DMP - continue payments to creditors until setup?

ghostinmypantry

Hi,

I applied for a DMP with StepChange a couple of days ago. I understand it can take 1-2 weeks usually to setup. Their advice is to carry on regular payments to creditors until it is setup. 

However, the entire debt to my creditors was included in the DMP. So if I continue to make the regular payments, I will have overpaid. 

I won't pay the first DMP payment to StepChange until the start of next month, so every single one of my creditors would have been overpaid by the minimum monthly payment in each case if I continue to make payments until then. I'm also struggling to make all of the payments, which is why I've setup the DMP.

1). Should I just stop paying my creditors included in my DMP now or carry on paying? If I stop paying, should I notify my creditors or just ignore them and let StepChange handle it all? If I stop paying now will this have an even more adverse affect on my credit rating? I'm not sure if being on a DMP means I have defaulted anyway and therefore paying or not paying until the DMP is setup would make a difference?

2). In either case, is it worth signing up for Breathing Space? Does this basically just stop your creditors hassling you whilst the DMP is being setup?


Thanks for any advice.

Grumpelstiltskin

Please stop paying and don't set up the DMP up until they have defaulted and you have used the money you have saved to make an Emergency Fund.

It is a mistake to rush into a DMP too soon, don't panic nothing terrible will happen and whatever you do do not phone your creditors

RAS

A DMP is an informal arrangement. It doesn't matter exactly what the starting amount is.

Do you have any sort of emergency fund? So that if something fails or there is a family emergency, you've got some sort of back-up?

Have you got your new basic bank account set up (do not switch, set up separately as you need to leave the old DDs behind). 

If you can handle the texts etc, then just put the money into an emergency fund and reply by text that you are doing a DMP with Stepchange. 

Whether you don't pay, or start a DMP, your credit record will be marked with Arrangement to Pay. Folk here tend to the view it's actually better to stop payments for several months, wait for the defaults and then set up the DMP. That damages your credit record for less time as a rule.

sourcrates

You appear to be charging head first into a situation you know very little about, and that is never a wise thing to do, especially where money and debt are concerned.

Its best practice to do as much research as possible before making any decisions on how to tackle problem debt, stepchange are a debt charity funded by the big banks, the same big banks you owe money too, now they do try to act in your best interests, but there are a lot of things you can do to make the situation easier for yourself.

You have been given some good advice already, we recommend you always default on credit agreements prior to entering debt management for the reasons given above.

Breathing space is a waste of time as they still expect you to make payments, just allow the lenders collection process to go through its motions, that takes a good few months anyway, standard letters will be sent, you simply ignore them, and eventually your accounts will be defaulted.

Your debts will likely to sold, or passed to debt collectors to manage, so you won`t always be dealing with the same companies.

ghostinmypantry

Thank you all for the advice, it's much appreciated. In terms of not having defaulted before taking out a DMP, I realize now I should have done that, but it is what it is, my mistake. If it adds on a few months to my credit rating being restored at the end of it all, I can live with that. I've already signed up for the DMP so I don't know if I can just back out of it and wait for everything to default now? If not I'll just start the DMP, stop payments to creditors now and wait for the defaults to kick in.

I take onboard that Breathing Space is considered to be a waste of time, I just thought it might be worth considering to reduce the amount of contact from creditors. I won't phone them, but I will text back if they text and say I am in a DMP with Step Change and they are handling it as advised above.

Creating an emergency fund is exactly what I intend to do, every penny I can save will go into that. 

I have set up a new current account. I have done switch, but I'd already cancelled the relevant DDs first so that should be fine. 

Thank you again everyone who replied, much appreciated!

EssexHebridean

It won't necessarily be a few months though - it could be years, so it is worth putting a stop on things for now and looking at taking the default route. You absolutely can just say to Stepchange that on reflection, you want time to think things through, and so you are not going ahead with the DMP at this point. 

You don't have to speak to creditors on the phone ever - and you don't have to allow them to text you either. You are quite within your rights to tell them all that they may only contact you by hard copy letter, through the post. 

Keep a close eye on the DDs on your new bank account just to be safe - we have had another case today when a cancelled DD to a debt was paid out on by a new bank, in spite of having been cancelled prior to the switch. You would be able to claim back, but it's not ideal to end up getting left short even short term. 

The other advantage of pausing now before starting the DMP is that as well as building the emergency fund it also give you a few months to work with your new budget to be sure that you have made sufficient allowances for expenses in all categories - it sometimes takes a bit of time and fine tuning to get things right! 

ghostinmypantry

EssexHebridean said:

It won't necessarily be a few months though - it could be years, so it is worth putting a stop on things for now and looking at taking the default route. You absolutely can just say to Stepchange that on reflection, you want time to think things through, and so you are not going ahead with the DMP at this point. 

You don't have to speak to creditors on the phone ever - and you don't have to allow them to text you either. You are quite within your rights to tell them all that they may only contact you by hard copy letter, through the post. 

Keep a close eye on the DDs on your new bank account just to be safe - we have had another case today when a cancelled DD to a debt was paid out on by a new bank, in spite of having been cancelled prior to the switch. You would be able to claim back, but it's not ideal to end up getting left short even short term. 

The other advantage of pausing now before starting the DMP is that as well as building the emergency fund it also give you a few months to work with your new budget to be sure that you have made sufficient allowances for expenses in all categories - it sometimes takes a bit of time and fine tuning to get things right! 

Thank you, this is all great advice and really appreciated. I didn't realize it could actually be a difference of years in my credit rating be restored at the end of the DMP, compared to waiting for the defaults first. I don't really understand why but will take your advice!

With that in mind, I will contact Step Change and request that they halt the DMP before it starts, then wait for the defaults to all come through before starting a DMP. Thank you!

The weirdest thing to me is to just stop paying anything without contacting anyone, it feels very unnatural and kind of stupid you have to play this game! :-) Thank you!

Grumpelstiltskin

Once you default the debt disappears from your credit report after 6 years whether it has been paid off or not, If you start paying before a default your credit report is marked Arrangement to Pay, that doesn't disappear until 6 years after your final payment. So if the debt takes 5 years to clear your credit report takes 11 years to clear.

ghostinmypantry

Grumpelstiltskin said:

Once you default the debt disappears from your credit report after 6 years whether it has been paid off or not, If you start paying before a default your credit report is marked Arrangement to Pay, that doesn't disappear until 6 years after your final payment. So if the debt takes 5 years to clear your credit report takes 11 years to clear.

Thank you, I appreciate the clarification on this point!

sourcrates

The debt charities campaigned for breathing space, it was intended to be a 6 month hiatus from creditor contact, during that time no payments or collection activity was going to be allowed.

The Government wouldn`t have that, so we ended up with the watered down version we see now, utterly useless to man or beast, collection activity differs from the odd letter, to a call every day, but you can dictate to them how they are to contact you using the General Data Protection Regulations, or GDPR for short.

Tell your lenders how they are to contact you, and they must abide by it, only regulatory notices are unaffected by GDPR.

Rob5342

The other advantage of defaulting is that it makes the debt more likely to be sold to debt collection agency, and they are far more likely to accept a reduced settlement offer. In the long term that could save you a huge amount of money.

It's a bit counter intuitive to begin with, but you can make things vastly better for yourself if you play things to your advtantage.