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.

In this article:

  • Are you allowed to pay off a DMP early?
  • Increase your monthly plan payment
  • Paying debt early with a cash lump sum
  • Do all the debts have to be paid at the same time?

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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 receintly 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 the Debts in a DMP 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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4 thoughts on “Can I Pay Off a Debt Management Plan Early?

  1. Mark says:

    I owe £9000 to a total of 6 creditors, the largest amount been £3500 and the least been £251, I have about £5000 coming in October, do u think it’s possible that after communicating wither that I will have enough to pay them off, creditors are nationwide,capital one,Halifax

    1. Hi Mark

      Are you currently in a Debt Management Plan (DMP)? If so and you have been in the plan for 12 months or more it should be possible to settle each individual debt by offering a lump sum. In this situation many creditors will accept 50% of the debt outstanding in full settlement if they feel it is the best offer they are likely to get.

  2. Soph says:

    Hi,

    If I have received a lump sum of money and want to settle my debt as I have received £5000 and my debt comes to £5000 can you just ring up and pay it off?? Or will their be any extra charges,,

    Also if I settle early does the amount I owe get reduced?? I have had a debt management plan for about 2 years now.

    Thank you

    1. Hi Soph

      There is nothing to stop you paying the balance you owe to each creditor immediately. If your Plan is being managed by a debt management company then have a chat to them and explain what you want to do. They might be able to take the money from you and pay off the creditors on your behalf. However if they are a commercial company make sure you ask if they will make a charge for this. If they will there is nothing to stop you making the payments direct to the creditors yourself for nothing.

      If you are looking to try and offer reduced amounts to settle your debts this might well be possible given you have been in your plan for 2 years. Depending on where the lump sum is coming from you might be able to offer as little as 50% of the outstanding balances. This will often work if the money is coming from a 3rd party and 50% is all they can afford to offer. Your IVA company might be able to negotiate this for you or again there is nothing to stop you approaching the creditors directly and negotiating with them yourself.

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