DMP; I need advice

Ouzo7867

I am in about £20,000 worth of debt. £7000 of it is spread about 4 credit cards all at high interest (about 40%), £10,000 in loans which  at the rate I’m paying them back will take me 4 years and £3000 in an overdraft with NatWest which cost me £80 just in fees every month. I got into this situation through poor money management during Covid and also lost 2 jobs, renting from the age of 18 and just being really reckless and thinking I’d always be able to consolidate and make it easier. I also was made redundant twice and my pay (30k per annum) has plateaued on in the last 2 years.

I had to take a payment holiday on my two loans a couple of months ago as there was a gap between my pay when I had to change jobs, and I’ve noticed one has been classed as a debt arrangement plan on my file. I know this lasts at least 6 years and will make my plan to consolidate even harder especially as my credit score is shocking.

I’m thinking of getting a DMP as my outgoings each month leave me with virtually nothing due to the interest and I’m having to dip into my cards every month just to make ends meet.

Atm my outgoings are the following without the debts: 

£600 rent and bills

£150 food

£100 travel 

£17 phone contract 

My income is roughly £2060 a month

My outgoings for my credit exceed £1000 a month due to high interest and I won’t be getting a pay increase apart from maybe £150-500 commission/bonus here and there although this is really unstable. 

I’ve accepted that I cannot go forward living like this and will most likely have to go through an arrangement. I’m wondering if it’s best to default on all my accounts before applying for a DMP (this also allows me to put some money aside in case it goes wrong) or should I just call stepchange ASAP? I’m hoping with a DMP I could lower the payments to my creditors to £400 a month and have them paid in 4-5 years (maybe a bit quicker if some months I earn more and add it to the plan). Any advice would be greatly appreciated.

sourcrates

You seem to have a good strategy worked out already, we recommend defaulting first before entering debt management, as it is better for you in the long run, although its not essential.

Defaulting stops all interest and charges, it gives you a clear 6 year window till the default is gone, and avoids arrangement to pay markers.

Not all accounts will default at once, some linger on longer than others, its going to be your choice when to start a DMP, and whether you choose a debt charity or do it yourself.

Grumpelstiltskin

OK You are in the right place now.

First thing to do is not panic, it's only consumer debt.

You need to open a basic bank account ( no overdraft ) with a bank not connected with any banking group you owe money to.

Don't do an account change but swap manually vital direct debits, get your salary paid into the new account and stop paying all  debts.

If you start paying anything before your debts default you get arrangement to pay markers. These stay on your credit record for 6  years after they clear, so it takes 5 years to clear and it stays on your credit record for 11 years. This is why you should default first then the debt goes after 6 years whether it has been cleared or not.

RAS

Great advice above. Stick with that and you'll be OK. 

I'd add that a basic bank account doesn't require a credit check but make sure you are on the electoral roll at your current address and have a bill which you pay there.

Beyond that, your SOA is a bit sparse. We assume you wear clothes and shoes? Maybe even go out occasionally, have the odd subscription, need occasional medical or dental treatment, by a birthday card or present?  What did you spend on those items in the last year? 

Basically you are dealing with the fall out from Covid, but you need to account for necessary spends and factor in a contribution towards a holiday, emergency funds, a deposit on a new rental as well the items above, before committing to pay back your existing creditors.

It's important you bulk out the SOA so you're not scuppered in the future by something predictable.