind that yes your credit file will be trashed for 6 years after defaults applied but a DRO would be the same anyway. 

I’m assuming you are in your twenties and so there is plenty of time for you to get this sorted and eventually have a clear credit file that would allow to apply for a mortgage in the future. Hang in here, surely more people will come along to advise x

theoretica

Do you actually have enough under car maintenance - from fuel you seem to drive a lot?

_Penny_Dreadful

oatsinthewater21 said:

Hi everyone,

I'm currently in £20,148.53 worth of debt comprising of 2x loans, 1x credit card, 1x balance transfer card, 1x store card and a vets bill, plus £633.06 owed to a friend, so all in all £20,781.59.

Over the last 5 months I've been in contact with CAB, National Debt Helpline and now StepChange to try and find a solution to all of this and start my journey towards being debt free again.
StepChange seem to be the advisors I have found most helpful and supportive throughout this process, so I have taken a lot on board from them. 

Under SC's advice, I asked my creditors for informal holds on my accounts consecutively for 3x months which were all accepted. I then applied and was approved for government Breathing Space (which is coming to an end on 5th August). I know I should have chosen a plan when I first started getting advice but the stress of having to document every expense in my life and it being picked apart and questioned why I was spending what I was spending is something that got too much for me in the beginning and I had to take a break in order to come back and try again. 

Up until the informal holds I was completely paid up to date each month with my debts, as I have watched my family go through the stress of bailiffs and court letters in the past due to money struggles so this is something I wanted to avoid at all costs. In doing so, I was keeping up with all my monthly debt payments but was leaving myself short for food and rent etc so ended up borrowing money from a friend to survive until it all go too much to deal with anymore.

Anyway, StepChange have suggested a few different options to me based on my spare income and situation but I am so stuck on which will be the best option for me. I have read threads upon threads here and tried to research as much as physically possible to find out what I will be up against with any small print that hasn't been discussed with me by my advisor etc.

They have suggested either a DRO, Token Payment Plan or possibly a DMP if I cut costs in places and have more to spare.

The DRO is what I was hoping for and is what I feel after researching would be best for me.
The problem I face is that there will definitely be financial changes in my life over the next 12 months that I'm worried will revoke the DRO.

I am due to have my official probationary review for my job on the 2nd August where my pay increase will be discussed (informally confirmed that I have passed probation but the review is still needed to discuss pay etc). I currently earn £22,750 per annum which I was told was my starting salary and will increase after my probation, to what degree I don't know just yet but would assume in the region of £24,000 based on conversations I've had regarding the pay cut I took to join the company (at that point in time I was happy to take the pay cut as the company values, treatment of staff and environment are so great). So this is a figure that will change in a matter of weeks.

I currently rent privately with an unrelated housemate, my tenancy finishes in April 2025 and I would be looking to move out of my current property and rent somewhere with my boyfriend or if money was still too tight I could move back in with my parents for a while, they have already said that if I needed to move back in with them that they wouldn't charge me any rent or expenses etc until I was back on my feet. So expenses there would also go either up or down but I don't know a figure just yet. If everything else pointed towards a DRO as the best option but the only issue would be moving out, I could possibly extend my tenancy after April 2025 for another 6x months which would take me past the 12 month period for the DRO to finish, so if worst came to worst this could be option.

In turn, because of this, I am wondering if the Token Payment Plan or DMP would therefore be best? I don't feel the TPP is a long term solution due to the informal agreement which can be denied at any point and I would then be back to square one again. The option I don't really know much about is a DMP, I know that you do pay your debts off bit by bit which can essentially last your whole lifetime if the repayment amount is fairly small which mine would be. Does this then mean I would always have issues trying to buy or rent a property or finance a new car etc? I don't want to be in my 70's and still tied down to debt I got myself into in my 20's.

My current budget is as follows: 

Monthly income - £1,680.61

House Rent - £512.50
Storage Container Rent - £150 - (I only have a double bedroom at my property and the rest is communally shared, so my container has my original household items like a sofa, fridge etc that I will need when my tenancy runs out and I can move again but I have no where else to store it)
Council Tax - £84.62
TV License £7.10

Electricity - £22.62
Gas - £22.62
Water Supply - £18.37
Water Waste - £10

Groceries - £300 (including pet food, laundry detergent and household cleaning items)
Vet bills and Insurance - £16.99

Home Phone, Internet, TV Package - £19.89
Mobile Phone - £12
Hobbies, Leisure or Sport - £25
Gifts - £300 - Per Annum

Car Insurance - £36.89
Car Tax - £17.50
Fuel, Parking, Road Tolls - £300
MOT & Ongoing Maintenance - £240 - Per Annum

Clothing & Footwear - £120 - Per Annum
Toiletries - £20

Other Essential Costs - £40 - to the friend I borrowed money from

Total spare each month: £9.51

I have a car worth £690 as an asset and no savings.

Please could I have some advice about the options I have been offered?

I know I should have made a decision sooner as my Breathing Space is running out fast, it's no excuse but I admit I got very overwhelmed trying to deal with all of this and still live a normal life, alongside working a full time job etc and it's finally dawned on me that I need to get my head out of the sand and stop hiding from this, as it won't go away! Thank you 

When you apply for a new rental property next year the landlord is very likely to search your public credit files. Your public credit files show insolvency and CCJ and as a DRO is a form of insolvency a potential landlord will be able to see it. I see from your SOA that you have a pet and a pet plus insolvency is going to make you a tough sell to most landlords especially if the rental market remains hot. 

Whilst the DRO looks appealing now you may come to regret it next year. Landlords would have no idea that your on a DMP though unless you tell them. 

stu12345_2

id move back in with parents, your gas, elec, council tax water will be reduced as well as free rent..
their council tax bill won't change cos you move back in and I doubt their gas or water elec will move up by much.

it be like being a teenager again where you offer a little digs money to them but buy your own food.
if they are understanding they will charge you little.

I'd live very frugally, hit those debts as hard as you can in a self managed  dmp , not via debt charity, cos you can choose exactly how much you want to pay back monthly, and clear them in under 2 years, maybe less if you get early full and final discounts from creditors.

and then go and rent private again, maybe move into a fully furnished flat., I'd only buy my own couch, bed , fridge etc in the future if I was renting council, cos council all you get is a bare shell.


you say you have home phone package, when does that end. as in what is available at your parents.

£1800 a year is a lot for storage, what is the value of your couch , fridge.
my couch fridge bed washing machine don't even  add up to that 
I'd sell them and move in with folks 

ps I used to rent council lock up for £11 a week and it's £15 for non council tenants, you are meant to store a car only, but many store lots of household things in them instead.

how far away is to your job from your folks house. would you use less or more than £300 a month 

tbh your debts are too high on your wage even a wage increase is not enough to clear them if you continue to rent private.
as a  dmp should not be longer than 5 years and a debt charity should not be recommending one if it goes beyond 5 years.

oatsinthewater21

@2021rdsunshine The small amount I'm allowed to have in spare income is something that definitely worries me, as this job was just supposed to be a stop gap really (moved house and needed a new job closer to home). I'm intending on moving to a better paid job asap really, as lovely as this company are, I have no real chance of paying back any debts or creating an emergency fund with little to no spare income at the end of each month due to such low wages.

So as you say, if I get any more of a wage increase then a DRO may not even be an option and I'd be crazy to turn down more money to stay within the limitations of a DRO haha! In all honesty I'd be content with a trashed credit file for 6 years if if meant I could live my life debt free and never get credit out again. I'm so desperate to sort this at any means necessary, it's ruining my life 

I'm unable to finish my tenancy early which is a pain as the fixed term is 12 months and I'm past the break clause guidelines etc. My parents would probably need until April to get the house ready for me to move back, as I'd be bringing my cat with me so they'd need to clear rooms etc. But I definitely think moving back to my parent's house will be a huge help to paying off these debts 

Thank you so much for all your help! x

oatsinthewater21

theoretica said:

Do you actually have enough under car maintenance - from fuel you seem to drive a lot?

In all honesty I'm actually not sure! I've accommodated for 4x part worn tyres per year incase of potholes/punctures etc, my MOT, plus a few bottles of coolant and screen wash per year.

Is there anything I'm missing that should be added?

oatsinthewater21

_Penny_Dreadful said:

When you apply for a new rental property next year the landlord is very likely to search your public credit files. Your public credit files show insolvency and CCJ and as a DRO is a form of insolvency a potential landlord will be able to see it. I see from your SOA that you have a pet and a pet plus insolvency is going to make you a tough sell to most landlords especially if the rental market remains hot. 

Whilst the DRO looks appealing now you may come to regret it next year. Landlords would have no idea that your on a DMP though unless you tell them. 

Oh wow I had no idea a DMP doesn't show on your credit file!! That would be a huge help, as you say I came into problem after problem trying to rent a place with my cat even when I had a great credit score, clean credit file and wasn't behind on any payments etc. Let alone with a DRO on there as well, it would be near impossible especially as I haven't got a huge budget to pay months worth of rent in advance etc...

2 out of 6 of my creditors have already defaulted, I was told by StepChange not to take notice of this as they were pointing me in the direction of a DRO so the defaults won't matter. But will this now cause issues if I choose to go to a DMP? I feel like I should have made a plan with them by now if I do gown down the DMP route and I haven't saved anything for an emergency fund as StepChange said any savings would go against me in a DRO a it would show I could pay off creditors so to just include them as expenses that I haven't been able to afford whilst paying my debts but in a DRO I could afford e.g gifts, clothing, hobbies/leisure

stu12345_2

you can have £2000 in savings in a dro and as much savings as you want in a dmp

standard advice is pay nothing until you have built up an emergency fund and all your debts have defaulted, then begin a dmp

do it by yourself or via a charity( but debt charity will want you to pay now it wont wait for all defaults or wait till you have saved a good emergency fund), but don't start one until those 2 things have happened 

a charity will want proof of your earnings, but if you do your own dmp, you never have to prove anything no matter how often the creditors say or demand.

you get their sort code and account number from the back of any letters they sent you and you set up a monthly amount via your bank and put your debt reference number in your payment.

give a decent enough time for all your debts to default say 6 months, then consider paying some money prorata to the defaulted debts, but not the non defaulted ones yet.
and only pay enough, so that you have enough to pay the others when they default 

do you have any debts with your current bank

step change suggest a dro cos  a dmp will be far too long if you continue renting private etc , you have not enough left over to service a decent quickish dmp

so they say a dro, but you rent private, that will hit your credit file hard and bad,  and you say your wages will go up

step change have ran out of solutions, hence we say don't pay until defaults, get emergency fund built up, then move  back in with folks, if defaults happened or happen before you move back in with parents, pay the defaulted ones very little imo