If you earn overtime or additional income during a DMP is this money yours to keep? Or does it have to be paid into the plan?
In this article:
- Can you keep overtime earned during a DMP?
- Should you increase your monthly payments?
- Is it better to save any extra you get?
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Can you keep overtime you earn during a DMP?
A Debt Management Plan (DMP) is not like other more formal debt solutions such as an IVA or Bankruptcy. One of the main differences is you are not legally obliged to give up overtime or any other extra money you earn.
You can decide what to do with the extra funds. This flexibility is one of the reasons people choose this option to manage their debt.
The more you pay into a DMP the faster your debt will be paid. As such it may make sense to pay off more if you earn extra income. However you are not forced to do so.
If you decide to spend any overtime or extra income in other ways during a DMP this is your decision.
Should you increase your monthly payments?
Debt is not automatically written off in a DMP. As a result it often takes many years to become debt free using this solution. The actual time will depend on the amount of money you owe and the monthly payments you make.
Given this it does make sense to use the extra overtime you earn to increase the size of your payments. If you do this your debt will be paid off faster. However before you make any changes you should ensure that the new payment amount is affordable and sustainable.
If your overtime or extra income is not regular or guaranteed, there may be no point in increasing your payment if you just have to reduce it again in a month or two.
It is possible to increase your DMP payments for a short period. You can reduce them again in the future if you need to.
Is it better to save any extra income you get?
If you are able to earn overtime or extra income during your DMP you are allowed to save this. In fact if possible it is probably best to do this before thinking about increasing your monthly payments.
If you have savings you will be far better able to deal with a financial emergency where you need to pay for an unexpected costs. It should also mean you avoid missing your DMP payments while dealing with the emergency.
There is also another significant advantage to saving during DMP. Once you have built up pot of funds, you could negotiate to settle some of your smaller debts with a lump sum. Very often the creditor will accept a reduced amount if this is paid all in one go.
Creditors will accept lower settlement amounts if the balance is paid with a lump sum. You lose nothing by asking. Don’t simply pay off individual debts in full, make your money work harder to clear more of the debt!
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£75000 dept £86 per month payment many years now – in work – state pension due – but deferring – so no extra income – if after 2 years I. could draw lump sum of approx 9000 – would this satisfy creditors – as a FULL and final?
Hi William
If you still owe £75,000 then settling the debt in full with a lump sum of £9k might be a tall order if you try to do this negotiation with each creditor on an informal basis. I would say that you can be pretty much certain of getting them to agree to settle an outstanding debt if you are able to offer 50% of the balance as a lump sum and in sum cases as low as 40% or even 30%.
Having said that it might be possible to settle the entire debt for £9k if you do it using a Full and Final Settlement IVA. This is certainly something you should look into and find out whether it would be an option for you.
Hello,
I am currently in a DMP. If I am awarded compensation for a slip and fall does it have to be paid into the plan? It is not going to be a large amount but could do with the money because I am on a state pension only.
Thank you for any advice you can offer.
Hi Louise
A Debt Management Plan is an informal agreement. As such if you receive a windfall like compensation or inheritance you do not have to pay this money into the Plan. It is yours to keep and spend or save as you see fit.
Clearly using some or all of the funds to reduce or settle the debts you owe is always to your advantage so I would always consider that if possible.
My partner is currently in an Iva, however he wants to change to a debt management plan he gets a tax rebate every year which has to be paid into the Iva, would he be able to keep this for house repairs emergencies etc if in the DMP
Thanks
Hi Rachel
Your partner can cancel his IVA and then start a debt management plan to pay off his remaining debt if he wants. In a dmp he is allowed to keep his tax rebate and use it for whatever he wants. He would not be forced to use it to help pay his debt.
You can read more about stopping an IVA and paying off remaining debt with a debt management plan here: Cancel IVA and pay debts yourself