Questions about a DMP and £50k in debt

BasketballJumper90

Hi everyone, over the last couple of weeks I've been focussing a lot on getting our debt in order as our outgoings on paying of credit cards is unsustainable now that I've realised we're going about £230 over every month and using credit to pay for food etc. We have around £48000 across 5 credit cards, a £500 overdraft and a couple of unsecured Ikano bank 0% loans totalling £2777 outstanding. We have no priority debts, and we've never missed a payment on anything.

I've spent a lot of time researching to get my head around it, starting off thinking StepChange was the right move and filling out their online form which recommended a DMP. After reading here about defaulting the cards first and whether to self manage I figure I need to be decisive given I've got large payments coming out soon (Friday) and need to default on them ASAP, so thought I'd just ask my questions rather than waste time trying to find answers that fit with my situation rather than waste more money paying them before allowing them to default.

My wife and I have two children, aged 7 and 3. Our 3 year old will be starting nursery in September. I have ADHD, and the rest of my family are autistic/ADHD too which makes this a lot harder to manage and deal with. I'm also the sole earner and we have no other income at this time (we need to look into DLA).

I've got a few questions that hopefully someone can help with please: 

1) my current/"bills" account is with First Direct, as well as one of the credit cards. It also has a £500 overdraft which we go into every month. I also have a personal Starling account and my wife and I have a joint Starling account. I gather I should move my direct debits and income to another account so was going to move them to the joint. 2 parter:

1a) the next CC payment is due out this Friday 23rd by direct debit, should I cancel that now? If so how long before First Direct try to take money from my current account to cover the no payment?

1b) what happens to the overdraft after I move all the money out? Does that "default", or do I include that in the DMP? Given we also live in it for a portion of the month is it bad for me to transfer that out to my Starling?

2) we have a joint fixed mortgage with Halifax and a credit card with Halifax. I've read that it shouldn't be an issue to remortgage with them when it's up (Jan 2028). Is there anything else to consider there other than not being able to fix with someone else? Am I right in saying they won't cancel our mortgage agreement or threaten repossession to meet our credit card payments? FWIW we've never missed a mortgage payment.

3) should I default my 2x Ikano bank loans? I believe they're unsecured. These are manageable at £256.25p/m total, but I suppose whatever I can cut back on repayments per month would be beneficial given I earn a very good income.

4) using StepChange is appealing as they manage the payments for us, and it's overwhelming considering doing this ourselves given our household situation. I provide a lot of care and I'm the sole earner/financial manager so I feel like I've let the family down by not keeping on top of our spending and saying no more. That said self managing looks less stressful now I've read the NEDCAB plan a bit, I guess it's just a fear of the unknown at this point. I've also read StepChange are less flexible in what we can offer to pay and allow us to save which I'm really keen on for emergencies etc, is that true?

5) When reading through the NEDCAB self managed DMP it says about sending them a financial statement in the offer letters, is it necessary to send that much detail to our creditors?

6) Is there any benefit to keeping one credit card for an emergency? The one with the largest available balance is the Virgin card with around £1500 available.

7) I've seen it mentioned about not using the current account switch service in our situation, why is that? We have a lot of direct debits so it'd be great to do this automatically, but fair enough if not.

8) If I self manage, do I start the DMP for each account as and when they default, or do I wait for them all to default before starting? I'm probably thinking too binary about how Step Change would do it there, but it seems to make sense to start paying back ASAP?

9) I think a DMP is the way to go rather than an IVA? An IVA seems more severe and less flexible if our circumstances change, but I've also seen mentions of new IVA regulations coming into effect but I don't really understand it. Would that benefit?

I know an SOA would help which my wife and I are working on, but a breakdown of our 4 weekly incomings and outgoings for now at a glance (based on how often I get paid):

• Pay: £3,797.30
• Total regular outgoings (includes groceries and Ikano, excludes credit cards): £2,936.66 
• Credit card payments: £1,196.49 
• leftover to service debt/save/live: £860.64

Credit card minimum monthly payments/balances:

• MBNA £190.68p/m / £8286.88
• Barclaycard £305.29p/m / £9842.31
• Halifax £338.00p/m / £10829.76
• HSBC £57.50p/m / £2242.54
• First Direct £208.43p/m / £6959.35
• Virgin £96.59p/m / £9659.42

(varying degrees of 0% balance transfers that we've ended up spending on and maxing out. Some end this year, some already charge large interest since balance transfer deals expired).

Sorry if anything above is confusing but I'm happy to clarify where I can, it's been a bit of a brain dump but I really appreciate any help that anyone can advise here. 

Thank you.

ManyWays

1) my current/"bills" account is with First Direct, as well as one of the credit cards. It also has a £500 overdraft which we go into every month. I also have a personal Starling account and my wife and I have a joint Starling account. I gather I should move my direct debits and income to another account

yes but you only move bills, not DDs to debts.

1a) the next CC payment is due out this Friday 23rd by direct debit, should I cancel that now? If so how long before First Direct try to take money from my current account to cover the no payment?

You can try. It may be quite a while, sorry you have to live with some uncertainty and just take the actions that you know are good for you in the medium/long term

1b) what happens to the overdraft after I move all the money out? Does that "default", or do I include that in the DMP? Given we also live in it for a portion of the month is it bad for me to transfer that out to my Starling?

If you stop paying the debts, you wont need to live in the overdraft, will you? 

2) we have a joint fixed mortgage with Halifax and a credit card with Halifax. I've read that it shouldn't be an issue to remortgage with them when it's up (Jan 2028). Is there anything else to consider there other than not being able to fix with someone else? Am I right in saying they won't cancel our mortgage agreement or threaten repossession to meet our credit card payments? FWIW we've never missed a mortgage payment.

This wont be a problem 

3) should I default my 2x Ikano bank loans? I believe they're unsecured. These are manageable at £256.25p/m total, but I suppose whatever I can cut back on repayments per month would be beneficial given I earn a very good income.

Treat all your lenders the same. If you are stopping paying some, you stop paying them all

4) using StepChange is appealing as they manage the payments for us, and it's overwhelming considering doing this ourselves given our household situation. I provide a lot of care and I'm the sole earner/financial manager so I feel like I've let the family down by not keeping on top of our spending and saying no more. That said self managing looks less stressful now I've read the NEDCAB plan a bit, I guess it's just a fear of the unknown at this point. I've also read StepChange are less flexible in what we can offer to pay and allow us to save which I'm really keen on for emergencies etc, is that true?

A lot of people start with to skimpy a budget with StepChange,. Make sure it is really comfortable, with money for all of the things that crop up during a year. Then you can save on the SC budget

5) When reading through the NEDCAB self managed DMP it says about sending them a financial statement in the offer letters, is it necessary to send that much detail to our creditors?

You get less hassle if you do. It depends on your tolerance for hassle,

6) Is there any benefit to keeping one credit card for an emergency? The one with the largest available balance is the Virgin card with around £1500 available.

no. Do this and another debt is going to build up, charging you interest

7) I've seen it mentioned about not using the current account switch service in our situation, why is that? We have a lot of direct debits so it'd be great to do this automatically, but fair enough if not.

Because it will switch the debt direct debits. And if you cancel one, the lender may try to get it reinstated. DIY is easier

8) If I self manage, do I start the DMP for each account as and when they default, or do I wait for them all to default before starting? I'm probably thinking too binary about how Step Change would do it there, but it seems to make sense to start paying back ASAP?

Just take this step by step, you dont need to work out everything now

9) I think a DMP is the way to go rather than an IVA? An IVA seems more severe and less flexible if our circumstances change, but I've also seen mentions of new IVA regulations coming into effect but I don't really understand it. Would that benefit?

I dont think anyone can guess without seeing your SOA

Rob5342

Stepchange are certainly a lot less flexible, but when you first start a DMP you don't necessarily need that flexibility. The flexibility tends to be more important further down the line when it comes to making settlement offers etc.

When it comes to budgets you need a proper budget for yourself to be sure of what you can afford, the budget you send to StepChange or your creditors can say anything as long as it arrives at the same final figure. If you want to save more then just say your travel costs are more expensive than they are or something. 

BasketballJumper90

Thanks @ManyWays and @Rob5342, a lot of that makes more sense and I really appreciate the time you've taken to answer.

I feel like I'm trying to plan the whole thing out end to end because I don't know what's coming, but I get that I should just try and take the steps I can now in defaulting and then move on from there.

A few more questions:

1. So before I transfer all the money out of my current account (given I've just been paid), should I leave £500 in there to cover the overdraft? I was thinking about trying to build up our emergency fund so would have automatically transferred out and left the account with -£500 balance, but leaving £500 in there seems the more "ethical" option but then that delays building up our emergency funds by a month. It's split £250 interest free/£250 chargeable, so maybe leave the balance as -£250? I'm just really nervous about having no emergency funds so I don't like the idea of delaying building this up, and I'm not clear what the equivalent of a default on an overdraft is.
2. Also reading the terms of this current account it charges a £10 fee for maintaining the account if criteria aren't met as it's a "1st Account". Will this mean I'll start getting charged a £10 fee for that?
3. On the Ikano loans "Treat all your lenders the same. If you are stopping paying some, you stop paying them all". I kind of get it, but for the avoidance of doubt for our literal minds, why shouldn't we try to pay these off if we can afford to and still have enough? Is it so we can save for a better emergency fund? We've got about 7 months left on one (£75) and 9 months left on the other (£181.25), and they're both interest free from home improvement.

ManyWays

should I leave £500 in there to cover the overdraft? 
no, leave the overdraft there and that is part of your DMP. By taking the full amount of money out, you can pay the bills, expenses and build your emergency fund

Will this mean I'll start getting charged a £10 fee for that?
probably, but you are overthinking this. Stop worrying about tiny amounts of money. this account is going to default then charges and interest stop

why shouldn't we try to pay these off if we can afford to and still have enough?
- it means less for your other creditors, and there is no particular reason why you should give priority to these loans
- it delays building your emergency fund a lot!

tigergambit

Re the IKEA loans, if you put them in your DMP you will be able to settle them for around 30% in two years time. Why would you treat them any different to your other creditors?

BasketballJumper90

Great thanks both!

I've cancelled the DDs for the credit cards and I'll do the same for Ikano shortly, and I've made a good dent in moving our direct debits and money over to our other account as well so we're on the way. 

When I start getting contacted by creditors because I haven't paid, particularly over the phone, is it as simple as saying "I don't want to discuss this on the phone, please make all contact in writing from now on?" and they have to accept it, or do they tend to argue at all? And then I just ignore contact until I get the default letters in 3-6 months? 

How long after I get the default letters do I have to start repaying?

tigergambit

BasketballJumper90 

When I start getting contacted by creditors because I haven't paid, particularly over the phone, is it as simple as saying "I don't want to discuss this on the phone, please make all contact in writing from now on?" and they have to accept it, or do they tend to argue at all? And then I just ignore contact until I get the default letters in 3-6 months? 

Yes. You may have to reinforce this with an email. They can't argue under GDPR rules. May be as long as a year before default.

How long after I get the default letters do I have to start?

Wait until you get a request from them or their appointed administrators / DCA and check that it shows as defaulted on your credit record. Normally 6 weeks or so after default but may be longer if debt has been sold on.

Hope this helps set your mind at rest. Important things for now are to get your income paid into your clean bank account and set up DDs for your important payments - mortgage, utilities, CT etc.

You will then have a few months of waiting. Get used to this and use it to build your emergency/fighting fund, a DMP is not a quick process but it doesn't need to be stressful.