If you feel you have been mis-sold PPI you can now make a claim for compensation. We consider whether this is possible if you already have debt problems and are in a DMP.

The banks have now given up their challenge to the Payment Protection Insurance (PPI) mis-selling scandal. They have agreed to deal properly with all PPI claims.

It is estimated that over 6 million people have potentially been mis-sold PPI policies and are now in line for average compensation of £2750 each.

If you feel you have been mis-sold a PPI policy then making a claim could therefore be well worth your while. However, if you are currently struggling with your debt repayments or are actually using a Debt Management Plan (DMP) you may be wondering whether you still have the right to make a PPI claim or not.

Making a PPI claim while in an DMP

Whether you have been mis-sold PPI is a totally separate issue to whether or not you are now unable to repay the debt that you owe. As such, if you are already dealing with your debts using a DMP you are certainly not prevented from making a claim for PPI mis-selling.

However if you do go ahead and make a claim and receive compensation it is possible that the creditor concerned will automatically use the money you are awarded to offset the debt that you owe them.

How to use a received payout

If you do receive a lump sum as a result of your claim you should think carefully about the best way to use this.

An advantage of your Debt Management Plan is that it is flexible. This means that if you have a pressing need to use the money perhaps to pay for an overdue car repair or other financial emergency, you can do this.

However, if you can, it is always sensible to use your compensation to reduce your debt. Rather than simply paying off some of your debt, you may well be able to settle one or more of your balances with a reduced lump sum payment thus paying off your debt far quicker.

I have not started my DMP yet

If you are currently in the process of applying for a DMP, you may be worried that if you make a claim for PPI mis-selling, this will jeopardise your chances of getting a payment plan agreement with your creditors.

After all, it stands to reason that your creditors might become upset with you for submitting your PPI claim and therefore be less likely to accept your application to reduce your monthly payments.

The reality is that your DMP application and any PPI mis-selling claim that you make are totally unrelated. The outcomes of both will be dealt with by totally different departments of the bank and one is very unlikely to affect the other.

If you are now in a position where you are unable to repay your debt, this has no bearing whatsoever on whether or not you were mis-sold a PPI policy.

I am not in an DMP but am struggling with debt

If you are not currently considering a DMP but are struggling with debt, receiving compensation from a PPI mis-selling claim could be extremely useful.

You should consider using any compensation you receive to pay off the debts that you owe, but choose which debts to pay off carefully.

Focus on paying off debts which are charging the highest rates of interest first. If you owe money to a store card account which is charging interest of 30%, you should pay this off first before a personal loan charging 10%.

Make the most of the money you receive. Use the lump sum to offer a reduced full and final settlement to one or more of your creditors. This way you pay off far more of your debt.