A Debt Management Plan is one of the most common ways to get out of debt in the UK. But how long does a Debt Management Plan last, and what else do you need to know? In this guide, I reveal how long some Debt Management Plans can last, eligibility for a debt management plan, and other key facts about these debt solutions.
What Is a Debt Management Plan?
When you receive a debt letter asking you to pay the amount you owe, you might also notice that your debt letter asks you to get in touch and arrange a repayment schedule if you can’t pay the full amount.
In this situation, the company chasing you for money is offering you to negotiate a Debt Management Plan, i.e., a way to pay back the money over time in monthly instalments. The Debt Management Plan might include additional fees and interest payments.
How Long Does a Debt Management Plan Last?
A Debt Management Plan can last from a few months all the way up to ten or more years. How long a Debt Management Plan lasts will be determined by a number of factors. You should also be aware that long-term Debt Management Plans are usually not a good option, and there are better debt solutions to use which will save you money.
What Influences the Length of a DMP?
There are a number of factors that will influence how long a Debt Management Plan will last. The most obvious ones are the size of your debt and how much disposable income you have to put towards paying the debt off each month. Bigger debts may take longer to pay off, but it is all relative to each debtor, depending on how much money they can afford to repay monthly.
Other factors that will influence how long it takes to pay debts with a Debt Management Plan are the amount of interest being added (if any) and if there are additional admin costs to pay. If you use a third party to arrange a Debt Management Plan for you, they will likely want a percentage of your payments as well.
Of course, the total amount of unsecured debts you have included within your debt management plan will be important in determining its length.
This is because in most formal debt relief solutions such as debt relief orders and individual voluntary arrangements, some or all of your debts are written off.
When it comes to debt management plans, you are usually required to repay the entirety of your debt. Due to this, your debt can largely affect how long your debt management plan is.
In IVAs, for example, it doesnt usually matter how much debt you have. You make payments according to how much you can afford for the first five years and have complied completely with the IVAs terms; the rest of your debt is written off. This isnt the case with debt management plans.
The Monthly Repayments You Make
Of course, the amount of money you pay will largely affect how soon your debts get paid off.
Please note that you will never be required to pay more in your debt repayments than you can afford.
Hence, depending on what you can afford, the length of your debt management plan might be extremely long or quite short (or somewhere in between).
If you can afford to pay a relatively large amount of money in a single monthly payment, then youll find that your debt management plan will come to an end much quicker.
If you can only afford to pay a relatively smaller amount of money, you will find that your debt management plan might not be ending soon.
Its also important to note that priority and/or secured debts cannot be included within DMPs. This means you will have to handle them separately from your DMP.
In your DMPs payment offer, the payments made to these priority debts will be termed essential expenses.
Thus, if you have a combination of secured and unsecured debts, most of which are the former, you will have to set aside money for that first.
Due to this, youll find that you may have a lot less money to pay towards your DMP.
Hence, if you have a lot of priority debts and fewer unsecured debts, your DMP might last longer than if you had only unsecured debts and no unsecured/priority debts.
Whether Interest and Charges Get Frozen or Not
When entering a DMP, your creditors might freeze interest and charges.
Its important to note that while most creditors freeze interest and charges, they are not obligated to do so.
As you can probably tell, your DMP will finish much earlier if your creditors choose to freeze your interest and charges.
On the other hand, if your creditors dont freeze your interest and charges, your debt will keep increasing, and youll have to stay on top of your debt payments to ensure you dont get stuck in persistent debt.
Of course, having interest charges on your debt(s) is going to increase the length of your DMP by a significant amount.
You may find that some creditors might agree to freeze charges, whereas some may not.
This can definitely complicate matters. I highly suggest that you contact your DMP provider for more debt advice in such a case to get a more accurate estimate of when your debt management plan will end. Your DMP provider might be a single individual or a debt management company.
You can also seek debt advice from independent charities such as Stepchange or Payplan, who will help you weigh the pros and cons of a Debt Management Plan.
How do I Estimate My DMPs Duration?
To determine your DMPs duration, first determine your
- Surplus income. Your surplus income is the money you have left after youve attended to living costs, essential expenses and priority debts.
- The total amount of unsecured debt.
Calculation
Once both these values are calculated, divide the total amount of unsecured debt by your surplus income.
The number you get will be approximately how long it will take to completely repay your debts (assuming that you dont miss any monthly payments and that your creditors have agreed to freeze interest).
Can I Pay My Debt Off Early on a DMP?
If you are already on a Debt Management Plan, you might find that your financial situation has improved, and you want it to end sooner. This is usually possible if you pay off the debt. But before you agree to pay off the remaining balance, it might be wise to investigate a debt settlement offer.
A debt settlement offer is an offer to pay the debt off in one payment, but it doesnt necessarily mean paying off everything you owe. Some people get DMP early settlement offers accepted by only offering 75% of the outstanding balance.
Similarly, if your financial circumstances change for the worse, you might need to renegotiate the terms of your Debt Management Plan. This might mean you pay less each month but have to pay for longer and pay other fees for longer.
Other Common Questions About DMPs
How long does a Debt Management Plan last? This a common question I hear, but there are many other frequently asked questions you probably want the answer to as well…
Is a Debt Management Plan Just for One Debt?
It doesnt have to be. You can use it just for one debt, and you will have to if you only have one debt, but it can be used for multiple debts if all creditors come on board with the terms. In fact, some creditors like it if more than one debt is covered under the plan because it means everyone is treated fairly.
Is a Debt Management Plan a Formal Debt Solution?
No, a Debt Management Plan is an informal debt solution, which means it has no legal substance, and nobody is made to keep to the terms. But creditors and debtors rarely change their minds if everything goes as planned and payments are made on time.
Where Can I Get a Debt Management Plan?
A Debt Management Plan is an agreement between yourself and your creditor (or collection agency), but sometimes third parties can agree on the plan for you. For example, debt charities and debt management companies may offer services to get you a Debt Management Plan.
How Much Does a Debt Management Plan Cost?
If you use a service from a debt management company or accountancy firm, they will charge you for their help. The fees can range from a couple of pounds to nearly £100 monthly. However, sometimes they can get you a better deal than you would get yourself ‚Äì sometimes!
Are There Any Free Debt Management Plans?
If you arrange the Debt Management Plan directly yourself, then you can avoid any commercial services and will not have to pay fees. This is the only debt solution you can fully apply for and secure yourself.
What If I Am Too Scared to Call and Ask?
Some people are too afraid to call their creditors and ask for a Debt Management Plan UK or dont trust their own negotiating skills. In these cases, you should use debt management companies UK or speak with a debt charity who may do it for you for free!
Is a Long-Term Debt Management Plan Worth It?
Earlier, we said that a Debt Management Plan UK can last as many as ten years and more. It is likely a bad idea if your Debt Management Plan lasts many years. Thats because other debt solutions can work better. For example, an IVA lasts five years but wipes off over half your debt! Look into DMP vs IVA.
What are the alternatives to a DMP?
As we mentioned above, there is an IVA to a solution to a DMP or a debt relief order. Getting impartial advice from reputable debt charities before committing to anything is important.
Where Can I Learn More About DMPs?
MoneyNerd has published a friendly Debt Management Plan guide for anyone considering this avenue out of debt. Check it out now to understand more about one of the UKs best debt solutions!
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