AP, then defaulting

ManyWays

I'm not trying to minimise the number of defaults, rather, minimising the total amount that will be included in my informal DMP.

Why do you think minimising the amount in the DMP is a good thing?

If you pay 10k to A&B and C&D go into a DMP, then either you pay 10k to clear them in full or you can actually settle them for less with settlement offers.

If A B C & D all go into the DMP, you have the 10k that you would have paid to A&B to help pay them all. Your are no worse off if you pay them all in full (£20k) and may be much better off if you can get settlement offers.

sourcrates

Creditors can demand what ever they like, doesn't mean you have to comply, the debt collection process will still be the same regardless of the circumstances.

Its a good thing that you`re considering different approaches, and looking at all your options, the best advice I can give you, and I will stretch my neck out and say others will agree on this, you need to keep it as simple as possible, if you default on one debt, then you might as well default on the lot.

Your credit file, and ability to borrow, should not be your top concern, the priority is to get out of debt, and stay out, whilst repaying as little of that debts face value as possible.

Defaulted debt normally gets sold pretty sharpish, and, dependant on the purchaser, some kind of settlement offers should be forthcoming, non defaulted debt can also be sold, but tends also to stay with the original creditor quite often, or be assigned to a debt collector, in this scenario, settlement offers are not so generous.

The reasoning behind this is the price these companies pay for your debts, they get sold in bulk, for as little as 5 to 12% of their face value, so they can buy your 5k credit card debt for £250, and make you an offer to settle at 3k, and still make a good profit, utter madness I know, but that`s how this game plays out.

Altior

I'm limited to retaining £6K capital due to the benefits scenario. It's quite complex in of itself, but to get council tax reduction I must stay below £6K capital. It's a hard cliff edge with my council, so 1p over £5999.99 will be zero CTR instead of 80%. They get the capital amounts I report directly from the DWP.

The ultimate goal is to pay the least amount of interest.

Settlement offers it seems to me are in hope rather than expectation. They may come at some point but I don't feel like it should influence my tactics leading up to the DMP. I want to pay as much off as I can when the debt is still at 0%. It's a juggling act, basically.

Another complication is it isn't as neat as I laid out and the longer 0% cards have 0% deals with multiple expiry dates.

Oh and half that capital is fully locked until September 2028. So I only have £3K accessible capital.

I think for a long, long time I was hoping against hope to avoid missing any payments. But I think I need to face reality, and it's not happening.

ManyWays

I agree with @sourcates. Keep things simple and default on everything now.

Another complication is it isn't as neat as I laid out and the longer 0% cards have 0% deals with multiple expiry dates.
That is irrelevant; you cut through all the complications by defaulting now.

Oh and half that capital is fully locked until September 2028. So I only have £3K accessible capital.
That is another good reason to default on them all now so when you later get access to more capital, more debts are defaulted and sold and so more likely to accept settlement offers.

No one can guarantee that you will be able to get a setlement offer on any particular debt. But if you do not, then you pay it in full and you are no worse off than if you have paid this debt in in full when it was at 0%.

I know it must look as though can take advantage of the 0%s now. But really they gain you nothing but time, which is a disadvantge and makes later settlement offers less likely.

To minimise your payments to clear the debts you want as many defaulted as soon as possible. For you that is counter inutitive, but experience shows this works.

Altior

I'm usually quite good at thinking laterally and outside of the box, reputation for that over my career. But (again using basic numbers for simplicity):

Option A Default £20K (wishful thinking, they all default by 6 months) = £2500 interest + £300 fees.

TC £22800.

Option B Default £10K (wishful thinking, they all default by 6 months) = £1250 interest + £150 fees

TC £11400 + £10000 = £21400.

I don't see how option A wins here. There are of course other variables, if I don't use the funds paying down cards I need to use them for something else, that's not considered DoC in regard to UC. I could potentially overpay the mortgage.

I'm hoping to get an income tax rebate in the next few months, which apparently counts as earned income. But bizarrely enough, that qualifies me for Help to Save. Help to Save pays a 50% interest rate, which I could use to offset the added interest in a DMP (theoretically). There's a few ifs, buts and maybes in there, but it is a prospect. HtS still counts as capital for UC purposes though.

The thing is, I have to decide option A or option B pretty much now, as if if I go for B I have to tilt my payments to the cards with the longest 0% rates.

Rob5342

I agree with the others here, you are overcomplicating and overthinking something that has a very simple solution. Part of the reason some people get into debt is because they believe they have a plan that will sort it out, then something changes or dont or can't keep to the plan so they create another one they think they can stick to, then that fails and the whole thing perpetuates and they don't get anywhere. If you want to sort debts for good out you need to take an approach that avoids all those traps. The best approach is to keep it simple and default on everything, that way you are interest free and can just repay as your circumstances dictate. If your income drops you can just reduce payments, if you get a lump some you can make a settlement offer.

There is no guarantee that you will be able to reach settlement agreements but it's likely that you will at some point along the line. Settling at 50% could take a bit of time and work, but 90% is a common response to a settlement offer and that would offset a lot of the extra interest.

Altior

Appreciate the thoughts.

My situation isn't a typical one I'd like to say. Too complicated to cover it all, but one life lesson is that nothing much stays the same.

I had a good, easy, well paid job, 100% working from home, and the only reason I leveraged debt outside of my mortgage over the last decade was stoozing. New management came into my organisation at the same time as I was faced with some significant health complications. After 5 years working 100% remotely, they decided that everyone had to attend the office at least three days a week. Not as it was required to be able to perform, but new management just wanted to see people in the office again. I went through occu health and all that, had a significant operation and faced post op complications. Occu health gave me a stay of execution as it were, but that ran out, my wellbeing leave was all gone. Work were now giving me an ultimatum to go into the office, but i couldn't. I could have strung it along a bit further with my employer, and made it awkward for them. But I didn't want a termination on my record and effectively told them to stuff it.

I went from comfortably over £1K+ a month disposable income to receiving £100 a week ESA in total.

However, I had reserves of cash, stoozing funds and lots of unsecured debt. At that point, I could have cleared all off the debt and still had a surplus but it still would have been too much to qualify for UC at that time.

The way ESA works is that you get 1 year maximum, there is a health assessment, but the waiting time for the assessment and outcome is many months. There was no guarantee that I would be awarded long term ESA (support group), they could theoretically have turned around and said I was fit to work. The one year max applies to LCW, a sort of half way house between support group and fit to work. If you're found FtW, all ESA stops immediately.

Basically I had all of these funds, from stoozing and regular savings but essentially it's the same pot. But I think pretty obviously I couldn't pay off all the debt and potentially qualify for UC soon, as I still had all my bills to pay and £400 pcm income. UC is no different to ESA financially anyway until the outcome of the health assessment, as ESA s deducted from any UC payments.

One option under consideration would have been to enter a DMP there and then. But I'd have no income to service it, and would have needed to use savings. So it wouldn't have lasted very long!

The outcome of my WCA (health assessment) changed everything, as it meant increased ESA of £600 pcm with no time limit, and I could get the health element on UC (LCWRA). UC comes with SMI eligibility. But I still had too much capital to apply for UC (hence why I've only just applied). But SG did provide me with the stability of some guaranteed income going forward. But not enough to cover my priority bills and living costs.

During this time, the government changed UC policy and introduced a lower rate for LCWRA (effective the same amount as SG ESA). Originally the start of this tax year was going to be a hard line, but they changed the law to mean if you were SG before April 6th you could apply for UC after April 6th and still get the higher rate (that's the part they've just screwed up for me!).

For 15 months now I have been juggling all of this. For UC to be meaningful I really had to get below £6K capital as that qualified me for CTR.

All along, I half expected to end up in some kind of DMP. I had the funds and the liabilities, it was a judgement call and I decided my judgement call was to risk ending up with a modest DMP and mitigate the cost to me. But it's not on the table for me not to repay the unsecured debt (not my intention), but to have as little fees and interest levied as possible. I was hoping to roll the liabilities on with new 0% BTs, which I got for a year after being forced to leave work, but they've evaporated overnight.

I wrote all that out as my profession is finance and I should be reasonably competent at it. I can stick to a plan, there's no risk of me wasting money or using credit that I shouldn't. I should be able to handle working with financial intuitions, debt collectors, whomever it needs to be for my chosen strategy. This element poses no fear for me. I have no fear of missing payments or obtaining defaults if it works for my strategy. I don't care about my credit report. My one fear is paying interest, but as I've covered before, that is now almost inevitable.

Shadyocuk

I still don't think you are getting it , all the above post means nothing , if you are going to default then default on everything now .

You seem to be using universal credit as an excuse, but thats just a red herring , you can easily get your capital below £16k or £6k , pay off some of your mortgage , put some in a pension , spend some on future essentials (stock up on food , clothes etc). What possible down side to having a smaller outstanding mortgage??

At the end of the day its your life and your decision , but I agree with everyone else that there is no logical reason for you not to simply default everything now.

Altior

My post was a (brief!) précis of how and why I'm where I'm at now. Partly as a way to demonstrate that my credit was never intended to be real lending, it's just the ways things played out and I turned it into real lending on purpose. And possibly explain my aversion to interest!

I'm at £6K now, but it wasn't a case of dragging it out on purpose. I had £K's in other locked accounts and ISAs that recently matured. The locked ISA I could have accessed with a penalty, but then I needed to weigh up the advantage and disadvantage and I was ultimately worse off if paying the penalty.

The margins are minimal, the yield on the capital was more than I could have got from UC. Only CTR made it worthwhile, meaning that I had to wait for the locked savings to mature. Assuming that the UC error I'm experiencing is corrected, most of the complications have now dissipated. The only determination left really is exactly how to handle the CC liabilities.

I don't get why defaulting on £20K is superior to defaulting on £10K IF the other £10K is interest free. If it was all attracting interest, it would be a no brainer. But it doesn't, and none of the debt will be attracting any interest until January.

Altior

It will be several months away, I will update the thread with how it goes. This is my settled strategy for the time being. UC teething issues apart, I should imagine the next hurdle will be waiting for defaults, when that time comes.