When the money you receive is made up of benefits it is likely that you are living on a relatively low income. Trying to resolve a debt problem if you are in this position is not easy.

To do so you will need to reduce the payments that you make towards your debts each month to an amount that you can afford. A Debt Management Plan (DMP) could therefore be an ideal solution to help you to do this because you do not have to be employed to use one.

There is no minimum payment required to make it work and as such it can be used if your  income is low and you can only afford to repay a relatively small amount each month.

How will a Debt Management Plan help if I am on benefits?

The way a DMP works is that it allows you to turn your debt problem on its head. Instead of worrying about what your creditors want you to pay each month you actually pay them only what you can afford. This is called your Disposable Income.

Therefore by using this type of solution you can make an agreement with each of your creditors to reduce the payment that you give them each month to fit within this amount. This will allow you to get back in control of your debt and take away the pressure of your creditors constantly demanding payments from you.

BMD Tip: There is no minimum amount which you have to pay each month as long as you can afford to pay something. This can make it a good solution if you have a low income and cannot afford to pay very much.

Do you want help to start a DMP? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts

Will a Debt Management Plan extend my debt repayment period?

Before you chose to start a DMP you need to understand the one of the major downsides which is that if you are paying a reduced amount each month it will take far longer for you to repay your debt.

Unlike other debt management solutions your creditors will not automatically agree to write off debt for you. You will have to continue paying into the Plan until your debts are paid in full which could take many years.

For this reason if your income is made up of benefits which means that it is unlikely to increase significantly in the future then you will probably never be able to increase the amount you are paying into your Plan and it will take many years to pay your debt.

What if I cannot afford to pay anything towards my debts?

If the amount you can pay towards your debts is minimal or nothing because your benefit income is low the disadvantage of using the DMP solution is the time it will take to pay your debt and become debt free.

In these circumstances it would be sensible to consider alternative solutions which might help you to become debt free faster. Where your income is low and particularly if you are living in rented property the best options for you to look at are either Bankruptcy or a DRO (Debt Relief Order).

Although Bankruptcy sounds bad it is often an ideal solution for people receiving benefits particularly if you are unable to pay anything at all each month to your creditors. If you declare yourself bankrupt your debts will be taken away from you and you will not normally be asked to make any payments towards them if you only have benefits income.

A Debt Management Plan is a good place to start if you are on benefits

If you know that you need to take action because you are unable to repay your debt a DMP is often a good place to start. If you can afford to pay something to your creditors then you will always be able to start this type of Plan which will immediately help to take the pressure of trying to pay your debts away from you.

However uif your income is made up of benefits it might not be the ideal long term solution because of the length of time it will take to pay your debt back in full.

Nevertheless once the Plan is in place and your finances are back under control and you are not being constantly worried by your creditors you can then decide whether to stick with it or change to an alternative solution like bankruptcy. You can do this at any time.