A reader has asked what he should do because his Debt Management Plan (DMP) payment is now too high. This post looks at what his options are.
What is a Debt Management Plan?
A DMP is a flexible way of tackling your debts. You pay an amount each month which is less than the normal minimum payments on your debts (if you can afford to make the minimum payments, you should be looking at snowballing rather than a DMP) and this is divided between your creditors who are asked to freeze interest. Check out the DMP Guide for information on who DMPs work well for and how to set one up.
So a DMP is flexible and can be changed?
Yes. This is the big advantage of a DMP compare to a formal arrangement like an IVA.
If you have a “DIY DMP” then you write to all your creditors, say you need to reduce your monthly payments and enclose a new Income / Expenditure sheet showing how the new creditors offers have been calculated. If there is a clear reason for this (for example “my hours have been reduced” or “my utility bills have increased a lot”), then mention this in your letter.
If you are using a company to manage your DMP, contact the company, explain your situation and what you want to reduce your payments to.
Won’t my creditors mind?
Well obviously they won’t be happy… but if you have a good reason to reduce your payments and your Income/Expenditure sheet shows this, then most creditors will understand what you are doing.
A good point to review your DMP
Although you can simply change the amount you pay, the fact that you are reducing the amount is a sign that your DMP is not going as well as you had hoped it might. So it’s worthwhile pausing and thinking about whether you can improve it or if it still suitable.
Have a general review of your finances and see if you could reduce your expenditure or increase your income. Do you have any assets that you could sell? Have your recent problems been caused by the fact that your budget is just too low to live on for months and years?
If you are using a debt management company that is charging you a fee each month, then look at switching to a free DMP provider such as the charity StepChange. That will mean all the money you can afford goes to pay off your debts, which will mean they get cleared faster. Call StepChange and ask how to switch to them!
Is your DMP still realistic?
If there aren’t any good ideas for improving your situation, then think again about how long it is going to take you to clear your debts. You might have been happy with the original DMP that was going to take 7 years … but if now it is going to take say 10 years, then it would be a good idea to look at your other options.
If you owe less than £20,000 and don’t have a house or a valuable car, then a Debt Relief Order (DRO) might work for you. (This £20,000 is the new limit that was introduced in October 2015 – before then it was £15,000.)
If you owe more than £20,000 then look at more certain ways of clearing your debts – selling your house if it has equity or is costing too much; bankruptcy or an IVA. But be wary of committing yourself to an IVA – if your circumstances change again and you can’t afford an IVA payment, the IVA usually fails.
You can reduce the amount you pay to a DMP. But reducing your payments to a DMP will mean it takes longer to clear your debts, so don’t struggle on for more years with a DMP if you should be facing facts and taking a hard decision.