Access To Credit ; DMP

Ivor_Problemo

I've researched several threads on this board and have a quick question, hopefully some of the helpful posters will know the answer.

Multiple times I have read that anyone entering a DMP will immediately lose access to credit. The reason for building up an emergency fund. Presumably that is due to their destroyed credit record, for six years post default dates.

My question is however, what about existing credit that wasn't being used? For example, a current account overdraft facility or unused credit card. 

In my mind's eye I don't anticipate people working for lenders regularly manually reviewing the credit records of all current customers. It's all driven by automated systems. So in a hypothetical scenario, if you have an unused OD or credit card with lenders that aren't forming part of the DMP, that credit should still be available whilst on the DMP? Or does it flag up somewhere that you are now in a DMP and all credit facilities are subsequently withdrawn (I'm not talking about applying for new credit, or limit increases).

I'm thinking that potentially you could still receive 0% BT deals on existing CC accounts, which would still be useful on a DMP and potentially reduce/clear creditor balances that are included in the DMP. Or use an OD in an emergency scenario. 

Grumpelstiltskin

You will have to close your current account if it has overdraft facilities  and open a basic current account with no overdraft and with a banking group you don't owe money to.

You will also have to close your credit cards, so no chance of using them. 

ManyWays

I'm thinking that potentially you could still receive 0% BT deals on existing CC accounts, which would still be useful on a DMP and potentially reduce/clear creditor balances that are included in the DMP
No lender makes a 0% offer without checking your credit record, and they will see the defaults. Also getting a 0% offer, that you have to pay a fee for usually, is of no use in a DMP where interest is already stopped. 

Ivor_Problemo

Thanks Grumpelstiltskin.

I guess cancelling the OD would satisfy it in that regard. I could do that before pulling the trigger on the DMP. I've never used my overdrafts, I just have them as a safety net in case of a miscalculation or timing error. I have multiple current accounts, so closing ones with OD facilities wouldn't be terrible, but some have associated incentives, so I'd prefer not to if that was possible.

I didn't realise all of my credit card accounts would have to close. I have several cards with no liabilities currently, some of them for years, unused. Is there somewhere I can read all of the mandatory rules of a DMP (I realise that a DMP is technically informal)?

ManyWays

I didn't realise all of my credit card accounts would have to close.
They dont. But its a pretty bad plan to go into a DMP expecting to be able to use them. And you may find the lender closes them anyway on a review of unused accounts.  

Ivor_Problemo

ManyWays said:

I'm thinking that potentially you could still receive 0% BT deals on existing CC accounts, which would still be useful on a DMP and potentially reduce/clear creditor balances that are included in the DMP
No lender makes a 0% offer without checking your credit record, and they will see the defaults. Also getting a 0% offer, that you have to pay a fee for usually, is of no use in a DMP where interest is already stopped. 

Thanks ManyWays. Interesting. I did think the offers got pumped out to all of their 'good' customers with 'clean' accounts, didn't realise they all have their credit files reviewed. But there is some logic to that. 

Yes you're right there on the second part, once defaulted they are effectively 0%. But  BT to an account outside of the DMP removes any theoretical threat of recovery/legal action, ie I'd rather have a regular account at 0% than a defaulted one, even if there was a marginal fee involved. 

Grumpelstiltskin

I don't think you have had your lightbulb moment yet.

The whole point of a DMP is to pay your debts off not getting further into debt.

You have to know exactly what a DMP involves and you have to be 200% sure it is the correct way to get debt free and you don't jump into a DMP before the debts have defaulted and you have a workable budget with an emergency fund in place.

Ivor_Problemo

Grumpelstiltskin said:

I don't think you have had your lightbulb moment yet.

The whole point of a DMP is to pay your debts off not getting further into debt.

You have to know exactly what a DMP involves and you have to be 200% sure it is the correct way to get debt free and you don't jump into a DMP before the debts have defaulted and you have a workable budget with an emergency fund in place.

I'm nearly there I'd say, done a fair amount of research!

Nearly all of my credit is interest free right now, as stated I still have easy access to credit (without applying) and have a modest cash buffer. I still get multiple 0% deals.

What's evolved on my side is that I've taken a massive income hit. So I could plod along for a good while, eventually I will completely run out of road and new 0% BT deals (as I can no longer apply for new credit). So for me it's about what is the right time to pull the trigger, rather than whether to. I'm inclined to go in the near term, rather than wait to the bitter end, but some of the existing 0% deals go well into next year. Of course when they default (if preparing for the DMP), I will lose all the promos and get massive interest accumulating pretty quickly whilst waiting for the defaults. One of my creditors is Virgin, with one of the biggest liabilities, and I've read that they are unusually slow (compared to others) at reaching the default tipping point. 

I do also realise through researching on here that much of the advice is to ignore the interest and penalties when waiting for default, as F&F discounts years down the line will offset it. Very difficult for me to deliberately opt into a scenario where interest will be added to my cc debts, but I also realise that's the overwhelming likelihood however I play it. 

Grumpelstiltskin

OK but what about your budget and emergency fund?

You have to be prepared to be able to cover all annual expenses without resorting to credit and what happens when the washer breaks down the same week as the car fails it's MOT?

Ivor_Problemo

Grumpelstiltskin said:

OK but what about your budget and emergency fund?

You have to be prepared to be able to cover all annual expenses without resorting to credit and what happens when the washer breaks down the same week as the car fails it's MOT?

I've liquidated some assets, so there is no immediate pressure on cash flow. Cut out 80% of discretional spending. For example £5 for mobile, supermarket own brand shopping, deleted Sky TV. All the pieces are in place for a DMP really. No more assets to liquidate, aside from my property. 

I am mortgaged with 40-45% equity. This is my priority, naturally. Not defaulting on the mortgage or any other priority liabilities. 

Grumpelstiltskin

Have you got an amount in your budget to save something even £20 every month into your emergency fund whilst you are in a DMP? It's OK having cash now but what about 18 months down the line?