Money Advice, Debt Advice & Debt Help
How to settle a debt management plan early

How to settle a debt management plan early

How to settle a debt management plan early

You are allowed to settle a debt management plan early by paying off some or all of the debt you owe. Where you are able to offer cash lump sums to your creditors, you may even be able to get a discount.

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How much do you have to pay to settle your debt management plan early?

A debt management plan is a flexible debt solution. This means you are allowed to settle it early at any time. All you need to do is contact the creditor you want to pay off and make them an offer.

Of course, where you have the funds available you can pay the debt you owe in full. However, it is often possible to pay each creditor less than they are owed.

Given the amount offered can be paid immediately in one lump sum, they may be prepared to take this in full settlement. Any remaining balance is then written off. This works because an offer of cash up front is often far more attractive then having to wait (perhaps many years) for payment in full.

It is possible your creditors will accept just 50% of the outstanding balance owed. However depending on the circumstances, even less might be enough.

Before accepting your offer, they might ask you for an up to date income and living expenses budget. This is so they can confirm your circumstances have not changed and you are unable to pay them more.

When is the best time to make a settlement offer?

You can pay off your debt management plan in full at any time. This is the case even if you have only been in it a couple of months.

It is common to start a Plan to give yourself a short term breathing space. Perhaps this is all you need until your finances improve. You may have just needed time for some expected funds to arrive.

However, settlement offers of less than the amount you owe will not normally be considered by your creditors until your Plan has been up and running for 6-12 months or longer.

By this time your account will be with the collections department. It will be clear to them that it is going to take a long time to recover what they are owed. So a payment offer at this stage is one that they will be ready to consider.

It could be easier to settle it early if your debt has already been passed to a debt collecting company. Very often collectors are given authority to make settlement deals so the account can be closed as soon as possible.

Where can the money come from?

The funds needed to settle your debt management plan can come from pretty much anywhere.

Unlike more formal debt solutions such as an IVA, you can use your own money to make payment offers. This might be funds you have been able to save by working extra over time or from a bonus. Alternatively you might have received an inheritance.

You could decide to sell something to raise some cash. For example, you could decide to sell your house and use some of the equity released to settle your debt.

It is also acceptable for someone to give you or lend you the money you need. Your partner (or a family member or friend) can transfer the money to you. Alternatively they could pay the creditor direct once the settlement amount is agreed.

Can you settle your debts one at a time?

You do not have to settle all the debt in your Plan at the same time. You can chose to pay off just one of them if you want.

This means you can target creditors who are causing more problems than others. Perhaps they are refusing to freeze their interest charges or are generally giving you more hassle.

Those that remain will also benefit from this strategy. This is because they will then get a greater share of your ongoing monthly payment and so will also be paid off faster.

If your debt management plan is being managed by Stepchange, they are likely to tell you that you can’t settle your debts early unless you have enough funds to pay them all. This is not true. It is simply their internal policy. If this happens to you, you can make early payment offers to any of your creditors yourself if you want.

Need more advice? Call us (0800 077 6180) or complete the form below. Its free and without obligation.

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