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Original poster

Using a loan to pay off DMP?

22 replies

boringlyboring · 02/04/2018 00:47

I have a dmp which is around £170 per month, and my partner has a ‘normal’ loan which is around £200 a month.

My dmp is from before we met, but I only started paying it off around 4 years ago, I have around 4 years to go.

My dh has suggested refinancing his loan, and using that money to offer a final settlement to for my dmp.

The main reason is so that the debt is finally cleared and in 6 years time it will have come off my credit history. We would then be able to plan for a joint mortgage.

The 2nd reason is that we would have more money monthly, paying off one loan instead of two. He has got a quote and the new loan amount would be approx 220 a month so we’d have the extra 150 to save.

I have thought about saving money instead, but after working it out by the time we saved enough money to pay it off my dmp would be near to paid off anyway and we’d still need to wait 6 years to be able to get a joint mortgage.

If we did it his way, it would be 6 years from now.

We don’t have a joint account so that my shit credit doesn’t affect his, but the finances are generally shared in another sense that works for us (all money is pooled together, bills paid out of both salaries and whatever is left over we spend/save as required). Not sure if this is relevant to the answers I’ll get.

The other option which neither of us are keen on is to increase the amount I pay off monthly, but some months our expenses are higher than others so paying £170 a month of is a ‘safe’ amount for our circumstances.

Would it be adviseable to do it his way, or just be patient wait ten or so years before we can get a joint mortgage or is it better to pay off bad debt sooner by any means possible?

OP posts:
Original poster
boringlyboring · 02/04/2018 00:49

Just to confirm its my dh, i realise ive used both here as I was talking to someone about their partner at the same time!

OP posts:
Firstworlddramas · 02/04/2018 06:45

Surely refinancing his loan in that way would increase the amount owed which you want to avoid?

Do Dmp's definitely stop you getting a mortgage for a further 6 years from when paid off? - it's not good but 2/3 years after it's settled is usually enough, if not sadly bankruptcy not would be quicker to recover from!

Try the debt camel website

BalloonFlowers · 02/04/2018 07:34

If his repayments only go up by £20 a month, how long is the loan for? Are you going to be paying it off for a decade?

Original poster
boringlyboring · 02/04/2018 07:37

Oh I’d read it stays on your credit history for 6 years, and I assumed aslong as I have such a mark on it, I’d be rejected for a mortgage.

His amount would increase but with mine being paid off, the amount owed by would stay more or less the same, as he’d only borrow the amount I owe on top.

I should add that I did default on the original debt which is why I ended up with a dmp, not sure if relevant at all.

I’m not as keen on him taking on all the debt, though we pay everything together, but he sees the main benefits of having the extra funds a month and me clearing a bad debt quicker than planned.

OP posts:
BalloonFlowers · 02/04/2018 07:43

You need to look at the total repaid under each scheme.
So you have 170 pounds, for 12 months, for 4 years to pay back. So 170124 = £8160.
How long is the £20 a month going to take to pay off? Even if half that 8000 is interest, and no interest payable on his loan, that's 16 years... it doesn't makes sense to me.

Original poster
boringlyboring · 02/04/2018 07:47

@baloon it’s approx an extra £20-30.

The remaining amount owed between the two us is approx 10k. So he wants to borrow that for approx 5 years. His current loan was on a much shorter term for a smaller amount.

OP posts:
Ginnotgym · 02/04/2018 07:52

Bankruptcy would NOT be quicker to recover from - this also stays on your credit file for 6 years and you would then have to rebuild your credit rating from there.

Bankruptcy also comes with many restrictions and limitations such as handing over any assets, and all of your disposable income to the official receiver every month for 3 years(although the period of the actual bankruptcy is only 12 months.

Speaking from experience.

Sounds like your loan consolidation is more sensible OP.

Original poster
boringlyboring · 02/04/2018 07:54

@baloon - these numbers aren’t exact, they are give or take £10 here and there

His current loan amount he has around 2k outstanding, paying off at £200 per month.
I think when he originally took it out, it was about 4.5k over 2 maybe 2.5 years.

I have 8k outstanding on my dmp.

What my dh now wants to do, is take out a new loan for 10k over 5 years. This quote is for 220 a month. He’ll use that 10k to replace his current smaller loan, and pay off my loan.

Sorry not sure if I have muddled it up in my op..

OP posts:
Original poster
boringlyboring · 02/04/2018 07:58

@Ginnotgym thank you we definitely don’t want to consider bankruptcy (I am very lucky to be able to manage the debt now) but I wonder if there is a downside to my dh taking on a larger loan in exchange for us only having the one between us.

OP posts:
PreviouslyQuiteUnderpaid · 02/04/2018 08:13

It's a lower amount because he's nearly paid his off, so in a year you would have the extra money anyway. I would have thought your DMP would be zero interest wouldn't it? Seems strange to pay that off with a loan you would be paying interest on. I don't know about the implications for a mortgage though.

Original poster
boringlyboring · 02/04/2018 08:24

@previously yes that’s one of the points i made to him.
He says if we were to save the extra from getting rid of mine, we could possibly then pay his off quicker too. But the longer we wait to pay mine off, the longer I have a bad debt.

The general info I have read about dmp says its ‘difficult’ to get a mortgage.

Neither of us want to make the wrong choice that could harm our chances, so on one hand the quicker I get rid of the bad debt the better, on the other it could be pointless to make such a change.

The mortgage isn’t the only issue, it’s things like phone contracts or anything that needs a credit check. Poor dh has to have my phone contracts in his name, for example and life would be so much simpler if we could have a joint account sooner.

OP posts:
Firstworlddramas · 02/04/2018 08:59

I was NOT recommending bankruptcy and that is not what is says in my post. Far from it. I asked a question and merely made a point that if DmP prevents any chance of a mortgage for 6 years from the date of final repayment then it is basically the same as bankruptcy, if there are still 3/4 years to repay then the 6 years start - i.e. 10 years as the OP mentions then bankruptcy now would be quicker! Certainly doesn't mean it is the right option!!!!!!!!!! More importantly I don't think DmP would prevent

Debt consolidation always sounds better but isn't always.

Also OP you mention so you can save too, surely you are better just getting everything into clearing any/ all debt asap - the only exception might be if on 0% (balance transfer?) also don't forget you really need a credit card that you use and clear every month to help your credit history

BalloonFlowers · 02/04/2018 09:02

So, if you stick with what you have now, you have £10k to repay.
If you take out 10k over 5y, and pay 220 a month you will pay back £13200.
Are the advantages of being off the DMP worth 3k? Only you guys can make that decision.

Lilao · 02/04/2018 09:07

OP, if you have defaulted on the debt then it will be removed from your credit file 6 years from the date of default whether you have paid it off or not so I certainly wouldn't recommend taking on the loan for this purpose.

Have you/ your partner considered what would happen if you were to split up and he was left with your debt owing on the loan? Would you need some written agreement to cover him for this scenario?

In theory, being able to pay it off quicker and offering creditors full and final settlements could save you money but please make sure you have every scenario covered so that no problems occur down the line.

Original poster
boringlyboring · 02/04/2018 09:16

@lilao we haven’t looked into it that way.. I hadn’t thought about splitting up but if we did I suppose i would just pay him for paying it off. We don’t have dc yet, so it would unlikely be a complicated split.

But actually, now that you’ve confirmed regarding the default it kind of makes the idea moot. As a pp said, we’ll have the extra money in a year or so anyway, and my last default should be clearing off around the same time too! Thank you, and thanks everyone else.

OP posts:
Firstworlddramas · 02/04/2018 09:45

Have you check ed whether you've got any chance of any refunds? Sound a like there has previously been a lot
Of debt and you need to claim within 6 years but can get the extended to 9 in certain cases. It's not one to get your hopes up with but worth exploring, it's free, takes a bit of time but not much and if you win your complaint you might have interest added, again check out debt camel, basically my brother got a refund of £3k from a payday lender he had used repeatedly 8 years ago

Might be worth checking?

Original poster
boringlyboring · 02/04/2018 09:48

thanks @first do you mean like a ppi claim? or just a reduced settlement?

I’ll have a look at the site, I’ve been looking at mse for a while hadn’t heard of debt camel

OP posts:
Firstworlddramas · 02/04/2018 10:49

It's neither - a complaint instead - more like a ppi though I suppose

Bro reckons he spent about two full days pulling everything together had quite a few rejected complaints but a few small ones (£2/300) and the one decent one, cleared a credit card for him

DBoo · 02/04/2018 10:56

I'd be careful saving whilst on a DMP I thought that wasn't allowed but I could be wrong.

I see your logic in regards to a mortgage and I think you might be onto something there. I'm on a DMP and that will probably stop dp and I getting a mortgage as he won't get a suitable amount on his wage and they can't take my earnings into account.

You are still charged interest when paying a dmp
unfortunately.

Desmondo2016 · 02/04/2018 12:16

My thoughts would be, get your dh to do the loan but pay it back at the 370 a month you can currently afford on the dmp and his existing loan. Yes, you will be paying off a larger amount overall but you will have a clear file in 6 years rather than 10 if you take another 4 years to clear the dmp

Lilao · 02/04/2018 12:26

Before you make your decision, I'd advise to check your credit file anyway to make sure everything is defaulted that should be.

If it isn't, for example shows as DM or AR/AP on your credit file then make a complaint to the lender that it should be defaulted from when you had missed the contractual payments for 3-6 months otherwise these will show on your credit file for 6 years from the date they are settled. It's only defaults that will be removed 6 years from the date of default.

It may still be worth looking into if some of your debts are quite old and have been sold on to debt collection agencies as they may be willing to accept a smaller settlement offer and give you a discount and if you could get a few of these at 50% then it'd cut the time it takes to pay them off in half.

I'd also second what PP said about MSE and Debt Camel to try and get refunds if you had any payday loans as this would help too.

Hopefully you never have to think about splitting with your partner but it's helpful to have a financial plan incase you do and especially if it would put you in a more difficult position.

MessySurfaces · 02/04/2018 21:25

Is it worth going to see a mortgage broker, bringing along both your Experian reports? (And/or other credit check files).
The broker will be able to advise Re what will improve your mortgage-ability best.

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