A Debt Management Plan allows to you reduce the payments you make to your unsecured debts. Generally speaking the amount you pay is based on your surplus income.

In this article:

• How to calculate what your Plan payments will be
• Does all of your surplus income have to be paid in?
• What if you can only afford small payments?
• Could the amount you are paying ever change?

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How to Calculate what your Debt Management Payments will be

The amount that you pay into your DMP each month is called disposable income. This is simply the name for the amount of money you have left each month from your total monthly income after deducting all of your reasonable living expenses.

Your monthly income is the total of all of your sources of monthly income such as your wages after tax, any benefits you receive and any other money you have coming in. Your living expenses are all the expenses you have to pay each month to live but not including payments to your unsecured debts.

So to calculate your disposable income you simply deduct your total monthly living expenses from your income. The amount you are left with is what you can afford to pay into your Plan.

Does all your Surplus Income have to be paid into your Plan?

One of the main things you need to bear in mind when starting a DMP is that despite paying a lower amount each month you are still responsible for repaying all of your debt. Your creditors agree to reduce the payments they receive from you each month. They do not agree to write any of your debt off.

As such using this solution will mean that it takes you much longer to pay your debts and become debt free than if you were able to maintain your normal payments. The total time it takes to pay off your debt will depend on the amount that you pay back each month.

For this reason the key to making your Plan work is to ensure that you are paying as much as you can afford towards your debts each month. To do this when you are calculating your living expenses you should try to make sure that the expenditure figures you use are kept to the minimum you can afford to make sure you are left with as large a disposable income figure as possible.

Always bear in mind that the higher your expenses are the less disposable income you will have left at the end of the month to pay into your plan and the longer it will take to repay the debts that you owe.

What of you can only afford Small Payments?

Although it is important to pay as much as you can afford into your DMP so that your debts are repaid as fast as possible it is also very important that do not over stretch yourself. As such you should make sure that you include a budget in your living expenses under sundries and emergencies to cover unexpected expenditures.

Once you have calculated your disposable income the payment is divided between each of your creditors. Each creditor will be paid a proportional amount based on what they are owed.

Some of your creditors will accept the payments they are offered. However it is possible that some will not and will reject the offer you make. If your creditors do not agree to your payments they cannot refuse to take them. However in these circumstances they may not agree to freeze the interest charged to your accounts meaning that your balances may continue to increase.

This is not an ideal situation. However, you should not allow yourself to be pushed into increasing your payment offer. If you have correctly calculated your disposable income the fact is you simply cannot afford to pay more. If you try to do so, you will struggle to make your payments and your agreement will start to fall apart.

Could the amount to pay into a Debt Management Plan ever Change?

Ultimately a DMP enables you to reduce the payments you make to your creditors to an amount that you decide you can afford.

The amount you pay should be based on your disposable income which in turn is based on a reasonable living expenditure budget. You are ultimately in control of this budget and therefore the level of payments you make.

Having said that you must remember that if you believe you need to spend more each month than your creditors think is reasonable, they may reject your proposed payments.

Nevertheless as long as your offer is based on the maximum you can afford, you should pay your creditors as per your proposal until such time as you feel you can comfortably increase the payments you make to them.