Repayments are greater than income - DMP?

Kauto5

Hi everyone, 

This forum is fantastic, I have had a read through several threads as I'm trying to decide what's best to do in my situation and it's given me lots to think about.

I have £38,000 debt in total which is 6 credit cards and 6 unsecured loans. I've not missed any payments on any of these accounts and have no defaults or missed payments on my credit report in the last 6 years. 

However, I have been using my credit cards to pay other bills, trying to juggle everything and have eventually run out of room this month. My interest is high on all debts (29-59%) and the interest on my credit cards mean my payments next month will be unaffordable.

I have entered all my details on step change and they recommend a DMP for 38 months with a monthly payment of £1,010. This would be affordable for me after essential bills.

Is there any way of knowing if your creditors will freeze interest other than contacting them yourself directly? If they agree, will this affect my credit report? If so, I'm thinking I may as well consider defaulting to build up an emergency fund. 

But if freezing interest with me still making monthly payments won't affect my credit report, then this might be a better option. I'm really not sure and this is so stressful, I'm grateful for the advice and support this forum offers!

fatbelly

You need to bite the bullet regarding your credit file. It's not going to look good for 6 years but with that much debt it doesn't look good now

Yes, default on the debts, build an emergency fund and start paying them once they default.

Brie

I would start by contacting all the creditors and say exactly what you've said here - that next month is unaffordable.  Also tell them that you are looking at debt solutions, certainly mention that you have been in contact with StepChange.  Ask them to give you 60 days to get yourself organised a bit better.  

If you do go into a DMP the creditors will likely freeze interest, especially if they are contacted by a debt advice agency.  But this will be reflected on your credit history.  And then again - does it make a difference?  You are unlikely to be able to get more credit at this point and will be unlikely for a couple of years at the very minimum.

Don't forget that there are other ways to deal with debt.  StepChange is probably one of the best known agencies in the country.  There's also NationalDebtline.  Both can help you with a DMP which they will manage.  Community Money Advice (CMA) does face to face work generally and could talk to you about other alternatives such as a Debt Relief Order if that's appropriate for you.  But if a DMP is the way to go they will work as a liaison but you would do the actual DMP work paying to the creditors yourself.  

ManyWays

A creditor agreeing to freeze interest will affect your credit record, indeed if you cannot make the minimum payments, any debt options will affect your credit record. 

If your loans are also charging you 29% interest, then you are in a very difficult situation and your affordability and probably credit record is already poor, so there is nothing to try to protect here. Do you have a mortgage and are worried about getting a new fix on that?

Were the expenses you told StepChange sufficiently generous? because you want a budget that you can be sure you can live within for a long while, not scrape by on for a few months. 

Grumpelstiltskin

Whatever you do don't rush into a DMP until you 200% understand what you are doing and what the consequences will be. Also you must build up an emergency fund as you will not have any access to credit and sure as houses your car will fail it's MOT the same week as the washer breaks down.

You need to open a basic account ( no overdraft ) with a banking group you don't owe money to and transfer manually ( don't use the switching service ) all vital direct debits.

Stop all unsecured debt payments ASAP and don't worry nothing terrible is going to happen, then when the debts have defaulted you can think abut a DMP.

Kauto5

Thank you everyone for your responses, I think I'm deluding myself about trying to protect my credit file.

I will also consider my budget for expenses to check I'll be able to survive longer term.

Further details: I rent and own no property or assets, I was planning on getting a mortgage once I'd cleared my debts but that seems so unlikely now.

If I didn't default on debts and instead managed to arrange breathing space or a freeze on interest, am I right that an AP marker would go on my credit report? And this will last longer than a default as it remains not from the date the marker was added, but the date the debt is settled? If so, that sounds worse than a default to me.

Grumpelstiltskin

Don't bother with breathing space it just prolongs the agony, you are right.

A default lasts 6 years even if you haven't cleared the debt where  an arrangement to pay lasts 6 years from the date you clear the debt, so if it takes you 4 years to clear the debt that means it takes 10 years to clear.

Kauto5

Thank you! 

Seems such a big step to stop paying and drastic 😖 but it makes sense. 

I'll set up a basic bank account this weekend for all essential bills. Should I change my wages to be paid into this account?

I think my plan now is to stop payments, away defaults and try to enter into a DMP to pay off all the debts.

fatbelly

Yes, use the new account for all income and essential dds and so s.

If that means you are walking away from an overdraft, so be it. Just another debt

RAS

Think fatbelly meant Standing Orders? 

Whatever, all income and all essential spends are transferred manually to the new account and stop paying everything else.

There is no credit check for basic bank accounts, but you need ID which is easier if you are on the electoral roll at your current address.

Kauto5

Yes I'm on the electoral roll at my current address. I'll get that set up this weekend, thank you. 

Is it usually 3 missed payments that lead to a default? I'm assuming that varies between creditors - do I set up my DMP as soon as one defaults or wait until they all do? The thought of being contacted by debt collectors is daunting but it'll be worth it all hopefully.