A reader said she was scared about starting a Debt Management Plan (DMP). Her worries were that her husband’s credit rating would be affected and that she would get lots of phone calls from creditors. A DMP is supposed to help with your debt problems, not increase them, so I thought it would be useful to look at the common concerns people have before they start DMPs.
I am assuming here you are using a DMP firm – it doesn’t make any difference if you go to a free DMP firm or a fee charger, they all work in exactly the same way.
Will I get lots of phone calls from creditors?
You need to stop making your usual payments to your creditors as your DMP payments will be coming from your DMP firm. This sounds scary – aren’t you going to get a lot of phone calls?
You will get some calls in the first month or two. You may be phoned or written to asking why you haven’t paid them last month and would you like to pay right now? And the creditor may say they can’t see a record of your DMP. Just tell them you can’t afford the payments, your DMP firm will be writing to them and they will be making all payments from here on. Don’t make a payment yourself!
The phone calls really do stop! There are hundreds of thousands of people happily in DMPs – and they wouldn’t be happy if creditors kept ringing.
Will my DMP be accepted so interest is frozen?
A DMP can’t be vetoed by one or two creditors, there isn’t a formal vote on it. It’s up to each creditor to decide whether to accept the offered monthly payment and freeze interest.
Most creditors when shown an Income and Expenditure statement do agree to freeze interest and not add default charges. The proof of this is the very large number of DMPs that are running – people would soon get fed up if lots of interest was still being added! Sometimes a creditor will say they can’t do this until you haven’t made the normal monthly payments for a few months – annoying, but it will soon be sorted.
Sometimes a creditor will say they can’t do this until you haven’t made the normal monthly payments for a few months – annoying, but it will soon be sorted.
If a creditor is still adding interest after a while, you can write to them and complain to the Financial Ombudsman if they don’t – there are template letters here.
Will my debt be sold to a debt collector?
Possibly – the longer your DMP goes on, the more likely this is. But it isn’t usually a problem – your DMP firm will just start paying the debt collector instead. If interest wasn’t frozen before, it normally is by the debt collector. And if later you want to offer a full and final settlement, this is often easier with a debt collector. This isn’t something to worry about at all.
Will I get CCJs?
A creditor can get a CCJ even if you keep paying the monthly DMP payment. But this isn’t common because the court often sets your CCJ payment at the same level that your DMP payments is … so the creditor doesn’t really gain from this. It is most likely if your DMP goes on for a long while and you have a lot of equity. It’s very unusual at the start for consumer (credit cards, catalogues, loans) debts. The people that taken to court are the ones that aren’t making any payments to their debts, not the ones who are doing their best by setting up a DMP.
If you are worried about charging orders, they are VERY rare, see Is my house safe? for statistics.
I won’t be able to get a new bank account
This used to be a problem but now it isn’t. In January 2016 the major banks all started offering good basic bank accounts to people with poor credit records.
How bad will the effect on my credit rating be?
This depends on a lot of factors, including how large your monthly payments are and how long your DMP goes on for. See How does a DMP affect your credit score for details.
But if you can’t make the normal monthly payments to your debts because they are too large, there is no alternative that will leave you with a good credit record. See Don’t let credit record worries stop you taking action on your debts for details. You can make arrangements with your creditors yourself, but these have exactly the same effect as a DMP through a firm.
Your partner’s credit rating is only affected if you have joint accounts with them – a joint bank account, joint loan or mortgage. If you don’t, they won’t be affected just because you live in the same house, even if you are married.
Can I get a mortgage afterwards?
Yes. You will need to repay the debts in the DMP, then the exact timing will depend on how long it takes to save a deposit and what your credit record looks like – see Can I get a mortgage after a DMP? for details.
This may sound like it will take a long while, but if you have unmanageable debt, there aren’t any quick routes to buying a house!
I’m not sure I can afford that DMP payment
It’s a big change to switch from having lots of debts to pay but also credit cards and an overdraft to use, to living on your income each month and making a single debt management payment. Some people find it restrictive but many people in practice don’t – you may find What’s it like to live in a DMP? interesting reading because that has the results of a large-scale survey of Payplan clients.
If you feel the DMP payment proposed is too high because you have specific costs that aren’t included – perhaps someone in your house has a disability – you need to talk to the firm about these.
If you are self-employed with a fluctuating income, talk to Business Debtline about your situation.
What alternative do you have?
If you are having problems repaying your debts, you often don’t have any nice options. If debt management will take too long and you don’t expect your situation to improve in the next few years, you should look seriously at your other alternatives – you may find the following comparisons useful:
Then there are big lifestyle changes, if you think you can cut your expenses a long way or get a lodger or even sell the house.
One option which isn’t there is muddling through for another year or two and watching your debts carry on increasing… However worried you are about a DMP now, the problem will be worse when your debts are bigger, so putting off a decision is likely to be the worst thing you can do.
Give it a go?
One big advantage of DMPs is their flexibility. You can start one then if you get a better job, you can go back to normal debt repayments. If after a 6 months you are confident you can live with that monthly repayment, that may give you the confidence to go for the formal legal agreement of an IVA. Or you may decide bankruptcy is going to work better for you family. Or you may feel that a DMP is indeed the right solution for you.
If you haven’t yet talked to a debt advisor about debt management, give StepChange a ring. They run more DMPs than any other firm, and if a DMP isn’t right for you they can talk to you about your better alternatives.
what are formal & informal debt solutions
How many DMPs work and how many fail?
Template letters for a payday loan refund
Chloe says
I have done a DMP with CAP and I have never felt so much relief . I am less stressed and all my creditors have agreed for me to pay what I can afford. I am not worried about my credit score. I just want to start afresh and clear my debt. Don’t be afraid to start a DMP it is a great help. Always remember don’t spend what you don’t have. Live within your budget .
Sara (Debt Camel) says
Thanks for that comment Chloe – it can mean a lot to someone who is worried when it comes from a “real person” not just a debt adviser :)
Hannah says
This is a great article I am now debt free but I did have a DMP for around 8 years I was really scared to enter into one but I had no choice I couldn’t keep up my my repayments and owed around £7,000
When I first contacted a DMP they explained I would be debt free in 5 years and need to pay £150 a month after going through my expenditure which sounded great and I opted to go with this I changed my phone number purely because I couldn’t deal with the stress if any of my debt companies phoned me I just gave it to my DMP company and contacted them if I received any mail from them as I am paying them to deal with my debt companies
I will be honest the £150 I was paying to the debt companies didn’t leave me much to do anything with for the month like going out with friends which you do need once in a while and 8 years is a long time, the good part about my debt company was that if I did have any emergencies to pay out for I could ring them and explain the situation and they would allow me to basically just pay my DMP fee and a small amount to my debts. The downside was they told me it would be 5 years until I was debt free and it wasn’t I’m not quite sure how it wasn’t but I think I have an explanation I was paying £150 a month and my DMP company took £50 of that a month for their fees so in actual fact I was only paying £100 a month off my debts so it took longer another negative was the DMP company fees went up every few years so I would look at going with a company like step change where every penny you pay goes straight off your debts
Also you do have to do a yearly expenditure review with your debt company every year which I also found stressful as I was in such a low frame of mind with my debts but I know this had to be done
My circumstances changed towards the end of my DMP I got a better job and could afford to pay more but I didn’t want my DMP company fleecing me every month so I picked up the phone with my debt companies and explained I could afford to pay more and they agreed to let me deal directly with them again and split my remaining debt into 3 monthly payments and here we are today debt free and the happiest I’ve ever been
Sara (Debt Camel) says
Without that extra £50 in fees, your DMP would have been a lot shorter as you say – it really does make a huge difference.
Hannah says
It certainly does in no way am I trying to slate the DMP companies they do STOP baliffs turning up at your door, they dealt with my creditors when I mentally couldn’t take no more but I think people need to see the bigger picture, I was paying £650 a year just for my DMP fees I wish they would of been going off my debt instead so I really would urge people to use the companies that do it for free you will be getting out of debt far sooner
Chloe says
My DMP is by CAP and they are free ( do not charge any fee) . Try CAP they might be able to help you.
Sara (Debt Camel) says
Yes, the 3 major free DMP companies are:
StepChange https://www.stepchange.org/Howwecanhelpyou/DMPdebtmanagementplan.aspx
Christians Against Poverty (CAP) https://capuk.org/i-want-help/cap-debt-help/how-cap-can-help
Payplan https://www.payplan.com/debt-solutions/debt-management-plans/
SB says
Hi Sara,
I have also just started a DMP with Stepchange and I do feel much better. Please could you advise me whether it’s worth me trying to claim any refunds from my creditors, who I do feel lent to me in a irresponsible manner?
I only started my DMP last month, is it worth waiting a few months or would it be ok to start now do you think?
Thank you.
SB
Sara (Debt Camel) says
Start right away! Your finances are now in a safe position, so it doesn’t matter if it takes many months, you won’t be under pressure to accept a poor offer.
SB says
Thank you Sara. I will do so today.
Steve says
Hi, we are thinking about uaing a DMP with step changes as the payments just seem to be getting out of control, but i know in the next 6 months i will need tp purchase a new car on finance and im worried this will be affected. Without the car i cant work so would be in a worse position, has anyone else had to purchase a car or any other big finance while on a DMP?
Thanks in advance
Steve
Sara (Debt Camel) says
Sorry a lot of questions…
What is your credit record like at the moment? Have you already missed payments?
How large are your problems, are you getting deeper into debt each month?
Do you have priority debts – rent/mortgage arrears, council tax, utilities?
You say “we” do you both have problem debt?
Are you buying or renting?
What car do you have at the moment, is there PCP that is ending?
Steve says
Hi Sarah, my credit rating at the moment is good, and although we haven’t missed any payments, we have maxed our credit cards and the overdraft, so more going out than coming in.
We have a mortgage which ee haven’t defaulted on but it’s getting close.
The ‘we’ is the wife and I so a joint account,
The car was on HCP which will end in a couple of months, we can either hand it back or pay the remainder in full or refinance. In addition to this our other car is on its last legs and will need replacing. We both have to travel some distance for work as well as having a young family, so both cars are essential
Sara (Debt Camel) says
It sounds as though you are headed for a total crash unless you take action such as a DMP with StepChange. If your cards and overdraft are maxed out and you are can’t meet the minimum payments and may default on your mortgage, then nothing is going to mean you have a good credit record in a few months so you can get another car on a good PCP deal.
Yes a DMP is not good for your credit record, but there are no magic debt solutions that are.
Now obviously I don’t know much about your situation. Perhaps you have some assets you could sell. perhaps there are ways you could cut back your expenses, possibly not nice ways, but you may have no nice options. I suggest you talk to StepChange and investigate how that would work for you and talk to them about your car situation.
david d says
Hi Sara, quick question please…
currently paying x14 separate lenders £12 per calendar month, total owed is approx. £15k. i’m comfortable with this for now.
I previously did this via StepChange for 12 months, but then had a few issues with them so in Dec 2018 I took back control and now maintain all accounts directly.
Peachy are now saying that because I no longer am in a DMP, they can add interest etc onto their account so despite around 2 years of repayments, my balance has actually gone up approx. £150 since the final payment via stepchange.
is this right, can they do this and what are my options please? I want to continue paying directly, not interested in DRO, IVA etc as I feel in the future I will be able to increase repayments regularly. but for now, i’m obviously not happy that i’m making payments but my balance is going up with Peachy!
many thanks in advance.
Sara (Debt Camel) says
how many loans did you have from peachy before this one?
david d says
just the one on this particular account, closing balance was £221.83p when I went into a DMP with StepChange. roll forward a couple of years and the balance is now £387!
Sara (Debt Camel) says
what date did you take this loan out and how large was it? how much have you paid to it so far, directly or through StepChange?
David d says
It was a PD loan for £250
Without checking the accounts for exact figures I’d say approx £144. I previously only paid £6 per month but my circumstances changed recently so I upped the payments. Originally took the account out early 2017.
Sara (Debt Camel) says
So my first thought is Gotcha! – and the second is you need to double check those figures very carefully. Let me explain.
You have two reasons to complaint to Peachy.
First that it is unreasonable and unfair to add interest just because you are not in a formal debt management plan. You can point out that the FCAs CONC rule 7.3 has a general duty to treat customers fairly and exercise forbearance and there is no reason to restrict that to formal DMPS and that 7.12.2 puts repayment plans from a customer direct or through third party company on the same footing.
Second that that appear to be in contravention of the payday loan price cap rules. You borrowed £250 and hence should never be asked to repay more that £500. yet you have paid £144 to the debt and you have been told that the balance is now £387 which would give a total repayment of £531.
That second argument depends crucially on your numbers being right. so you need to double or treble check them. If you are absolutely sure, then you I suggest you ask for all interest to be removed from the loan so you only repay 250-144 = £106 balance.
david d says
appreciate your responses, i’m pretty sure my repayment figures are accurate but i’m confirming with them as we speak and will then cross reference against my records and take it from there based on the two “options” above.
many thanks for this!
david d says
wait, no sooner had I sent this, I got a response from them saying the following:
“Please note that the agreement is only Temporary. When you are able to make more payment, the overdue interest will be removed.”
???
Sara (Debt Camel) says
ha! They still can’t breach the payday loan price cap.