DMP and Lump Sum

forumdoodle

Hi,

I have an incoming settlement from a divorce (buyout from FMH) of £38k.

I have £30k in debts across various credit cards which were needed to start my life from scratch unfortunately. All debts have defaulted and passed to agencies, currently paying £100 a month through a DMP with StepChange.

I understand that I will be left with £8k, but this is also needing to pay off legal fees from the divorce so I will only be left with around £2k which is not sufficient in putting towards a deposit however many years down the line I am able to.

The debts owed are:

Lowell - £12k
PRA - £5k
Moorcroft - £13k

I am hoping to maximise the payout for a deposit for a new place of my own (understandable that I'm probably a few years off that yet with default markers!).

I wish to offer F&F settlements on these, from what I understand, I am probably best cancelling my DMP and self managing.

I am due the payout early April this year, what is my best strategy to approach these? All defaults registered between April 2025 and September 2025.

Thanks in advance for any advice, I have probably missed some important details off so if there is anything else I can share, please ask away.

Rob5342

To start with make CCA requests, if they can't produce the CCA then the debt can't be enfored and you can simply ignore it.

When you have the money then make offers to the ones that are enforcable. Start low and if they don't agree then leave it and try again in six months or so.

I'd keep the DMP going until you have the money, then you can move to self managing.

fatbelly

I would add 'make the opening offer in writing using the National Debtline template'

Are you suggesting that you clear 30k of debt with 2k cash? Or did i misunderstand that?

SpireCaptain

I read it that they'd like to save as much of the £30k to add to the £2k for a deposit for house purchase once their credit file is back in good shape.

From £38k proceeds of sale- £30k to pay off debts, £6k legal fees from divorce leaves £2k so asking about F&F from the £30k.

Start lowball at 30% or so and work your way up to what you're comfortable with. Maybe the best offers will come once the debt has been sold on once or twice and a few years down the line and only with self management will that be possible as Stepchange like to spread lump sums fairly.

Altior

Notable perhaps that you can easily achieve 5% interest (probably a bit more) on cash savings. For sake of ease, 5% of £32K is £1600. ie, the cash would yield more than what it currently costs to service the DMP.

To me that provides a few options. For example, one would be use the interest and what you're already paying to service the DMP. That would take it down to 10 years, but you could still try for discounted settlement in the meantime. Plus when the defaults drop off, you'd have a reasonable deposit.

Another option is to carry on paying the £100 pcm, and allow the savings to accumulate with interest.

The DMP is effectively an interest free loan, and the defaults will be there for the same amount of time, whether the DMP is satisfied or not. Perhaps the time to clear it is when you will be eligible for a high street mortgage (speak to a broker).

Rob5342

https://forums.moneysavingexpert.com/discussion/comment/81888955#Comment_81888955

Yes don't go anywhere near Stepchange when it comes to making settlement offers. They will want you to pay the whole £30k off what you owe when will settlement offers you might be able to settle for £15k, or even less if some are unenforceable and don't need to be paid at all.

fatbelly

If you take your time, work systematically and realise this isn't a quick process, you should settle 30k of defaulted debt for 10-15k

dprovan

I am really interested in the comments bout not using stepchange for settlements, does this mean not to go down the managed route if you are hoping to settle, or does this mean dont use stepchange or similar at the point of looking to settle. Are there others out there who have used a 'cash pot' in savings to grow and use the interest to pay the DMP whilst waiting on settlements- It is an option I may be able to explore

Rob5342

It means don't go through them when it comes to settling. They will want to take whatever money you have and split it proportionally between everyone you owe money to with the intention of ultimately paying the full amount back towards everything. If you approach the creditors yourself you might you can use the same money to completely clear one debt for 50% or less of its value which could save you a huge amount overall.

Stepchange can be very useful but they should be used with care as their approach means your creditors can needlessly benefit at your expense.

dprovan

Thanks Rob, that makes perfect sense. Thank you

sourcrates

By far the vast majority of lenders don`t hang on to bad debt for very long, its usually sold pretty quickly, and for a fraction of its face value, which doesn't seem very fare does it, they are willing to offer some faceless 3rd party a great deal on your debt, but not you, so why is that?

Well a number of reasons why, they sell in bulk, so it clears the books quickly, and remember, they never had this money in the first place, it was created on a computer, so they get back the price of the sale, and they write the rest off to tax, its all profit, and a win win for the bank.

So if you have been in debt management, and have had the chance to save a few quid, its best practice to try and settle what is owed, for as little as possible, so you also get a bite at the cherry.

Now almost all of the free advice debt charities are creditor funded, so they have to follow certain rules when making settlement offers, that usually involves taking your lump sum, and distributing it amongst your creditors equally, so no great deals to be had, and you may still end up owing money.

So this part is always best handled by someone who will act in your best interests, namely you, take your time, be patient, and negotiate, it can take a long time but eventually you can get the deal you are after.