£43k DMP?

charliesdaddy

Hi all

I've done a budget with Stepchange and worked through £43k of debts (credit cards) - 0% balance transfers, yadda yadda, all got out of control.

The budget has £410 per month to pay towards our debts.

Overall question, is it best to do to a formal DMP through stepchange, or manage my own and dedicate efforts in clearing the largest debt?

RAS

It's not quite that simple.

Stepchange and others start a DMP immediately. So creditors normally register AP markers which last for 6 years after a debt is paid.

Many on MSE suggest going cold-turkey for a while. Nil payments encourages our creditors to record defaults on your credit record more quickly. These clear from your credit record after 6 years even if debt is outstanding.

Meantime, the money not yet going to Stepchange is channelled into an emergency fund.

The other advantages are that people often underestimate their living costs. They'll need to replace white goods, clothing, cars, maintain the house. Spending a bit of time living within budget shows up the cracks before the DMP starts.

These reduce the stress of having to stop and start a DMP whenever a major cost occurs and scrimping too much.

So, delay the DMP whilst establishing an emergency fund and stress testing the budget. Then choose whether to go with Stepchange, someone else roto self-manage.

ManyWays

This is almost all credit card debt? Have you paid much interest on these or has it almost all been at 0%?

If you manage your own DMP, the aim is to try to reduce debts by making (1) affordability complaints (2)hope that some will become unenforceable if the debt collector cannot produce the CCA agreement (this is never guaranteed and may not be possible in a few years) and (3) be able to get lower settlement amounts agreed. Basically you try to settle them all for as little as possible, you do not just focus on the largest debt.

Is your situation likely to get better or worse in the next few years? Are you buying or renting?

charliesdaddy

Yep - almost all credit card debt.

MBNA, Tesco, Halifax, Santander, Virgin - I wasn't picky :-)

i think most of the 0% interest periods ended last year.

Being frank, I've gone from earning £70k per year to being self employed and picking up around half that amount…

I'm a homeowner, so focus will be (is) on mortgage and council tax over the unsecured debt…

Brie

The short answer is it depends.

Basically how disciplined are you at ensuring there will be sufficient money to pay everyone each month? Have all the debts defaulted? There have been reports of StepChange going ahead with DMPs without waiting for things to default which means you are then dealing with a changing picture. Best to default and that way there's no interest being added and you just have the debts themselves to deal with.

Also - have you/they checked whether the debts are enforceable? Have credit agreements been requested? Affordability been checked?

Of course once you know what your budget is and what debts you actually owe it's a simple process of setting up standing orders (not direct debits) for each and ensuring there's money to pay those monthly.

The other side of it is understanding why you got into this situation and how to avoid it in the future - frankly that's the hardest bit.

Would you be willing to share the budget that StepChange has done for you? Best to use the statement of accounts (SOA - see the link in my signature below) and paste it back here and people can see what might be trimmed to get you into a better position.

ManyWays

I've gone from earning £70k per year to being self employed and picking up around half that amount

Then you may find it hard to win affordability complaints if the cards were manageable when you earned a lot.

Did you tell Stepchange you are self emplyed, as normally they can not do a DMP then?

Council tax ALWAYS has to be your focus as they are faster to go to court and send round bailiffs than any "consumer debt". Do you have a repayment plan in place?

Rob5342

The normal approach recommended here is:

1, Stop paying everything, wait for defaults and build up an emergency fund.

2,, Once defaulted, start making payments in a dmp

3, Once debts have been sold and have been with purchasers for a while ask for the CCA to see if the debts are enforceable and stop paying any that aren't.

4, Make settlement offers in the hope of settling debts for reduced amounts.

Don't use Stepchamge at #1 as they will want you to start straight away which can be very detrimental to your credit report in the long term. They can be useful at #2 as they can save you some administration, but it's not that hard to do yourself. At #3 they are more of a hindrance than a help as you have to ask them to adjust your payments instead of adjusting the standing order yourself. Don't go anywhere near them at #4 as they will want you to pay the whole amount you have available split between all you creditors instead of using it to clear one at a reduced amount.

charliesdaddy

Yeah - as I'm self employed, my take home fluctuates - a lot. Some months, just scraping £1,000, others 3-4000…

Basically, long story why I got in this situation - divorce, terminally ill father, ill kids, bad discipline, redundancies, wedding, holidays… the lot!

My worry for a "formal" DMP was exactly that - will I always have £410 free, or could it be more flexible if I do it myself? Might be fun (in a perverted sort of way) to play creditors against eachother too!

My only worry is about my car, which is pretty old - though I do minimal mileage as I work from home. Might use one of the cards to get it fixed up and MOTd before doing anything too radical ;-)

Nothing has defaulted. I've not missed a payment yet - so you're telling me I should just miss a few months for everything and see what happens re: Defaulting? Meanwhile save as much as I can?

charliesdaddy

Thanks for your comments - they've really helped!

Rob5342

Managing it yourself is much more flexible. That can be very helpful in playing it how you want to, but it can also mean it might be more difficult to stick to it you are tempted to reduce payments too much. It depends how disciplined you are.

It's all a bit of game to get everything cleared by paying as little as possible. Lots of people pay less then they can rely afford, save up the difference and then use that for settlement offers.

Sunbakedscobble

https://forums.moneysavingexpert.com/discussion/comment/81860099#Comment_81860099

I have 4 months left of a formal DMP (approx 34k pid back over 4.5 years)

I could not have done this on my own, it all sounded too much to deal with, and still does 4.5 years later. I went through payplan and they changed my life overnight. I will be forever grateful for their support and how easy and simple they made an incredibly stressful time,

In answer to your question about "formal DMP" and whether you will always have the amount spare then two points to make:

1. If you can't make a payment for any reason you tell them and they sort it. Obviously if this went on for months things would be different, but life happens.
2. They do an annual review where you resubmit your outgoings, bank statements and wage slips so they can review and alter your payments to suit. You can also have it reviewed anytime.

Just thought I would share