Confused....Stopping debt payments before starting DMP?

farmer76

Hello

I was very close to "pulling the trigger" and starting a DMP with StepChange.

But then I saw I should just stop paying my non priority debts for several months, allow them to default, then start a DMP?

I understand this is to build up a fund of money before entering a DMP.

All my debts are credit cards and personal loans. I have never missed a payment, but am only paying minimum of each debt, and it is a huge proportion of my earnings. My debt has increased massively in last 18 months because my Wife has had to reduce her work hours because of her MS 😢

Have I understood this correctly?

Thank you for your help

sourcrates

Yes, more or less.

Stepchange are a creditor funder debt help charity, so they are obligated by charter to treat all creditors fairly.

In practice that means setting up a payment arrangement with all your lenders, pretty sharpish, although they will cater for individual circumstances etc, but your debts don`t always default, which can result in your credit file being affected for longer than necessary, and they don`t always stop interest either, plus you have no time to start saving an emergency fund, which you will need as this progresses.

So we tend to recommend a hybrid version of debt management, where you take the reins yourself, stop all non essential payments, wait and save until your debts default, then start making payments.

At this stage, after default, you most likely won`t be dealing with the creditors you had originally, debts get sold on, or assigned to debt collectors, so you simply set up payment arrangements with whoever writes to you asking for money, or you can now get stepchange involved, if you wish.

Remember, only written communications should be taken notice of, legally you have to be written too with important information, so ignore emails/texts/phone calls, as non of them count in debt collection.

MEM62

I understand this is to build up a fund of money before entering a DMP.

Partially. It is also to ensure that your credit file is cleared up sooner. Default and the debts drop off your file 6 years after the default date. Don't default and they drop off 6 years after they have been settled.

RAS

You've understood what we suggest.

There are several reasons:

You need an emergency fund because you won't be able to get more credit. Having to halt your DMP every time something goes wrong or breaks down is stressful.

If you start a DMP immediately, your credit record will be marked Arrangement to Pay. These stay on your credit record for 6 years after the debt is paid.

If you stop paying and allow the debts to default, your credit record will be cleared 6 years after the default, regardless of how much is paid off.

Once the default defaults it's likely the debt will be sold on as a discount, so later you'll probably be offered the chance to clear accounts at a discount; another use for the emergency fund.

Grumpelstiltskin

Also remember once debts have defaulted they drop off your credit report after 6 years even if you never pay another penny towards them.

Some debts may not be enforceable so don't automatically start paying all of them and there is also unaffordable lending to be looked at.

If you post a SOA on here we can look at your full situation and advise you what to do.

ManyWays

I am sorry to hear that your wife has MS. Can I ask if she if getting PIP?

Rob5342

I strongly recommend that you do stop paying and wait for defaults as it's vastly better for you in the long run. I started my DMP with Stepchange and started paying straightaway but then stopped later to try and get defaults. I now have one credit card debt that won't drop off my credit report for 3.5 years but if I'd defaulted it could be dropping off in a year.