A Debt Management Plan will last for as long as it takes to repay the debt included within it. This is directly affected by the amount you can afford to pay into it.
In this article:
- How to estimate how long a DMP will last
- How will interest affect the length of the plan?
- What else could affect the length
- Can you settle a DMP early?
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How long will my Debt Management Plan last?
If you use a Debt Management Plan (DMP) you still have to repay all of your debt. The length of your plan will depend on the amount you can pay. The time it takes to repay your debt is likely to be extended. To find out more please visit: http://beatmydebt.com/debt-management-plan-frequently-asked-questions/how-long-will-my-dmp-last
How to Estimate how long a Debt Management Plan will last
It is never possible to work out with 100 percent accuracy how long a DMP will last because there is no way of telling how much extra interest or charges your creditors will add to your debts along the way. However it is possible to get an estimate of the potential length of your plan.
The way you do this is by dividing the total amount of debt that you are including in the Plan by the total amount you are paying each month.
For example if your total debt is £10,000 and you can afford to pay £120 per month into your plan the estimated time it will last is approximately 7 years:
£10000 / £120 = 83 months; 83 months / 12 = approximately 7 years
How does interest affect the time your DMP will last?
One of the main things that will affect the length of time your DMP will last is how much additional interest and late payment charges your creditors continue to add to your accounts. Because it is an informal agreement your creditors do not have to stop charging interest.
Generally speaking after a few months of receiving the agreed reduced payments some or all of your creditors will suspend these additional charges.
BMD Tip: There is never any guarantee that this will happen and your creditors also reserve the right to begin adding charges again if your plan payments stop or change for any reason. For this reason it is almost certain that your first estimate of how long your Plan will last will need to be extended.
What else will affect the length of your Debt Management Plan?
There are various other things which will affect the length of your DMP. Firstly if you are using a commercial company to help manage your Plan they will charge a fee for doing this.
The charge will be deducted from the monthly payment that you make and will therefore automatically reduce the amount you pay each month and extend time that your Plan lasts.
Secondly if your financial circumstances deteriorate meaning that you have lass disposable income available you may have to reduce the amount you pay each month. This will mean that your debt will be paid more slowly and the length of your Plan will increase.
Can I pay off my Debt Management Plan early?
One of the advantages of a DMP is that it can be paid off early at any time. If your financial circumstances improve you can increase the payments that you make.
If you come into a lump sum of money you can chose to pay off all your outstanding creditor balances in full. However it is perfectly acceptable to approach your creditors and ask them to settle your debt early by offering them a lump sum which is lower than the total amount you owe them.
Very often if you have been in your Plan for 6 months or more all of your creditors will accept a lump sum of 50% (and sometimes less) of the balance outstanding to settle their debt in full. By making settlement deals with your creditors in this way you may be able to pay off your entire debt without having to use all of the cash you have.
BMD Tip: If you receive a lump sum of money while you are in your DMP perhaps in the form of a compensation payment or a redundancy payment you are not legally obliged to use this money to repay your debts. It is your decision as to whether you pay them off or not. As such you are free to use the case for other things if you wish.
If you are unlikely to receive a lump sum another possibility that you have for repaying your DMP early is saving. This may sound difficult however if you are able to save a small amount each month from your living expenses budget this could really help reduce the length of your plan.
This works because you do not have to make an offer to settle with all of your creditors at the same time. You can save enough to make an offer with just one of your creditors if you wish.
If you are able to settle individual debts in this way it will really help to reduce the length of your DMP as some debt will be written off and your remaining creditors will be paid faster as they will then have a larger share of your ongoing monthly payment.
BMD Tip: If you are able to save a lump sum with which to make a settlement offer to one of your creditors you should prioritise the creditors which are continuing to add interest and charges to your account. If you are able to settle these debts early then you will start to repay your total debt much faster.
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