Advice on DMP with step change needed

naturemama1

Hi all,

I’ve been reading lots of the posts regarding the above issue I have and just have a few further questions if anyone can help?

I’m in a real mess. I have upwards on 50k on CC and loans. 2 maternity leaves and working part time for 3 years, as well as partner starting a business has really screwed us.

i contacted step change as was very unsure what else to do. They have suggested a 9 year payment plan, with me paying £540 a month. I’ve never missed any payments so far, which makes this whole thing terrifying. But I have had to use credit for essentials, hence the awful mess I am in. What I have read and understood from what you have been saying has got me worried about the potential future impact of this. I currently have a mortgage, which we have renewed for 5 years. My issue with this is that we will need to move house in the next couple of years, as we only have a 2 bed house. Would I struggle to borrow more on a DMP?

Basically, I think I have 2 options:

1. Take the DMP, pay for 9 years :(

pro - much less to pay each month. Peace of mind as creditors are dealt with?
Worry - as some have said, does this mean that I will have credit for like 15 years?! As the 9 and then 6 to show better credit?!

2. Manage it myself - default and save in an emergency fund? This terrifies me, as I have 2 young children and don’t have the time or energy to fight creditors really. If I do this, how do you go about paying them yourself? Like which department/ who sets this up?

Thanks for any help.

naturemama1

bad credit for 15 years*

Grumpelstiltskin

OK The first thing you have to do is completely change your thoughts on debts and creditors.

You have to realize you are in control not your creditors.

If you can't afford to pay your unsecured debts then stop paying them ( a SOA would help us with your situation )

OK as you realize getting a new mortgage at a good rate could be a problem. normally when a mortgage is up for review we always advise you stay with the same lender, how this would work with a new mortgage I don't know.

How many children do you have and how old are they?

naturemama1

thanks for your reply, not sure what you mean by an SOA? Is that income and expenditure? My children are 1 and 4.

RhiBi

An SOA is statement of affairs, link is below, and format it for MSE.

https://www.lemonfool.co.uk/financecalculators/soa.php

naturemama1

[font=courier new][b]Statement of Affairs and Personal Balance Sheet[/b][b]

Monthly Income Details[/b]
Monthly income after tax................ 2700
Partners monthly income after tax....... 0
Benefits................................ 165
Other income............................ 0[b]
Total monthly income.................... 2865[/b][b]

Monthly Expense Details[/b]
Mortgage................................ 730
Secured/HP loan repayments.............. 0
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 188
Electricity............................. 0
Gas..................................... 0
Oil..................................... 100
Water rates............................. 67
Telephone (land line)................... 0
Mobile phone............................ 0
TV Licence.............................. 0
Satellite/Cable TV...................... 0
Internet Services....................... 0
Groceries etc. ......................... 550
Clothing................................ 50
Petrol/diesel........................... 200
Road tax................................ 18
Car Insurance........................... 40
Car maintenance (including MOT)......... 30
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 120
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 17
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 40
Haircuts................................ 10
Entertainment........................... 100
Holiday................................. 0
Emergency fund.......................... 0[b]
Total monthly expenses.................. 2260[/b]
[b]

Assets[/b]
Cash.................................... 0
House value (Gross)..................... 190000
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0[b]
Total Assets............................ 190000[/b]
[b]

Secured & HP Debts[/b]
Description....................Debt......Monthly...APR
Mortgage...................... 124000...(730)......0[b]
Total secured & HP debts...... 124000....-.........- [/b]

[b]Unsecured Debts[/b]
Description....................Debt......Monthly...APR
Mbna - loan....................5732......216.......0
Zopa - loan ...................11979.....292.......0
Lendable - loan ...............6816......179.......0
Mbna - cc......................7331......163.......0
Halifax- cc....................5609......158.......0
Halifax - cc...................7796......259.......0
Lendable - loan ...............13817.....234.......0[b]
Total unsecured debts..........59080.....1501......- [/b]

[b]
Monthly Budget Summary[/b]
Total monthly income.................... 2,865
Expenses (including HP & secured debts). 2,260
Available for debt repayments........... 605
Monthly UNsecured debt repayments....... 1,501[b]
Amount short for making debt repayments. -896[/b]

[b]Personal Balance Sheet Summary[/b]
Total assets (things you own)........... 190,000
Total HP & Secured debt................. -124,000
Total Unsecured debt.................... -59,080[b]
Net Assets.............................. 6,920[/b]

[i]Created using the SOA calculator at www.LemonFool.co.uk.
Reproduced on Moneysavingexpert with permission, using other browser.[/i][/font]

naturemama1

Just to note, my loan from lendable was £6000, but they have added £7000 of interest! Also, I have included the money that mg partner gives me for half the house as my ‘income’

Brie

You can get help from a debt advice agency and then do the DIY DMP. StepChange like to recommend DMPs and get paid by banks etc to help people manage their debts so that hopefully the creditors get their money. There are other agencies/charities available - Community Money Advice (CMA), Christians Against Poverty (CAP) and Citizen's Advice will help you deal with the creditors and they will be happy for you to take on the monthly payments. NationalDebtline is another reputable organisation but I'm not sure about their attitude to DIY DMPs.

Setting up a payment plan is relatively straight forward. Once you've done your SOA and figured out how much you have available to pay your creditors you normally split the money pro rata. The important thing is to stop paying any non priority (credit cards, loans, catalogues) and wait for them to default which stops interest accruing. You may get some scary letters while this is happening (which is why having an agency helping is good) but you wait until they default and meanwhile save your excess into an emergency fund account. Then you TELL them how much you can pay them. They might say no but you can go ahead and start making the payments you know you can afford by standing order so you remain in control. They will send you bank details and how to make the payments. They are likely to be relatively happy knowing that you are making an effort and not ignoring the problem. Obviously things may change and you need to make adjustments and that's ok too.

It's worthwhile giving this a read:

Debt Management Plan (DMP) - how does it work · Debt Camel

ManyWays

you can also look at making affordability complaints against all of those debts. Winning any will mean the interest is removed, so your DMP will speed up

itsthelittlethings

Just to be clear, have you not included your partners income on the SOA? If so, is their income fairly low as a lot of the bills, groceries, council tax etc, it looks like you are paying on your own?

naturemama1

Thank you for your advice. I have read that article. Basically, I know I need to do something and quickly. I just need to decide whether I stop the payments and let them default then start the shell change, or start the step change DMP before I miss any payments?