You may be holding off starting a Debt Management Plan (DMP) in the hope that you will get PPI compensation which will allow you to pay off your debt. However this might not be the best strategy.

Over the last few years thousands of claims have been lodged for refunds and compensation from the organisations who sold PPI policies. Whether or not these claims will be upheld by the Court is by no means certain. A recent ruling by the High Court was made in favour of Lloyds Banking Group which threw out a customer’s mis-selling claim.

Should you start a DMP straight away

Given the uncertainty about whether PPI mis-selling cases will be successful or not, if you are struggling with debt you should not wait for the outcome of a claim before taking action to deal with it.

Many people are concerned that if they enter into a DMP this will jeopardise the possible success of their PPI claim.

However, this is very unlikely to be the case. The claim will be reviewed by the court under its own merits and should not be influenced by whether or not an individual is now insolvent and unable to pay their debt.

If you delay taking action to resolve a debt problem or try to manage it by juggling your payments using one creditor to pay another, your debts are likely to become far worse and more difficult to resolve.

PPI windfalls can be used to settle debt

If you do win a PPI miss selling claim and you have debt that you cannot afford to pay you should use this windfall money to pay off some or all of your debt.

If you are in a debt management plan, you are not legally obliged to pay PPI windfalls to your creditors. However, the faster you pay your creditors, the sooner you will be debt free.

In fact if you receive a PPI payment, the best policy would be to use this to make a settlement offer to one or more of your creditors. If you have been in a debt management plan for a while, a reasonable settlement offer is likely to be accepted.

If you are in an individual voluntary arrangement (IVA), then any windfalls you receive including a PPI claim payment must be paid into your IVA.

Make starting a DMP your priority

If you feel that you have been miss sold payment protection insurance, there is no reason why you should not try to make a claim. However, if you are also suffering with a debt problem, you should take action to resolve this as your first priority.

Very often, if action is not taken immediately to deal with debts, they continue to get worse and you may find that your options for resolving the problem reduce.

If your debts are under control, you will be under less pressure for a successful outcome from your PPI claim. And if your claim takes longer than expected or is rejected, you have not lost anything.