Debt management plan

Missflow72

Hi all. I’m after some advice. Please be gentle as I know I’ve got myself into this mess. 

I’m at a point where I need to tackle my debt as I’m running out of options. I’ve completed a budget with step change but the proposed monthly payment is only £200 less than I’m paying at the moment. I’m trying to get to a point where I can ‘save’ money for emergencies and large bills as not having this has been the cause of a lot of my problems. 

Current paying £1100 per month on non essential debt. Payment proposed by step change is £900. I’m not sure this adjustment is worth the impact a dmp would have on credit rating etc but running out of ideas.

advice would really be appreciated.

Grumpelstiltskin

As you say you are running out of ideas

You are in a situation where you won't be able to use credit in the foreseeable future so yes you credit will be trashed for  6 years after defaults issued.

Problem is if you start making payments before the debts default then your credit report will be marked 'Arrangement to Pay' this means they will not disappear until 6 years after your final payment, so if a debt takes 5 years to repay it doesn't go off your credit report for 11 years.

You need to slow down and don't rush into a DMP until the debts have defaulted and you have saved an emergency fund.

fatbelly

Missflow72 said:

Hi all. I’m after some advice. Please be gentle as I know I’ve got myself into this mess. 

I’m at a point where I need to tackle my debt as I’m running out of options. I’ve completed a budget with step change but the proposed monthly payment is only £200 less than I’m paying at the moment. I’m trying to get to a point where I can ‘save’ money for emergencies and large bills as not having this has been the cause of a lot of my problems. 

Current paying £1100 per month on non essential debt. Payment proposed by step change is £900. I’m not sure this adjustment is worth the impact a dmp would have on credit rating etc but running out of ideas.

advice would really be appreciated.

Then stop paying and save a fund

If you can't afford the contractual payments, then stop.

It sounds like you will be able to afford a substantial payment to the debts once the dust is settled. Whether a straight dmp is the most sensible strategy is something we could comment on if we saw a full soa

https://www.lemonfool.co.uk/financecalculators/soa.php

Missflow72

Thanks for your response. This is all fairly new to me to be honest. Is the recommendation to cease paying non essential debt? 

RAS

First do the SOA because you might be close enough to break even with a bit of shuffling and to avoid a DMP?

If it is the right option, open a new basic bank account (unless you owe nothing to your current provider). It doesn't require a credit check. Do not switch to the new account if you have DDs to creditors going out of the old one. Also open a new emergency fund account; perhaps an instant access ISA?

Get your income paid into the new basic account and set up DDs for secure debt and essential providers. Cancel the non-essential consumer creditor DDs in the old account and stop pay them.

Sort out any debts to essential providers, otherwise save the money you would have put into the DMP into the emergency fund.

EssexHebridean

Missflow72 said:

Hi all. I’m after some advice. Please be gentle as I know I’ve got myself into this mess. 

I’m at a point where I need to tackle my debt as I’m running out of options. I’ve completed a budget with step change but the proposed monthly payment is only £200 less than I’m paying at the moment. I’m trying to get to a point where I can ‘save’ money for emergencies and large bills as not having this has been the cause of a lot of my problems. 

Current paying £1100 per month on non essential debt. Payment proposed by step change is £900. I’m not sure this adjustment is worth the impact a dmp would have on credit rating etc but running out of ideas.

advice would really be appreciated.

Hey, first up, no point in blaming yourself, the situation is what it is, it's all about finding the most efficient way of dealing with it now, so blame off and practical head on, yes?! 

The first step is to put together your SOA (Statement of Affairs) - as you need to ensure that you have a solid and robust budget in place. I'd suggest doing that by going back over a full year's worth of bank and card statements, there is a link to the calculator we recommend in my signature below. once you've done it - being sire to make it open, honest and reflective of where you are right now - format it for MSE and copy and past into this thread and we can have a look and make suggestions. 

You need to ignore the impact on your credit file (credit "ratings" aren't a real thing - as witness different credit reference agencies use different numbering systems!) for the time being - if you continue to use credit without being able to keep up with the payments then that's going to trash your file anyway, so this is now about doing the least amount of damage possible. 

In any event, you probably need to take a step back and avoid rushing into a DMP - if you can't afford the payments to your unsecured debts right now, you need to stop paying them, as by trying to continue you are just digging a deeper hole. Ideally it's best to let debts default before entering a DMP anyway as that does indeed have a lower impact on your credit file. 

gwynlas

The main advantage of using stepchange is that they deal with all your creditors saving you hassle however you can self manage your dmp fairly easily.
Once defaulted you approach creditors telling them how much you can afford to pay and proceed on that basis.
They will ask for soa and names of other creditors but will accept what you offer readily enough

Missflow72

Ok, an update for anyone interested 😊. Have taken some time to think and don’t see the dmp being the right option at this time. Most of my debt is on loans which will end in around 4 years anyway ( same timeframe as the dmp) so I won’t really be benefiting. I have a full budget and exact outgoings and have moved some higher interest amounts on to a 0% interest for 15 months that came through yesterday. 

My biggest problem is unnecessary spending and until I stop this, nothing is going to change. My challenge now is sticking to a budget.
thanks for the advice. 

birdsfoottrefoil

Hi, it might be worth starting a diary. I’ve done that as I really struggle with my spending and it’s really helped.

Good luck with everything!!

EssexHebridean

A budget is almost always the first step - the SOA calculator mentioned earlier is a good starting point, but there is also a budget spreadsheet available on the MSE main site that is very helpful just for straight income and expenditure too - and again it will show you what you "should" have left after everything necessary has been paid. That then enables you to check that you DO have that money left over.