With an increasing number of payday loan companies making cash available it is becoming more and more usual for people who are already in a Debt Management Plan (DMP) to borrow additional money from these type of lenders.

It is possible that you have borrowed more because you had an unexpected financial emergency or you are simply struggling to keep up with your agreed payments.

However the problem with taking a payday loan during your Plan is that you will now find it very difficult to repay both the new debt and maintain your Plan payments. You will therefore need to find a solution. We consider your options.

Option 1: Suspend your DMP payments to pay the new loan

The first option to consider is actually missing your DMP payments for a month or even two and using the cash you save to repay the loan. This is known as taking a payment holiday from your Plan

This solution can be a good one as it removes the problem straight away. However you must remember that if you miss your payments without first agreeing a payment holiday with the creditors they will become very unhappy and it may trigger them to start adding interest and charges to your accounts again if previously they had frozen these.

BMD Tip: If it is likely to take you much longer than a month or two to repay your payday loan a better solution is to continue to pay your Plan payments and add the new debt to it.

Option 2: Add the Payday loan to your existing DMP

A payday loan is an unsecured creditor. As such, there is absolutely no reason why this type of loan cannot be added to your DMP even after the plan has already started. There are however some things you will need to consider.

If your Plan is being managed by a charity they may not be happy that you have taken extra credit. They could take the view that you have broken your agreement and will then refuse to continue to manage it for you. If this is the case there is nothing to stop you changing to a different debt management company.

You also need to understand that by adding a new creditor to your DMP, all of your creditors will start to receive a smaller payment each month as your disposable income will have to be shared between more creditors.

Your original creditors may well treat this reduction in their payments as you having broken your original payment agreement with them. As a result they may start adding interest to your accounts again until the new payment plan is agreed.

Option 3: Consider using a different debt solution

If you have taken a new loan while you are in a DMP you should ask yourself why you did so. It could be that unless you make some changes the reason why you felt the need to borrow extra money may happen again in the future.

The most important thing for you to do is review your living expenditure budget to ensure that you are not struggling each month. If you believe you are struggling you should increase your expenses as appropriate and reduce the payment you are making into your Plan.

BMD Tip: Try to build in to your expenditure budget some money that you are able to save each month so that you have enough to cover financial emergencies if they happen again.

Remember if you are only paying a very small amount each month back to each of your creditors it is likely to take you a very long time to pay everyone in full and become debt free.

If having reviewed your living expenses you feel that you will not be able to repay your debt in a reasonable length of time you should also take the opportunity to review whether it is actually still the right solution for you. If not you could consider an alternatives such as an Individual Voluntary Arrangement (IVA) or Bankruptcy.

Change your Debt Management Plan as appropriate

Ultimately if you take a new payday loan taken after your DMP has started you can add this new debt to the existing plan. However, if you have needed to borrow extra money it is likely that the plan is not working for you for some reason.

You should therefore take the opportunity to review your circumstances and change it as appropriate so you make sure that the reason for taking the loan will not happen again.

At the very least this will mean reviewing and changing your expenditure budget Plan payment as appropriate. However it could also mean deciding to use a totally different but more appropriate debt management solution.