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Is defauting on loans the way to go?


I have several debts that, along with my priority bills, leave nothing to be able to do either snowball or avalanche approacahes, as there is literally no available cash, and if anything, I'm now dipping into my overdraft regularly.
I have decided to default on two loans - one for £9k, and one for £5k, of which the payments between them were £600pm.
By doing this and waiting for the default letters to arrive, I've managed to use this cash to start to chip away at my other debts. In fact, one small one is two months from completion, and then I can snowball the rest from here on in.
Yes, I am aware this will impact my credit file, but my only other options were either IVA, which would cripple it more, or a DMP, which would affect my mortgage in several months time, as this debt would need to be included.
I will be sorting out a repayment plan with the defaulted company, as the agent told me (and I downloaded a copy of the chat transcription for evidence), that I can offer what I can afford to pay.
What's peoples thoughts on this? Have I done the right thing?
Comments
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a DMP, which would affect my mortgage in several months time, as this debt would need to be included.A DMP does not hurt your mortgage. If your mortgage fix ends you can get another fix from the same lender. There is no need to get a larger mortgage to clear the debt if that is what you meant,
Who are the two loan lenders?
How large are the other non loan debts?1 -
What you have done is a debt management plan albeit a bespoke one.
Are you permanently out of your overdraft now?
What are the debts you are still paying and what is the apr on them?
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CXG1979 said:Hi all,
I have several debts that, along with my priority bills, leave nothing to be able to do either snowball or avalanche approacahes, as there is literally no available cash, and if anything, I'm now dipping into my overdraft regularly.
I have decided to default on two loans - one for £9k, and one for £5k, of which the payments between them were £600pm.
By doing this and waiting for the default letters to arrive, I've managed to use this cash to start to chip away at my other debts. In fact, one small one is two months from completion, and then I can snowball the rest from here on in.
Yes, I am aware this will impact my credit file, but my only other options were either IVA, which would cripple it more, or a DMP, which would affect my mortgage in several months time, as this debt would need to be included.
I will be sorting out a repayment plan with the defaulted company, as the agent told me (and I downloaded a copy of the chat transcription for evidence), that I can offer what I can afford to pay.
What's peoples thoughts on this? Have I done the right thing?Faced with a bad credit record for 6 years for reduced or non payment of loans and a bad credit record for 6 years for a DMP I way Well Done youAs long as you don't need credit and as long as you have got to the cause of the debts then you are fine.Sure you won't be able to go buy a new car on a finance agreement but seriously, cars are massively overpriced, even second hand on finance is absurd.You can either wait for the offers of 60% off the debts or you can just wait them out and not pay a penny,If you want to pay the remaining debts then pay the one with the highest interest first but understand that if the creditors of the debt you DuMPed see that activity it gives them reason to believe they can get money from you. I did all except my bank and I lived on the cusp of my overdraft limit for years until Covid when I borrowed from family to pay it off and paid them a decent interest rate that was way lower than I was paying and way higher than they could get at a bank when base rate was 0.25%.So think carefully about paring down that other debt just now, save your money and wait until you have offers from all or if you decide you are not paying any then do so.0 -
As of pay day next month, I'll no longer need to dip into the overdraft anymore. I weighed up doing avalanche vs snowball, and opted for snowball approach. Athough the default will hurt my credit, getting the smaller debts paid off will help it, as there will not be so many loans/cards etc on my file and it'll report that these are satisfied correctly. Plus, it also gives me some breathing room as it's nice to be able to buy myself something as simple as a sandwich and a coffee whilst out and about, rather than starving myself.
I was on a payment plan with the defaulted loans, which reduced my payments each month, but rather than adding it to my term and balance to pay off, they actually accrued the balance of the payments, and once the plan expired, they would not renew it, and told me I needed to pay the balance in order to stop it going into default. I explained that this was not possible, and they should know that with me being on a plan, but no dice. So I told them do what you got to do, and the agent then said let it go to default, then you can go back to what you were paying on the plan itself (£50pm per loan) and pay it off that way. Based on my projections, the other debts looking to be cleared off with the snowball approach in approx 20 months time, I can then attack anything left on these.
Does that make any sense??? Or am I being naive?0 -
ManyWays said:a DMP, which would affect my mortgage in several months time, as this debt would need to be included.A DMP does not hurt your mortgage. If your mortgage fix ends you can get another fix from the same lender. There is no need to get a larger mortgage to clear the debt if that is what you meant,
Who are the two loan lenders?
How large are the other non loan debts?0 -
CXG1979 said:ManyWays said:a DMP, which would affect my mortgage in several months time, as this debt would need to be included.A DMP does not hurt your mortgage. If your mortgage fix ends you can get another fix from the same lender. There is no need to get a larger mortgage to clear the debt if that is what you meant,
Who are the two loan lenders?
How large are the other non loan debts?Sorry if I am missing something, but why not default on all your debts, then DMP the lot?
Whilst waiting for defaults save up a fund for emergencies or to pay off full and final offers eventually.
Then, when defaulted and hopefully the interest frozen, DMP the lot (either self managed or with a free charity/Stepchange etc).
If the two loan companies you default with see from your credit file that you are making full monthly payments to other debtors, they may not be best pleased and look to other methods (CCJ then even a charging order on your property etc) as they could think you have money but are willfully not paying them.
Whereas, if you default all debts , all should get paid an equal proportion – even those with higher interest rates. Hopefully ;full and final offers; may come along for all in due course and then use the saved emergency fund for that.
Plus defaulting all will mean all your cards will be cancelled, removing the temptation of taking on further credit via existing (but paid off) credit cards.
Posting a full SOA would be very helpful so the very experienced on this board can fully advise you.
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CXG1979 said:ManyWays said:a DMP, which would affect my mortgage in several months time, as this debt would need to be included.A DMP does not hurt your mortgage. If your mortgage fix ends you can get another fix from the same lender. There is no need to get a larger mortgage to clear the debt if that is what you meant,
Who are the two loan lenders?
How large are the other non loan debts?
You say you want to avoid a DMP because of the effect on the mortgage and credit file. To do this you have defaulted on only 2 of your loans.
To clarify.
What you have entered into with the 2 loans is a DMP.
The impact on your credit file has happened. Defaulting on the others will make no difference. The system is like a switch. Have you defaulted yes or no. There is no value to letting other debts remain out of default. A defaulted debt no longer has interest.
There is no effect on your mortgage by defaulting on unsecured consumer debts. The impact on your credit file will effect you being able to get a new mortgage for 6 years. This impact has already happened. If a fixed term needs to be renewed you will need to renew with your current mortgage provider. This is because of choices you have already made and is now unavoidable.
The damage is done to your credit file. You do need to get into a position to love live without access to credit for the next 6 years minimum (lifetime ideally - we are after all debt free wannabe). This means taking a root and branch look at the way you live and how you manage money.
Take some time to create a statement of affairs (SOA) based on what you actually been spending the past 12 months. Then work out one you can live on based on your income for the next 12 months. This is a long process and typically takes 3 months to nail down.
Some unsolicited advise. The best thing in my own journey has been looking to the future to see what I need or want to spend as irregular expenses or annual costs. E.g. if I want to spend £300 on Christmas I have to save £25 per month out of my pay so that it is there at Christmas. I expect my car tyres to need replacing at some point so each month I save a small amount into a car repair fund so when the time comes the money is there because the credit card is not.
On a plan for your debts. You're n for a penny might as well be in for a pound. Default on the rest of your unsecured debt and get debt free faster.My Debt free diary
https://forums.moneysavingexpert.com/discussion/6492297/10-000-steps-1-step-at-a-time0 -
I agree with @13thlegion.
Two defaults will have done 90% plus of the damage to your credit record that defaulting on all of them would do;
and defaulting on them all will save you a lot of money in interest so the debts can be cleared sooner.
Your proposed route doesn't make much sense.
Also there is a chance that someone at Zopa (or whoever they sell the debts to) will look at your credit record and realise you are paying every other creditor except them and feel !!!!!! off and so go for a CCJ. This is normally very unlikely but if they are the only creditor you aren't paying this could happen.1 -
Yes, default all, construct a SOA that leaves you room to live and save a fighting fund.
There is no point at all in just defaulting some, although you may like to get rid of the one with two months left to make things simpler.0 -
Just to emphasise, if your mortgage needs renewing "in a few months time", you may well be able to log in now and find what deals your current provider offers.
Generally you can renew 3-6 months before the current fix ends.
Your two recent defaults will make it very hard to get a comparable deal with any other mortgage provider.If you've have not made a mistake, you've made nothing0
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