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Debt Management Plans

13 replies

Blanketyblank04 · 25/08/2023 17:57

Apologies, I'm aware there are quite a few threads on here re this subject but for those of you who already have a DMP in place, I'd like to know the real impact it has had in terms of poor credit score.

My credit score is 'good' but, I am in quite a lot of debt. I have completed the Stepchange forms online and a DMP has been recommended. I've not fallen behind on any payments (yet!) but my money is being squeezed and things are tight.

I am teetering over the 'click apply' button but wondering if I should just continue to pay off the debts as best I can (despite them keeping me awake at night) or go for it and trash my score for the next 6 years. In two years' time, I plan to cash in one of my pensions and I'll use that money to clear the majority of the debt. Is it worth hanging on in there?

Would like to hear how DMPs really are in practice - it looks all so easy/attractive on screen!

OP posts:
NoSquirrels · 27/08/2023 08:27

I can’t answer your question, as I’m not in a DMP, but I suppose the question I’d ask you is - why do you need to preserve a good credit score? What do you anticipate needing it for?

If you’re coming up to retirement, presumably you’re not remortgaging soon? Most other credit needs can be saved up for and paid out of income.

The question of whether to hang on or go into a formal debt management solution depends on your level of debt vs income and what your future plans look like.

BlackberryCrumbs · 27/08/2023 09:58

I'd like to know the real impact it has had in terms of poor credit score

I'm not in a DMP but deal with those who are regularly through work. The short answer is that your credit score will be in the bin for many years. But I agree with a pp about why do you need a good score anyway, it's not always a key consideration if you're drowning in debt.

Personally, if you're fairly financially savvy (debt situation excluded!) then I would stay away from a DMP and try and do it the DIY route.

DMPs in practice have the potential to be rife with problems. Essentially the DMP provider will just contact the companies you owe and offer £x per month instead of the full amount. It will be accepted, you start paying your credit card £20 month instead of £150 or whatever.

Then one of two things happen. Either the lender will close and default the account in the next 3-6 months as you're not meeting your contractual minimum payment (default will stay on your credit file for 6 years from the default date then the whole account disappears). OR the problem bit - some don't. Instead, they mark you as being in an Arrangement ro pay and the account remains live. The problem with this is that, say you then manage to pay the debt off over the next 4 years, then the account closes. That account (and the arrangement marker) will still be visible on your credit file for 6 years from the closure date. You've just dragged the impact out over 10 years, instead of the 6 years it would have been with a default.

There are other problems that sometimes occur with DMPs, too many to mention.

This is a controversial approach but essentially the same aim as a DMP but self managed and ime with a better outcome. The DIY DMP route is simply to stop paying your unsecured debts. No contact or payments, just stop and go awol on them. Watch the process. You'll get missed payment letters, reminders, calls, a default notice, then a final demand, then a default on your credit file and closure of the account. But with this approach you can be CERTAIN that the account has defaulted and closed, removing the chance of the 'arrangement marker' problem.

As soon as that happens, make contact. The remaining balance will be with the banks debt collection arm or an external company like Moorcroft, Lowell, Wescot etc. Make a repayment arrangement directly with them for as little as possible - the bar is low, acceptance of £5 or £10 a month, without ANY review of your circumstances, is common.

Do that for all your debts paying as little each month as they'll agree to and then save what you can like mad. And after 6 years, all Defaults will completely disappear from your credit file although the debt itself still exists - so you have to keep paying them until you reach a settlement.

What will happen though is that the closer you get to that 6 year timescale, the bigger the settlement offers will become - I've seen many examples of 80% discounts offered at year 5 for example, with the account then considered closed.

People will warn you about the risk of CCJs with a DIY route - but ime, CCJs are only pursued for very large single unsecured debts (£20k plus) where it's clear the debtor has significant income or wealth yet still wants to pay a fiver a month - or for those that are unengaged and don't arrange monthly repayments after default and ignore contact from the debt collection agency.

BlackberryCrumbs · 27/08/2023 10:10

It's also really important to be aware that a DMP and IVA are very different...and that a DMP is NOT any kind of formal or legal/contractual solution.

A DMP is an informal agreement only and essentially StepChange or whoever just act as middleman between you and the lender.

Lenders can reject it. Or agree it, then change their mind a year later and reject it. Or some of your creditors can accept it and some decline it (messy, one of the other potential problems I mentioned in pp).

A DMP is good for people without capacity to handle such things themselves...SC can be a lifeline for those. If that's not you, go the DIY route.

Ariela · 27/08/2023 10:35

What sort of debt? Is it credit card and the interest rate is over 25%? Or bank loans and a 6% rate, or 0% financed stuff?
Are you confident you can continue to pay the minimums off until you get your pension funds? Or worried you'll fall behind on payments as there is literally no other cash to spare elsewhere?
Can you ask for a pay rise? Can you take on any extra work/increase hours? Do you have stuff you can sell? Can you take out a bank loan or transfer credit card and get rid of a high % interest debt? Can you ask any of the debts for a payment holiday? Can you ask each debt if you can change the payment date to a date after the next pay day eg, say your debt payment comes out on 6th of month but you get paid on 24th, ask if the next date can be moved back from 6th to 28th. Then use the surplus from the earlier pay day to pay an extra lump off the highest % interest debt.

I suggest look at 'snowballing' on the Martin Lewis website. where you tackle the biggest % interest debt first

ItsFunToBeAVampire · 27/08/2023 10:41

You don't need to go through Stepchange, you can do it all yourself and then you'll be in control of it completely.
Your credit record will be trashed either way if you miss payments or make payment plans.
Visit the Debt Free Wannabe board on the MoneySavingExpert website.

Jericha · 27/08/2023 10:53

Many years ago I worked in debt collection. DMPs were no more accepted than the person ringing or writing to propose their own repayment plan - in that we'd normally accept the proposal but it didn't matter whether it came direct or from a company with headed paper.

Be mindful the repayment options for things like utilities are typically just for the debt. The number of people who were wrongly told by the DMP they now only had to pay £2/week for example, and not £2/week in addition to their ongoing usage was shocking. They'd also be told to bin any mail from us (in reality, their latest bill only) as we weren't allowed to send it to them as it should be going to the DMP (many of which charge, but don't think step change or Christians against Poverty do) so were at risk of further debt management or CCJs. We'd try really hard to engage with the DM companies to sort out customer accounts and they'd just send standard letter templates, sometimes not even bothering to copy and paste the right name/reference etc and charging people struggling £35/m whatever for the privilege which is taken before any money in the pot even touches a debt. I wouldn't touch them with a barge pole.

Ilovethewild · 27/08/2023 11:05

Op, about 6 yrs ago - I had 3 CC debts that I was struggling to repay, with debts of about 20k. Working. I had them for a few years by that time.
I contacted step change but wasn’t happy with their suggestions.
1 Cc went to debt collectors- was simple to agree repayment plan. All paid off recently.
1 cc paid off in full recently
1 cc about to be paid off (agreed repayment plan with reduced interest)

all 3 reduced or stopped interest.
all 3 cancelled the cards (I had stopped using them a few years previous)

it was so stressful at times, felt unmanageable, struggled with bills/payments, but after setting up maneagble payments it helped massively and they all want you to be able to repay and pay your bills as well.

at the start I didn’t have enough coming in to cope with going out, but that changed and over time things improved financially for me.

I have a rubbish credit score but don’t need a mortgage. Might not get another cc for some time, but that’s no bad thing…

Redlarge · 27/08/2023 11:06

Ive had a dmp for 3.5 years. It will last another 22 years.
I cant get any credit and my credit score is 9.
I dont anticipate ill ever get credit again. Its because of the amount of defaults that continuly get applied as you are making a lower payment than required.
I ended up with 3 CCJ even tho id never missed a payment to my dmp ... the debt was passed to debt collection agencies who wanted more money. Went to court. Court said i can only pay what i was paying to the DMP and nothing changed money wise but terrible impact on credit.

BlackberryCrumbs · 27/08/2023 11:33

Ive had a dmp for 3.5 years. It will last another 22 years. I cant get any credit and my credit score is 9. I dont anticipate ill ever get credit again

That is absolutely bonkers. Just break it, if you have any undefaulted debts, stop paying the DMP suggested amount and let them default now. Then they're gone from your credit file entirely in 6 years.

I ended up with 3 CCJ even tho id never missed a payment to my dmp
Even CCJs disappear from your credit file after 6 years.

Any defaulted debts will be with collection agencies and the longer it goes on, the higher likelihood they'll accept a full and final settlement at a vastly reduced rate. Pay monthly the minimum they'll accept, save as much as you can and try and pick them off one by one by offering to pay 10 or 20% after a few years.

If you're vulnerable or have medical issues and unlikely to ever be able to pay the debt in your lifetime, write to the agency explaining this and lay it on THICK with as much evidence as possible. They will have procedures in place to consider write off requests for those that can feasibly never repay the debt.

Or of course there are formal insolvency routes you can look at, bankruptcy or IVAs.

There is no reason for bad debt - any amount - to exist and impact you for 20+ years.

Redlarge · 27/08/2023 11:38

BlackberryCrumbs · 27/08/2023 11:33

Ive had a dmp for 3.5 years. It will last another 22 years. I cant get any credit and my credit score is 9. I dont anticipate ill ever get credit again

That is absolutely bonkers. Just break it, if you have any undefaulted debts, stop paying the DMP suggested amount and let them default now. Then they're gone from your credit file entirely in 6 years.

I ended up with 3 CCJ even tho id never missed a payment to my dmp
Even CCJs disappear from your credit file after 6 years.

Any defaulted debts will be with collection agencies and the longer it goes on, the higher likelihood they'll accept a full and final settlement at a vastly reduced rate. Pay monthly the minimum they'll accept, save as much as you can and try and pick them off one by one by offering to pay 10 or 20% after a few years.

If you're vulnerable or have medical issues and unlikely to ever be able to pay the debt in your lifetime, write to the agency explaining this and lay it on THICK with as much evidence as possible. They will have procedures in place to consider write off requests for those that can feasibly never repay the debt.

Or of course there are formal insolvency routes you can look at, bankruptcy or IVAs.

There is no reason for bad debt - any amount - to exist and impact you for 20+ years.

Thank you so much. Im off work fri. Im going to go thru it all.

BlackberryCrumbs · 27/08/2023 11:48

When you're in the thick of it it can feel overwhelming and like your life is ruined @Redlarge - but the credit scoring system is set up to allow you to recover relatively quickly.

Keeping perspective and focus is the best thing you can do. What's 6 years really? I've got knickers I've had longer than that 😂

Bad debt doesn't stay with you forever. Someone who had had 15 Defaults and CCJs in July 2017 but has made any payments on time since is now - credit score wise - in the same position as someone who's never missed a payment in their life. A totally clear credit score, every potential of 999 with Experian.

Redlarge · 27/08/2023 15:34

BlackberryCrumbs · 27/08/2023 11:48

When you're in the thick of it it can feel overwhelming and like your life is ruined @Redlarge - but the credit scoring system is set up to allow you to recover relatively quickly.

Keeping perspective and focus is the best thing you can do. What's 6 years really? I've got knickers I've had longer than that 😂

Bad debt doesn't stay with you forever. Someone who had had 15 Defaults and CCJs in July 2017 but has made any payments on time since is now - credit score wise - in the same position as someone who's never missed a payment in their life. A totally clear credit score, every potential of 999 with Experian.

Ill definitely do some calling round thank you so much and your old knickers ha

Blanketyblank04 · 27/08/2023 16:39

What an interesting read! Thank you everyone for your replies and suggestions.

@BlackberryCrumbs the DIY approach of just leaving things to default and watching the process is something I hadn't considered. I'm not sure my stress levels could handle that but I can see how it would work.

I have definitely decided not to go down the DMP route. I have already put my debts into a spreadsheet, noting the amounts of the minimum monthly payments together with interest rates and I'm already starting to clear the high interest stuff (small balances so should be quick to zap).

The main bulk of the debt is on credit cards and I have transferred to 0% where I can.

I'd rather not trash my credit rating (off the top of my head I'm thinking mobile phone contracts and I may re-mortgage at some stage) so I think I'll continue with the snowball method and move things to 0% as and when I can.

This afternoon I have changed payment dates on a couple of things so everything comes out straight after I get paid. I also looked at my budget and bank statements and seen where I could cut back further. I've managed to get my broadband/phone package down by £15 a month and my mobile phone contract (device) is paid off in October which is another £25.

It's quite embarrassing talking about all this. Thanks again for your responses.

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