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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