Want to understand more about a Debt Management Plan UK? Read on.
A debt management plan (also known as a DMP) is an informal debt solution. It combines your multiple monthly debt payments into a single lower instalment based on an amount you can afford. This helps you get your debts under control and pay them off in a sensible managed way.
In the following article, we answer the main questions when it comes to understanding DMPs. For example exactly what they are and how do they work? We are here to offer clarity and direction on your path to financial stability, whether you're looking for debt relief choices or want to learn more about a Debt Management Plan UK.
A Debt Management Plan UK (DMP) is a structured debt repayment plan which can be implemented to assist you with managing your unsecured debt. This debt solution offers you two major benefits:
Firstly, the Plan allows you to combine several debt repayments into a single manageable amount – paid either weekly or monthly. This makes it much easier to budget and set aside what you need to pay your debts rather than having to juggle multiple payments.
Secondly - and most importantly - the single payment you make is based on an amount you can afford. This means you should always have sufficient income to make the payment each month. You will not be struggling to find the money and will no longer have to keep borrowing more to make the payment.
More information about how the amount you will pay is worked out is provided below.
A debt management plan UK is appropriate for those who have a steady income but are having difficulty making their monthly payments due to overwhelming debt.
You can implement a Debt Management Plan UK (DMP) yourself. However, it is normally best to get the help of a debt charity or regulated debt management organisation. The Plan is set up using the following steps:
When adding up your income, you need to make sure you include all your types of income. This might include your wages, any benefits you get and or pension payments. Your expenses budget should list everything you need to spend your money on each month. However, you should not include payments towards the debts you intend to put into your Debt Management Plan UK.
Then you take away your total monthly expenses from your total income. The amount you are left with is called your surplus (or disposable) income. This is the amount you can afford to pay into your debt management plan.
This is done on a so called ‘pro rata’ basis. In other words, the percentage of your surplus income they given is the same as the percentage of the total debt in the Plan that they are owed.
Each creditor is then contacted with an offer of payment based on their allocated percentage of your surplus income.
Dividing your surplus income between each of your debts in this way means they are all treated equally and paid off at the same time. Treating them all fairly in this way means they are much more likely to agree to the Plan.
The advantage of using a debt management organisation is you pay them a single payment each month. This means you don’t have to carry on juggling multiple payments to different creditors.
Your debt management company then makes a payment to each of the creditors as per the amount calculated in ‘step 2’.
You continue making your payments into your Plan each month (subsequently shared between all your creditors) until all the debt you owe is paid in full.
Frequently Asked Questions About Debt Management Plan UK
Our Debt Management Plan UK Advice
Do you have further questions about a Debt Management Plan UK or want professional, confidential advice about whether this is the right debt solution for you? Here at Bankruptcy Guide we have years of experience providing debt advice and assisting people like you make the right financial decisions. Don’t hesitate a day longer. To resolve your debt problem, get in touch with us today.