Persistent debts built up, 0% periods ending on cards mean its unaffordable - DMP

Invertigo

Good evening folks,

I did post in the DMP thread but figured this is possibly worth having my own thread for, so here goes.

This month is when I finally stepped back and took stock of my financial situation. Total unsecured debt is circa 70k across a couple of loans and numerous credit cards. I've been managing fine until the 0% offer periods started to end and the minimum payments started to balloon. I have removed all cards from my digital wallets now to remove any possibility of spending on them.

Last week I took steps that I thought were the best, in that I contacted StepChange and they've just completed setting up a DMP for me. None of the debts had missed payments until this month so no defaults. My first direct debit to them is due on 10/01.

I now see this probably wasn't the smartest option and I should have stopped all payments to build an emergency fund. I'm also happy enough to self manage and didn't realise that was an option as straightforward as it seems.

So my first question - can I call SC tomorrow and ask that they cancel the DMP. No payments are yet taken but will this make creditors look unfavourably on me, or will they simply not care and treat it the same as any arrears and default the account in the future?

Secondly, while my next paycheck is due this week into my old account, all future pay is diverted to an account that has no ties to any debt. I will transfer my pay over immediately but as noted I'm not in arrears with my bank yet. I presume this is the way to go?

Finally for now - from reading it appears the best option is to wait for the accounts to default and then engage with the debt management company, offering a limited payment. As it is I could afford circa £1.2k a month in repayments but is it better to reduce this, put money aside and wait for settlement offers?

Thanks in advance, appreciate it

tigergambit

Invertigo said:

So my first question - can I call SC tomorrow and ask that they cancel the DMP. No payments are yet taken but will this make creditors look unfavourably on me, or will they simply not care and treat it the same as any arrears and default the account in the future?

Secondly, while my next paycheck is due this week into my old account, all future pay is diverted to an account that has no ties to any debt. I will transfer my pay over immediately but as noted I'm not in arrears with my bank yet. I presume this is the way to go?

Finally for now - from reading it appears the best option is to wait for the accounts to default and then engage with the debt management company, offering a limited payment. As it is I could afford circa £1.2k a month in repayments but is it better to reduce this, put money aside and wait for settlement offers?

Thanks in advance, appreciate it

Q1: Yes, just call StepChange and tell them you have decided to self-manage. Don't worry about your creditors.

Q2: This is the correct thing to do.

Q3: You should stop ALL payments immediately. You will have a barrage of phone calls, emails, texts and letters. DO NOT ENGAGE until each debt has been defaulted and sold or passed to their tame collectors. This is important since if you engage debts will take longer to default.

In the meantime save any spare money you haven't paid to creditors in a cash ISA or similar and work on your SOA to show a much smaller surplus. You should have two SOAs - one for your own budgeting and one (with a much smaller surplus) which you can show to creditors. Your aim should be to build up your emergency/fighting fund to use for full and final settlement offers in a couple of years.

Invertigo

Thanks. One question I just thought of though with regards bank accounts - does it need to be an entirely separate banking group i.e. dont use a Halifax account when you have Bank of Scotland defaults or vice versa. I do have one that I can use totally unrelated but in terms of setting up a savings/ISA, just so I dont run into any pitfalls

tigergambit

Invertigo said:

Thanks. One question I just thought of though with regards bank accounts - does it need to be an entirely separate banking group i.e. dont use a Halifax account when you have Bank of Scotland defaults or vice versa. I do have one that I can use totally unrelated but in terms of setting up a savings/ISA, just so I dont run into any pitfalls

Yes, completely separate is safest.

kimwp

Changing accounts is for two things- so your creditors don't have your bank details - for this you just need a different bank. (You could probably do this with a different account at the same bank)

And right of offset. To completely protect against this, a different banking group would be needed.

kimwp

I agree with above on using this time to save an emergency fund and work on your budget - it's surprisingly difficult to account for everything when making a budget, so you might have to have a few tries. NB, you don't need to show your creditors your budget when, after a default, you tell them (when and) what you will be paying (but they might be a bit grumpy if it's not in line with what their knowledge of your income is)

Invertigo

Thanks both. Sorry for one more question - I've cancelled all direct debits to creditors, can I use the switching service to move my account over and save having to manually change my other payments or is this not advisable. I suspect the answer will be to do it manually?

Martico

Normal advice is to do so manually, as the switching service also switches DDs

kimwp

Yup manually, so there's no link.

Invertigo

So, updates from last night.

Dmp has been cancelled along with all direct debits to creditors.
All other direct debits have been moved over (or a move has been requested) to a totally unrelated account. My final salary payment goes into my old account this week and will be moved immediately but all future payments are to the new account.
Ive done a very rough budget and I believe I could afford up to 1400 a month repayments, however following the advice above I’ll be limiting it to around 1000 max and putting the rest into a settlement fund in a cash isa

Does the above seem the right consideration? Next steps seem to just be wait for defaults and then set up payment plans? I’ll look to do a SOA over the next couple of weeks and post it up.

RAS

Sounds good. Make sure you've got that ISA set up, and set up an SO to remove the £1200 from your income every month. You can still access for emergencies but not spend on-line etc.