Even if you are paying as much as you can afford into your Debt Management Plan (DMP) it could still take many years to become debt free. This is because 100% of your outstanding debt still has to be paid. Having said that you may be able to reduce the time the Plan lasts if you settle debt early. This will significantly speed up the time it takes to repay the total debt.

The best time to settle debt early during a DMP

The first question to consider when thinking how to settle debt early during a DMP is when is the best time to do it?

Generally, you will have a greater chance of success if you have already been making monthly payments into the Plan for 6 months or more. Your creditors will be more inclined to accept a lump sum in settlement of your debt when they are aware that you are struggling to repay them.

Accepting a cash settlement will mean that the creditor agrees to write some of their debt off. However they will also avoid the ongoing costs of collecting small sums from you each month and the problems of chasing when payments are missed. As such they will very often accept a reasonable settlement offer.

How much cash do you need to settle debt early?

It is difficult to give a hard and fast rule here. However if you have been in your DMP for 6 months most creditors will agree to settle debt early if you offer 50% of the outstanding balance. That is not to say you cannot offer less. The best advice is to start off offering 30%. If this is not accepted you can then offer more.

BMD Tip: It is not necessary to settle all of the debts in your Debt Management Plan at the same time. One of the advantages of the plan is its flexibility. This means that you can chose to settle to settle one debt and not others. As such if your funds available are limited it is possible to make an offer to settle just one of your debts.

Where this is the case, it is generally sensible to try and settle with a creditor who is persistently continuing to add interest or late payment charges. The settlement of just one creditor’s account will actually benefit all the other creditors as the continued monthly payment will be shared across fewer accounts and therefore each of the remaining creditors will be repaid more each month.

Where can you get the funds required to settle debt early?

Of course you will only be able to settle debt early during a DMP if you can offer a cash lump sum. Very often people will dismiss the possibility of doing this because they do not believe that they will ever have money available. However there are some options you can consider.

One is saving a small sum each week or month from your budget to put towards a “lump sum fund”. Saving in a DMP is never easy. However, if you can do it, it will pay dividends as your debt will start to disappear much more quickly. Alternatively of course, you may have be able to borrow some cash from friends or family.