Most people use a firm to run their Debt Management Plan (DMP). In this case you make one monthly payment to the firm, who then divides it between your creditors.
But you don’t have to use a firm – you can do all this yourself. A reader commented that they liked the idea of being in control, and not having to explain their finances to a DMP firm every year, but would this be a lot of work?
You need a list of your debts, an income and expenditure sheet (I&E) which shows how much “spare” money you have each month, and to then divide this money between your debts on a “pro rata” basis, so the biggest debts get more money than the smaller ones do.
This article looks at what is involved in more detail. It suggests you should use the free CABmoney site which will help you by generating the I&E in a format your creditors will be familiar with. It also calculates the offers and can even generate the letters to send to your creditors.
Setting up a DMP
Most of the work is done in the first couple of months when you are setting the DMP up. You have to:
- agree repayments with any priority creditors such as rent arrears (you may not have any);
- change your bank account if your regular current account is with a creditor you are offering reduced payments to;
- stop your regular payments to your debts and cancel any DDs or CPAs with your bank;
- write to your credit cards, banks etc, enclosing an Income & Expenditure statement and ask them to accept your offer;
- set up new payments to creditors by standing order;
- field the letters and phone calls that you get because you have stopped the normal payments – many of these are because they haven’t yet processed your offer letter!
The more creditors you have, the more work this will be. Some creditors are more difficult than others.
But much of this work has to be done by you, even if you use a firm to set up your DMP. You have to deal with your priority creditors because they can’t usually be included in a DMP. You have to deal with your bank, including changing accounts if necessary. The DMP company will write to your creditors, but the creditors will still write to you and phone you in the first month or two before the plan is really underway.
So out of those six points, you will always have to do 1,2,3 and 6. A DMP firm would take care of 4 and 5. If you go for “DIY DMP” this is the extra bit that you are taking on. If you use CABmoney, it does most of 4 for you, by generating the letters to creditors and the I&E statement for you to print and send.
Running a DMP
After the first few months, administering your DMP doesn’t take long at all. The payments just leave your bank account each month!
The most common things that happen are:
- sometimes a creditor will sell your debt to someone else. In this case you cancel the standing order to the old creditor and send the new one a Statement of Affairs together with your offer and ask for their bank details so you can set up a new standing order. This is most likely to happen in the first year of your DMP, but it may occasionally occur afterwards.
- a few creditors will want to review your DMP every six months, especially at the start. If your situation hasn’t changed, then you just reply to their letter with one saying that there has been no change and enclosing a new version of your Statement of Affairs. This is a good point to check the balance remaining on this account.
- a creditor may take you to court for a CCJ. This isn’t common, creditors are much more likely to do this with debts where the client isn’t talking to them than where the client has proposed a monthly payment and backed it up with a Statement of Affairs. It is just as likely to happen if you are running your own DMP as if you are using a firm to do it. If it happens, you complete the court forms offering as a monthly payment what your DMP offer is. National Debtline can talk you through this process if it happens.
If your income or expenses change a lot you may need to revise your DMP offers downward if you are finding it difficult to manage. If your income has increased, you have three choices:
- increase your DMP payments
- save up the extra and hope it will get large enough to make a full & final settlement offer
- spend the extra, especially if your bills have also increased.
Is there any other work involved?
Probably the largest chunk of work isn’t actually to do with the DMP itself, it’s the effort needed to keep within a budget – this has to be done whether you are running your own DMP or using a firm.
What if you already have a DMP?
If you already have a DMP, you can stop using that firm and switch to doing it yourself. This is much easier because all your creditors already know you are in a DMP, so you aren’t going to get hassled at the start by creditors hoping to be paid in full.
To switch, you need a full list of your creditors from your DMP firm and you need to give the DMP firm notice that you are ending your DMP and will be cancelling your monthly payment.
You then need to write to each creditor, ask them to confirm the current balance you owe and the details of the account you should be making a payment to each month. Your DMP firm should be able to give you a list, but it’s good to check this is accurate! Also think if there are any other debts that should really be included in your DMP – this is the time to do that.
Then when you have a complete list of your creditors and balances, the CABMoney system will calculate all the pro rata offers for you. After that you just set up a standing order to pay each creditor the calculated amount.
Running your own DMP does involve some extra work. If you only have a few creditors and they are high street banks and credit cards, then it won’t be a lot, especially after the first couple of months. If your creditor list is a dozen then it’s still do-able.
But if you have loads of creditors or many of them may be “difficult” or you are very nervous, then you may decide that you want the moral support and hand-holding from a DMP firm.