DMP and Default Advice - £85,000 Debt and homeowner

Tommy147

Good morning all,

I'm feeling very embarrassed, scared and stressed about my situation and would really appreciate some advice.

I have accumulated around £85,000 of unsecured debt due to terrible overspending. I suffer from ADHD and do have difficulties with money which I am trying to manage with the help of others and my GP. I have a good job and pay my mortgage on time, but I am currently paying approximately £3,000 per month to unsecured creditors alone. Once my other household and living expenses are taken into account, I am effectively relying on credit cards to buy food and cover day-to-day living costs.

My car urgently needs repairs due to an engine issue and is also overdue a service by more than a year. As I need the car for work, I simply cannot put these issues off any longer.

I have recently contacted StepChange and am looking to work with them on a longer-term solution. However, I am finding it difficult to work through the huge amount of information and forum posts available.

Could anyone please help by providing a template letter or email that I can send to my creditors requesting some forbearance while I set up a plan with StepChange?

My intention is to withhold or make token payments for one month or so (having read some advice on here) so that I can use the money saved to repair and service my car, which is essential for my employment. It would also allow me to have some money available for food and other basic living expenses, rather than continuing to rely on credit.

I am up to date with my mortgage payments and am trying to deal with this situation responsibly before it gets any worse.

One further question I would appreciate some guidance on concerns my credit file. Some of my secured borrowing is currently on fixed rates for the next two years, after which I will need to move onto new products or rates with current lenders. In those circumstances, is it generally better to allow unsecured creditor accounts to default, or to agree an arrangement to pay with creditors?

My main concern from my mortgage perspective is preserving my ability to obtain a reasonably competitive rate when my fixed deals expire. Does a "default" have a significantly greater impact on future mortgage applications and product transfers than an "arrangement to pay" marker, or are both viewed similarly by lenders in practice?

I appreciate that everyone's circumstances are different, but I would be interested to hear from anyone who has been in a similar position.

Any advice, experiences, or examples of letters that have worked for others would be greatly appreciated.

Thank you.

Hopefuldadof2

https://forums.moneysavingexpert.com/discussion/6687349/dmp-and-default-advice-85-000-debt-and-homeowner

I am in a similar situation as yourself and I spent a good few months going through this forum myself and what I've understood and implemented from the information i got in my 75k of unsecured debt is to allow all of it default first then set up a self managed DMP. rather than go through stepchange. most of my creditors are defaulting but it is bit of a long process and you will bombarded with letters and calls. I opened a bank account not linked to any debts or within the same banking group. .e.g. monzo account I opened. stopped paying the monthly amounts etc and saving up an emergency fund. at this point your credit will be the least of your worries and defaults will negatively impact it. as you have secured debts I'm sure someone on here more knowledgeable will advice in that area but unsecured debts I literally followed what most people advised stop payments allow defaults to occur so it starts the 6 year clock for your credit file rather than setting up a arrangement to pay. quicker it defaults quicker 6 year clock starts. set up a dmp with the DCA. from what I understand with mortgages etc you can get another product with your current provider without being checked again as you'll be doing a product transfer before your current one expires.

But honestly any unsecured debts don't worry over it. you can sort this everyone on here is helpful and will advise you on steps you can take. your not alone in this at all.

Grumpelstiltskin

OK First read through this thread.

In Debt and Wannabe Debt Free? first Steps to take are here, please read, then ask questions. — MoneySavingExpert Forum

Complete an accurate SOA including all debt details, names of creditors, interest rates etc., format it for MSE and post on here.

Secondly cancel all payments on unsecured debts ASAP, nothing terrible will happen when you do this.

Thirdly don't be tempted to rush into a DMP, there are things need doing first.

You will find out debt collection is a slow process so don't do anything that could cause problems.

ManyWays

Could anyone please help by providing a template letter or email that I can send to my creditors requesting some forbearance while I set up a plan with StepChange?
Do not bother is my suggestion.
If you are starting a Stepchange DMP in a month or two, it is a hassle and gains nothing much. It's good to start a DMP a month or two in arrears.
It sounds as though you want a longer break first. But unless you can produce a statement of affairs to show them you cannot make any payments, they will not be happy getting nothing. Even though it makes sense ti you, it will not to the lenders.
And do not offer token payments as they will not be happy with that either, so KISS and pay nothing..

Some of my secured borrowing is currently on fixed rates for the next two years, after which I will need to move onto new products or rates with current lenders.

Can you give some details about this borrowing - lenders, amounts, current interest rate, what it will change to.
And details about your mortgage. How large, current interest rate, when does your current fix end. Haouse value.

Does a "default" have a significantly greater impact on future mortgage applications and product transfers than an "arrangement to pay" marker, or are both viewed similarly by lenders in practice?

Secured lenders will not like either. Your mortgage lender will always offer you a new fix, assuming no mortgage arrears. With 85k of unsecured borrowing, you probably have no chance of changing lenders for the mortgage or secured loans.

Please post a Statement of Affairs!
Include lender names using the format in here https://www.stoozing.com/soa.php

Rob5342

I agree about not contacting the creditors of your unsecured debts. It's completely counter intuitive but if you contact them and ask for help then i makes the long term outlook much worse for you than if you simply ignore them (it delays getting defaults so your credit report is harmed for longer).

As Manyways says your mortgage lender will offer you a new fixed rate with no credit check. I have four defaults and Santander offered me the same range of fixed rate deals that they offer to everyone else, it took about two minutes to log in and choose one.

RAS

Your mortgage isn't an issue if you keep it up to date, as no credit check is made if you select from your current provider's offers.

We'd need to see the list of other secured debts and how that fits in with wider SOA to help advise on that.

Tommy147

https://forums.moneysavingexpert.com/discussion/comment/82174249#Comment_82174249

My current lenders are Natwest and Pepper. 2 years fixed with Natwest around 4.8% and with Pepper due to end Oct 2029 - 5 year fixed. was around 6.9%. I am happy not to change lenders, and stay with these two so long as defaults on unsecured sums don't stop a new fix sum.

Will work on a SoA shortly.

Thanks for comments, and any further advice, most appreciated.

Tommy147

https://forums.moneysavingexpert.com/discussion/comment/82174228#Comment_82174228

@Grumpelstiltskin and @ManyWays

Statement of Affairs and Personal Balance Sheet copied below as suggested. I have tried to capture everything I could. FYI, my son requires a tutor to help him at school (once a week). My wife doesn't have income to contribute.

Household Information
Number of adults in household........... 2
Number of children in household......... 1
Number of cars owned.................... 0

Monthly Income Details
Monthly income after tax................ 5700
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 5700

Monthly Expense Details
Mortgage................................ 1348
Secured/HP loan repayments.............. 660
Rent.................................... 0
Management charge (leasehold property).. 0
Council tax............................. 246
Electricity............................. 263.01
Gas..................................... 0
Oil..................................... 0
Water rates............................. 69.74
Telephone (land line)................... 0
Mobile phone............................ 70
TV Licence.............................. 15.45
Satellite/Cable TV...................... 0
Internet Services....................... 62
Groceries etc. ......................... 640
Clothing................................ 20
Petrol/diesel........................... 150
Road tax................................ 17.5
Car Insurance........................... 58
Car maintenance (including MOT)......... 50
Car parking............................. 20
Other travel............................ 60
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 28
Pet insurance/vet bills................. 25
Buildings insurance..................... 57
Contents insurance...................... 0
Life assurance ......................... 87
Other insurance......................... 5
Presents (birthday, christmas etc)...... 50
Haircuts................................ 20
Entertainment........................... 0
Holiday................................. 0
Emergency fund.......................... 30
Gym..................................... 20
Tutor................................... 120
School Activities / Trips............... 50
Newspapers /Magazines................... 10
Hobbies, leisure, sport................. 105
School Meals............................ 80
Laundry and Dry Cleaning................ 30
Pocket Money............................ 60
Toiletries.............................. 20
Total monthly expenses.................. 4546.7

Assets
Cash.................................... 0
House value (Gross)..................... 300000
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0
Total Assets............................ 300000

Secured & HP Debts
Description....................Debt......Monthly...APR
Mortgage...................... 202000...(1348).....4.9
Secured Debt.................. 40000....(328)......7
Hire Purchase (HP) debt ...... 17287....(332)......
Total secured & HP debts...... 259287....-.........-

Unsecured Debts
Description....................Debt......Monthly...APR
Novuna Personal loan...........15046.....349.......0
Klarna ........................1279......32........0
Antelope Loans Person..........6073......319.......0
Fluid CC.......................6100......254.......0
Aqua CC........................1747......20........0
Asda CC........................471.......23........0
Zopa...........................982.......27........0
Santander OD...................3000......69........0
Santander CC...................1267......38........0
MBNA CC........................12782.....455.......0
Capital One CC.................2900......158.......0
Halifax CC.....................7398......203.......0
Halifax CC.....................1547......72........0
Barclaycard CC.................7388......208.......0
Virgin Money CC................10991.....300.......0
Virgin Money CC................4199......170.......0
Tesco Bank Personal ...........1759......293.......0
Total unsecured debts..........84929.....2990......

Monthly Budget Summary
Total monthly income.................... 5,700
Expenses (including HP & secured debts). 4,546.7
Available for debt repayments........... 1,153.3
Monthly Unsecured debt repayments....... 2,990
Amount short for making debt repayments. -1,836.7

Personal Balance Sheet Summary
Total assets (things you own)........... 300,000
Total HP & Secured debt................. -259,287
Total Unsecured debt.................... -84,929
Net Assets.............................. -44,216

Created using the SOA calculator at www.stoozing.com

So embarrassing reading the state I have gotten myself into :(

To add, I did approach 2 lenders, MBNA and Novuna (stupidly it seems sorry) who both offered to put account on hold/ breathing space for 30 days as I said I was speaking to StepChange.

Finally, my car has an engine issue and service that both need dealing with, so I do really need to put some money aside to sort those as I have kept putting them off. I need the car for work.

Thanks for your help and guidance, it really is appreciated.

13thlegion

Many people have been or are in similar positions so I want to say well done for facing it. It is incredibly difficult to send you've taken the best first step.

To answer a question on arrangement to pay vs default. They make the same imprint in terms of effect on your credit records. But a default lasts a fixed time (6 years from start) whilst an arrangement to pay can last a awful lot longer (6 years from paying the debt off).

Getting out of debt and the process of a debt management plan (DMP) are not sprints. Thing move unbelievably slowly so what is important is to trust the process.

Stop paying the unsecured debt now. Create a new aspirational soa that is your new budget plan. Might not even be all that different to your current one just with as much money as possible that has gone to unsecured debts going into emergency fund savings.

gwynlas

There is no point in feeling embarassed as you are in the same position as many others on this forum who have fallen into debt over time. Some of us have been in this position more than once.

As advised stop paying your unsecured credit card debts and use that money to sort out your car and start building an emergency fund.

You can either work out your own debt management plan if you are prepared to deal with each of your individual creditors or start one with Stepchange once your debts have defaulted.

It is important that you set yourself a realistic budget for month to month spending including gifts and entertainment not scrimping to service debt repayments

RAS

No one can take legal action until the debt is defaulted anyway, and all important communication will come by snail mail, by law.

So no need to worry about calls, texts or emails, even if it feels like a bit of a barrage.

Do read and file letters, although it is probably going to be 6-12 months before your creditors send anything that matters. If you get a scary letter demanding repayment of the whole sum, come back to sort if it means the debt is about to default.

Meantime, sort that car out, then put £1100 per month into a separate instant access account. You need enough to pay a couple of month secure debt or for a new basic car without resorting to credit.