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Can I pay off a Debt Management Plan early

Can I pay off a Debt Management Plan early

Can I pay off a Debt Management Plan early

It is possible to pay off a Debt Management Plan (DMP) early. This can be done by increasing your monthly payment or using a cash lump sum to settle the debts.

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Are you allowed to pay off a Debt Management Plan early?

One of the downsides of a Debt Management Plan is how long it lasts. Because the creditors do not automatically agree to write off any of their debt this could be many years.

Having said that once you start the Plan you do not have to stick with the payments agreed. You are allowed to increase them in order to pay off your debt faster if you wish.

A DMP might therefore be ideal if you need a short term breathing space from your creditors. Perhaps your income has reduced temporarily or you know you will get a pay rise in the near future. Once this happens you can then increase your payments accordingly.

It is a good idea to pay off a Debt Management Plan early if you can. You will then be debt free and can start to rebuild your credit rating.

Pay Off a DMP early with Increased Monthly Payments

When you start a Debt Management Plan your creditors agree to accept reduced monthly payments from you. It is important that you maintain these or risk the failure of the Plan.

However you are allowed to increase the payments at any time if you like. The more you pay each month the more each creditor will receive and the faster each debt will be paid.

Depending on how your plan is being managed you could increase the amount you pay towards just one debt. Once that one is paid off you can then focus on the next. This process is sometimes known as snowballing.

You may not be able to snowball your debts if your DMP is being managed by a free provider. They generally do not allow preferential treatment or creditors. In other words paying off one before the others.

Pay Off a Debt Management Plan with a Cash Lump Sum

After you have started a Debt Management Plan you can pay off what you owe in full at any time with a cash lump sum. You may be in a position to do this if you receive a windfall or can borrow some money.

If you have been in your plan for 12 months or more many creditors may consider settling their debt for less than what you owe. They might accept as little as 50% of the outstanding balance if it can be paid straight away.

Given this if you are thinking about getting together a lump sum to settle your Plan early you might need less than you think. This can make it much easier if you are trying to borrow what you need.

If you have recently received a cash windfall you do not have to use it pay off your DMP. You can continue making the agreement monthly payments and hold back the cash for something else if you wish.

Do all your debts have to be paid off at the Same Time?

When you are setting up a Debt Management Plan each creditor has to be treated fairly. They must all be offered a proportional share of your disposable income based on the percentage of the overall debt that they are owed.

However once the plan is up and running it is possible to pay off one debt in preference to the others. This means if you only have sufficient funds to pay off one or two debts you can settle these first if you wish.

Settling individual debts like this can be really helpful as it gives you a physicological boose to see the overall balance going down. In addition it means you can target problem creditors who are perhaps refusing to freeze interest charges.

If you are using free service to manage your DMP the provider might not let you to pay off one creditor in isolation arguing that this is unfair treatment. However there is no legal reason that you should not do so.

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    10 thoughts on “Can I pay off a Debt Management Plan early

    1. Larissa Boyd says:

      Hi James,

      Can you confirm, if I pay off 50% of the balances and have this accepted by the creditors, will this affect my credit rating further?I am told that this could result in a default being registered against each debt. This hasn’t currently impacted my score in this way. Only one debt has defaulted.

      Thanks in advance.

      1. Hi Larissa

        It is impossible to say what if any additional affect settling your debts will have on your credit file. Ultimately it will be down to each individual creditor to decide what action they want to take in this area. As far as I am aware they are not obliged to issue a default notice after accepting a settlement. As such it is possible that it would not happen.

        However it is equally possible that they would. This is because the issuing a default notice is one of the triggers that then allows a bank to claim on their insurance policy to recover their loss. As such to be 100% sure of the action they would take all you can do is to ask them I am afraid.

    2. Jonathan says:

      Hi,

      I have £9000 outstanding on my DMP which is due to complete in October. I’m in a position where I can now obtain the £9000 so that I could now pay the £9000.

      I’ve heard that my creditors may result in a default being registered against each debt. Is this true? Also, would I have to pay the full amount outstanding to each creditor or would it depend on the creditor?

      Thanks

      1. Hi Jonathan

        If you pay off your DMP early this will not trigger default notices being issued against you by the creditors. If they had decided to register defaults against you (which is quite normal if you are in a Debt Management Plan) they normally do this within 6 months of starting the Plan.

        Note: If defaults have already been issued against you then these will remain on your credit file for 6 years from the date of issue regardless of whether you pay the plan early or not.

        If you have already been in your DMP for a while (over 12 months) then I would say you would have a good change of making a settlement offer to each creditor. In these circumstances they will normally accept 50% of the outstanding balance. However you might get away with slightly less. Definitely worth giving this a go.

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