Budgeting with a Debt Management Plan
Written by Will Lyon on 10 May 2019
What is a DMP?
A Debt Management Plan, or DMP for short, is an informal arrangement between you and your creditors. Although not a legally binding agreement, firms who set up Debt Management Plans need to be authorised and regulated by the Financial Conduct Authority. A DMP allows you to make one monthly payment to all your creditors, at a rate you can afford to pay. Generally speaking, a DMP is a debt solution that can be used to pay off most forms of non-priority unsecured debt. These include but are not limited to overdrafts, personal loans, store cards or credit card debt.
Why do I need budgeting with a DMP?
Budgeting is an essential part of any individual’s financial planning. In a Debt Management Plan, it’s even more important. This is down to a number of reasons.
Firstly, in a DMP the majority of your surplus monthly income needs to be directed towards paying off your debt. As such, it’s important to have a firm grasp of your other essential outgoings, your household bills or mortgage/rent for example. Furthermore, you may also have other priority debts outside of your DMP, such as mortgage repayments or loans secured on your home, so you’ll also need to plan for these.
Your DMP repayments will be set at a rate you can afford. The budget set for you will generally allow a figure for emergencies, car maintenance for example. However, these emergency payments often pile up; worsening the situation for those with debt trouble. Incorporating within your budget an emergency fund – small or large– will better prepare you for these situations.
How can I budget in a DMP?
There are many ways you can budgeting with a DMP work. One of which is to assess where you are financially. To do this, make a list of your total monthly income, including all extra benefits you may receive i.e. pension, savings, rental income. Then do the same but with your regular outgoing expenses, such as your rent or mortgage, energy/water bills etc.
Once you’ve listed all your outgoings you can identify which of them you would class as essential. Subtracting your essential outgoings away from your total income will leave you with your disposable income.
Your disposable income is what you will need to contribute towards your DMP. After you’ve done so, you may be left with what seems like a small amount. Budgeting is not all about spending less on unnecessary items however; it can also be making a little go a long way. You can do this by making savings on your essential expenditure.
There are many little things you can do to save money and make your budget go further. Carpooling to work for example can save you huge amounts in fuel per month. Furthermore, by taking public transport you can save on parking fees when entering busy cities, as well as doing your bit for the environment.
You may also find that paying for items such as your food shop in cash makes you more aware of what you’re spending. Furthermore, you may find you start to prioritise your shopping, and spend less on items you don’t need.
Benefits of budgeting with a DMP
Successfully budgeting will lead to many benefits, such as how it provides you with complete control over your financial situation. This is even more important in a DMP when your finances may be more restricted. Furthermore, having greater control over your money can relieve the strain of unexpected expenses should they crop up.
As previously mentioned, budgeting is not simply a case of spending less and saving more. It can also allow you to track your finances in other ways, such as monitoring your bills and subscriptions, such as your phone bills or gym memberships for example.
Keeping an eye on contracts due for renewal or expiration can remind you to look around for better deals. Moreover, doing so will make you think twice about whether you actually need the subscription, and the money you save monthly from cancelling can go towards your DMP.
What if I need to make changes to my plan?
We understand that sometimes income and living costs are subject to change. You may find if this happens that the budget you have set yourself in your DMP may be stretched too thin, and that you’re unable to cover the necessities.
In the event that you do need to reduce payments to your DMP, your creditors will most likely want to see a budget as proof that you’re paying as much towards your plan as you’re able to, so it’s always good to have one handy to present if needs be.
Conversely, you may find you come into some extra money. A bonus, or pay-rise for example. If this is the case, you should contribute as much of it towards your DMP as possible. Get in touch with your case adviser. You may be able to increase your payments, or even pay off your remaining debts with a full and final offer.
Are you unsure about budgeting with a DMP?
If you have any reservations about your DMP budget, don’t hesitate to get in touch. Our team of trained advisors will look over your case and if there’s anything that can be done to remedy the situation, rest assured it will be.
If you are experiencing debt problems and feel like a DMP could be the right solution for you, why not get in touch for free, impartial debt advice? You can contact our team of advisers via text, email or WhatsApp, or give us a call on 0800 280 2816.
As one of the UK’s most trusted debt management companies, we can give you the advice you need, and get you on track towards a debt free future.
Filed under Living in Debt