A reader asked if it is OK to reduce your debt management payments when you need to?
This is a common problem in Debt Management Plans (DMPs). Sometimes your income falls. Often your essential expenses go up faster than your pay does.
In debt management, you pay a set amount to the DMP company and they divide it between your creditors. So what happens if you can no longer afford that monthly payment?
There is good news – DMPs aren’t formal legal contracts and it’s a lot easier to get them changed than if you are in an IVA.
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Ask for any debts outside the DMP to be added
Perhaps you decided to leave a debt like an overdraft or a catalogue outside the DMP, thinking it would be convenient. But paying this and the interest is making your life more difficult.
Or perhaps you have been finding it hard to manage for a while and now have some new debts that are going up. Here it’s really the new debts that are the problem, not the DMP. Getting the new debts included is often the solution.
In either of these situation, ask your DMP firm to include the new debts.
They usually won’t mind doing this once, but you can’t keep running up new debts. You need the DMP payment to be set at a level that allows you to put money aside for emergencies, Xmas, car servicing, school uniforms etc. So also ask for a review of your payment.
Ask for a review if you need one
The DMP firm will usually review your DMP annually to see if it needs to be adjusted. But if there is a big change during the year, or a lot of small ones that add up to a lot, phone up and ask for a review.
Some problems may be temporary – perhaps you have had an unexpected expense such as car repairs. That could mean just missing a couple of months payments, then getting back to normal.
But if there is going to be a big drop in your income, such as going on maternity leave, or a lot of your expenses have recently risen and your pay hasn’t, you need your DMP payments reduced now, you can’t wait.
For many people, the cost of living problems in the last few years have been a nightmare. So tell your DMP firm why you are having problems and ask for a review now.
It’s important to set your DMP payment at a level you can manage. If your income has become more erratic, talk to your DMP firm about how this can be done.
Do you have a better option?
Fee charging DMPS
If you are using a debt management company that is charging you a fee each month, look at switching to a free DMP provider such as StepChange. Their DMPs work in exactly the same way as your current one, except all your money goes to your creditors.
Switch to StepChange and the DMP will end sooner!
(NB if you are self-employed, talk to Payplan, not Stepchange)
Get a DRO instead
The DRO rules were relaxed in 2024, so more people can now have a DRO.
If you owe less than £50,000 and don’t have a house, then a Debt Relief Order (DRO) might work for you. You can now have a DRO if your car is worth up to £4,000
As a result many people on DMPs should think about switching to a DRO.
A good debt adviser like Stepchange can talk about your other options to a long DMP
Ways to speed up your DMP
If the DMP started in the last few years, think about whether you may be able to win any affordability complaints:
- were you in an overdraft not just for a few days at the end of the month but for most or all days?
- did a credit card or catalogue increase your limit too high when you were only making minimum payments?
- were the repayments on a loan so large that you were left short of money and had to borrow elsewhere?
- did car finance cause you big problems with your other debts?
See my articles about affordability complaints which look in detail at these situations. There are separate articles for different sorts of debt, each with a template letter you can use to complain.
Winning an affordability complaint may mean your balance is reduced, which will speed up your DMP. And, as a nice side effect, you may get your credit record cleaned sooner.
If the DMP started longer ago, many of your debts may have been sold to debt collectors. Read Ask your creditor to produce the Credit Agreement, because if the debt collector can’t produce the CCA agreement for a Credit card, catalogue, loan or HP , then the debt is not enforceable in court and you can tell the DMP firm to remove it from your DMP.
Answering the question
So the answer to the reader’s question is Yes, you can reduce the amount you pay to a DMP, they are flexible. Talk to your DMP firm and say why you need a review.
But reducing your payments means your DMP will last longer. If you are sure your new payments will be sustainable and the DMP isn’t going to take too long, fine. But if you feel the end of your DMP is a goal that is always moving further away, look at alternatives and ways to speed it up.
Making a claim in a DMP – a good idea!
Options when you cant pay bills & debts
Linda says
Hi Sara I don’t know if this the correct place to post apologies if it isn’t. I just wondered I put a claim in for new style contribution based JSA a few weeks ago and just wondered what the average wait is? It’s normally 2 weeks but completely understand it’s going to take longer I just wondered if anyone knew how long the delays might be as can’t find any guidance on their web pages other than they’ll write to me. My partner has been furloughed so would be helpful to know when this will start to come in as it will help. I have a Stepchange DMP.
Sara (Debt Camel) says
Sorry, I don’t have any current information on that.
Have you asked StepChange to suspend DMP payments?
Linda says
No not as yet I was a bit nervous too in case they stopped my plan all together I’ve kept up to date so far but don’t know if their policy has changed
Sara (Debt Camel) says
StepChange will be helpful about this. See https://www.stepchange.org/debt-info/coronavirus-advice-for-clients.aspx. I should do this now.
Does your partner have debts he now can’t pay?
Linda says
He’s on a low income anyway so going down to 80% was a sting. It’ll be his first month this month. His main worry is his monthly car payment which is well over £200 with money barn it’s up to date at the moment but it’ll be a struggle if I’m honest
Sara (Debt Camel) says
ok so he can ask for a 3 month payment break with his car finance. Interest is charged though, so if he could afford to pay some of it each month that would minimise the extra?
stuart says
how much are you allowed to put away as savings on a self run DMP , that is satisfactory amongst creditors, I have came off my stepchange run one and about to start my own. My monthly payment to creditors will be lower than my previous stepchange one, as i plan to up the amount i can save /emergency fund.
is there any guidelines? . I plan to use any savings built up to try and make full and final settlement discounted offers at some point in the distant future.
Sara (Debt Camel) says
For savings, about £25 a month. But of course it’s up to you if You want to spend less on a category in a month than is in your budget nd save the extra.
stuart says
is savings different to the emergency fund, and i also have to budget for car repairs, car maintenance, car mot, which is approx £600 total yearly; however if car fails badly on mot, or gets hit with major repair, it is an old car, which would have to be sold for scrap value. So i would have to fork out min £2000 very quickly for a old reliable car. so i have to also budget approx £160 a month for this eventuality which will happen.
plus i do not wish to cause an argument with creditors, so i will just state what i can afford monthly, i do not wish to show them my income/expenditure, can they force me too?
Sara (Debt Camel) says
Savings is the same as emergency fund
If you need To put buy 2k to replace the car, you can’t use that money to make full and final offers.
How large are the total debts in your DMP?
i will just state what i can afford monthly, i do not wish to show them my income/expenditure, can they force me too?
They can’t make you. But equally they don’t have to accept your offer and may take you to court if you cant justify it. It is in your interest to make a sensible offer and justify it.
stuart says
i mean i will make cost savings via maybe cutting back on some expenses some months, that is where i will generate the cash to make F and final offers. but my emergency fund will have to be £160 which i will not touch, but set it aside for a replacement car at some point.
Michael says
Hi – I’ve completed my budget recently and my contribution to the DMP will be £513 from £711…I’ve cleared around £6.4k so far. Is it likely my creditors will accept reduced payments? I’ve a clear payment record on my DMP and haven’t added any new debts
Sara (Debt Camel) says
So the DMP has been going for 9 months? Which DMP firm?
How large are the debts that went into the DMP?
Does the new lower amount take account of bills going up in April?
Michael says
Stepchange. Around 56k and it’s just under 49k now. Yes these have been factored in (Council Tax, water, gas, electric etc)
Also worth noting I’ve not taken on any more liabilities since going into the DMP and all payments are made on time every month (Direct Debit).
Sara (Debt Camel) says
I doubt there will be any problems with reducing the payments like this. This is the big advantage of DMPs, they are flexible.
Have you looked at making affordability complaints about the debts in the DMP? Winning one will get some or all interest removed, so the DMP balance is lower and the DMP ends sooner. This is normal in a DMP, it doesn’t lead to any problems with the DMP.
See https://debtcamel.co.uk/tag/refunds/ for articles of refunds from overdraft, loans and credit cards, with template letters to use. Your complaint goes to the original lender, not any debt collector the debt is now with.
If you can list the debts that went into the DMP, I can suggest which may be the best claims?
Michael says
Thank you – I’ve got affordability complaints with all lenders at the moment. Will my creditors be willing to accept with no issue in your experience?
Sara (Debt Camel) says
a lot of good complaints get rejected and have to be sent to the Ombudsman. If you know a debt caused you problems, you should go to the ombudsman if you get a rejection