A Debt Management Plan (DMP) can be a temporary measure but they often last for years. Debt advisors normally only see people with an ongoing DMP if it runs into problems so I was very interested by the large client survey Payplan conducted last year. I wanted to find out what it is really like to live in a DMP and Payplan have kindly given me access to some of the results.
Background on the survey
Payplan are one of the largest providers of DMPs that are free to the debtor in Britain. They have been operating since 1992 and currently have about 91,000 clients in a DMP. Last year they conducted a survey of their clients, with 170 in-depth telephone interviews and 4,200 people replying to an on-line questionnaire. That is an impressive return rate for an online survey, especially as this one was very long! The people who responded were a reasonably representative sample of Payplan clients, with older clients, those with higher debts, those with children and those who been in a DMP for longer being slightly more likely to respond.
Payplan asked 26 questions, most of them open-ended, encouraging people to comment rather than just rate on a scale. For example:
- Has your life changed now you are in a debt plan? [Unsurprisingly 90% answered Yes!] Please describe the biggest impacts, both positive and negative.
- Has your relationship with money changed?
- Have you ever used an on-line budgeting tool to help you manage your finances?
There are statistical problems with any surveys such as this, chiefly the problem of “survivor bias”. The answers came from current clients so any clients who dropped out of a DMP won’t have replied. As a result the responses may be more positive than a truly random selection of clients would be.
What sort of people have DMPs?
I’m not aware of any industry-wide statistics, but my feeling is that Payplan’s DMP client base is probably pretty typical of all DMPs:
- age profile is shown in the chart on the right;
- roughly equal numbers of male and female clients;
- 2/3 have a child under 18 in the household;
- 2/3 living with a partner;
- 1/3 rent, 1/2 are buying a house, 1/6 other (including living with relatives, living in partner’s house).
Four broad categories
I asked John Fairhurst, Payplan’s Managing Director, how they had handled about 100,000 answers to questions so that the replies were useful. He said, “Everyone that picks up the phone to speak to us is an individual and will have a different way of coping with their financial situation. However, we discovered that patterns of behaviour broadly fell into four categories – managing, coping, planning and anticipating.”
Managing – this was the largest group, 37% per cent of those who responded. They were characterised by their tendency to report that their lives in a debt management programme were vastly improved; and that they felt they had adjusted their lifestyle so that they were relatively content. They are broadly confident in new budgeting skills and have little focus on planning for life after debt.
- “I can actually live without constantly worrying how I’m going to put fuel in the car to get to work or pay for food.”
- ““Having funds available for unexpected bills and for some social events I can now attend without worrying about how to pay”
- “We make our money work for us we pay all our living expenses and bills on time, and whatever is left which it truly not a lot we seem to not want a lot.”
Coping – the research identified 25% of respondents as ‘coping’. They shared many of the features of ‘managing’ clients in their appreciation that the extraordinary stress of juggling debt had been removed; that they were sheltered from the demands of creditors. However, ‘coping’ clients were much less certain that this was a sustainable lifestyle and much more likely to report that they experienced their current lifestyle as a daily trial and that they were deprived of everyday pleasures. Interestingly, this group comprised 2/3 men, much the most uneven gender split, and tended to be slightly older than average.
- “No letters other than those from payplan. Down side, can’t buy anything if I want to, always penny-pinching to make ends meet if we are short one month.”
- “Money is so tight, rent has just gone up another £40.00 in the last 2 months.”
Planning – 23% were categorised as ‘planning’. This category was strongly characterised by languages of personal autonomy and control, and being future-oriented. The future was defined in an open-ended way, rather than by the single ambition of getting debt-debt free. This group had looked in more detail at other alternatives before selecting a DMP with Payplan and tended to be younger.
- “Being in a debt plan has enabled me to manage my finances effectively.”
- “Not having stress and panic attacks. I sleep better! I have been able to start saving for deposit to get married & first home. Finally!”
Anticipating – at 15% this was the smallest of the groups. These clients were determined to eliminate their debt as quickly as possible. They were prepared to defer both everyday pleasures and major life events. A common anxiety for this group was that returning to debt-free lives was too far in the future. They tended to see their position as more risky than the other groups and were more worried by set-backs.
- “I feel I have got a bit of a life again even though I’m always concerned about my debt.”
- “We’re constantly looking to reduce our spending, but it’s an uphill struggle.”
Two things stood out for me as key from the mass of replies:
- the complete relief that a DMP gives from the over-whelming pressure of dealing with their creditors – almost every client commented on this, no matter how easy or hard they later found the DMP;
- only a minority of clients regarded becoming debt-free as their main priority – for many, being able to live contentedly in the DMP featured much more prominently in their thoughts.
I think the last point is important for debt advisors to focus on. It is an interesting contrast to personal debt websites on the internet which tend to be very focussed on the goal of clearing debt, but then they tend to be written by a younger group – if at 35 you can get debt free in five years then you can happily dream of all you can achieve afterwards; for someone in their 50’s there may be few or no years left between becoming debt free and retiring.
Are you thinking of a DMP?
Do as much research as possible! Just because most DMP clients are happy with the route they have chosen, doesn’t mean it will be right for you. The more you know about debt management plans before you start, the more confident you can be about your decision, so start with Debt Camel’s What is a DMP? page – that looks at the pros and cons and who a DMP is most suitable for.