You are allowed to set up a Debt Management Plan yourself. This will allow you to reduce your debt payments to an affordable amount.
In this article:
- Complete your Statement of Affairs
- Agree Reduced Payments with your Creditors
- Start your Plan payments
- Regularly review your plan
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Complete your Statement of Affairs
Before you can set up a Debt Management Plan (DMP) you will need to put together a Statement of Affairs. This is a summary of your financial circumstances which you will eventually give to all of your creditors.
You must include three key areas in this Statement. A list of all of your unsecured creditors and the amounts that you owe them. A summary of your total household income and how this is made up and your living expenses budget.
You must also show the total amount you can afford to pay to your creditors each month. This figure is known as your Disposable Income. It is calculated by deducting your total living expenses from your total income.
If you owe money to your bank then at this stage you should also open a new bank account. Make sure you choose a bank where you have no debt.
Agree Reduced Payments with your Creditors Yourself
Once you have calculated your Disposable income you need to work out how much of it you should offer each creditor. It should be divided between them on a Pro Rata basis.
This means if one of your creditors is owed 50% of your total debt you must offer them 50% of your disposable income and so on. Show a list of how much each will get in your Statement of Affair. This allows all of them to see they are being treated fairly.
You are now ready to start your negotiations. Send a copy of your Statement of Affairs to each creditor with a cover letter asking them to accept the reduced payment and freeze further interest charges.
Negotiations with your creditors will take time and effort. They may not respond to you immediately. It can take anything between 3 weeks and 3 months to gain agreement from all of them.
Start your Debt Management Plan payments
Start making the payments you have offered as soon as you have sent your Statement of Affairs to your creditors. There is no need to wait until they have agreed to them.
There are a number of reasons for this. The main one is that if the figures on your Statement are correct the simple fact is that you cannot afford to pay more than you have offered.
In addition making payments immediately shows your intent to pay. Some of your creditors many not formally agree to your Plan until they have seen 2-3 months of regular payments coming through from you.
Once you have started your payments check whether interest charges have been frozen on any statements your creditors continue to send to you. If not you must contact the creditor again and ask them to do so.
Regularly Review your Plan
Once you have set up a Debt Management Plan it is important that you regularly review your financial situation. You should go through your Statement of Affairs every 6 months to see if any of your circumstances have changed.
If your Disposable Income has gone up it could be in your interest to increase the payments you make. The more you pay towards your debts each month the faster they will be paid and the sooner the Plan will end.
You may find your disposable income has fallen. In these circumstances you may need to reduce the amount you pay each creditor. This may be possible with more negotiation. You should also consider whether a DMP is still the best solution for you.
If your Disposable Income increases during your DMP you might also choose to save this money to use if you have a financial crisis or to offer full and final settlements to your creditors.
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