How long does a debt management plan last?
A debt management plan (DMP) can help you get back on track with your debt repayments. It’s an informal agreement, so you can leave anytime. However, many people find it to be an effective solution if they have been struggling with making repayments to multiple creditors and keeping track of what they owe.
How to set up a debt management plan
You can either set up a debt management plan yourself – talking directly to creditors to negotiate the terms – or work with a debt management company such as PayPlan who can set up the arrangement on your behalf.
Your income and outgoings will be reviewed to work out what you can comfortably repay each month. This amount is then divided among your creditors. It’s important you are realistic about how much you can afford each month but that you also suggest an amount that is going to make a dent in what you owe. A debt management company can help you work this out.
How long does a DMP last?
There is no set time for a debt management plan to last. It will simply go on for as long as it takes you to pay off your debts. You can reduce the length of time by increasing your repayments but if circumstances change then the time it takes to complete can be increased.
How to reduce the length of your debt management plan
You can reduce the length of time it takes to complete your debt management plan simply by increasing the amount you put into it each month. If your income increases or a significant amount of money is freed up each month, this can be put towards increasing the monthly repayment and paying off what you owe quicker.
Selling high-value vehicles or personal possessions can also free up money to put towards the debts, reducing the amount you owe and therefore the amount of time it will take to complete the debt management plan.
You could also ask your creditors to freeze the interest or charges on your debts, to avoid the amount you owe going up significantly. Some may oblige, but not all.
What if your creditors won’t freeze interest on your debts?
Interest charges can increase the amount of time it takes to complete a debt management plan. You can ask your creditors to freeze the interest on what you owe but they may not agree to this. This means you will need to factor in how much interest will be added to what you owe to determine how long your debt management plan lasts.
How to work out how long your debt management plan will last
It’s easy to work out how long a proposed debt management plan will last and it’s a good idea to do these calculations before you enter into an agreement to avoid issues later down the line. Bear in mind this will be an estimation, as your personal circumstances can change, affecting your payments and the length of the plan.Here’s how to work out how long it may last:
- Add up the total amount of debts you are including in your debt management plan.
- Divide the total amount of debt by how much you want to pay into the plan each month – this will give you a number that tells you how many months it will take to complete the plan.
- Finally, divide this number by 12 to work out how many years it will take to pay off your debts.
Here is an example:
You owe £5,000 and want to pay £100 into your debt management plan each month
5,000 ÷ 100 = 50 months
50 ÷ 12 = 4.16
This means, with this debt management plan in place, it will take just over four years to pay off the £5,000 debt that is owed.
What debts can you include in a debt management plan?
Most unsecured debts can be covered by a debt management plan, including payday loans, personal loans and catalogue repayments. However, secured credit products, such as mortgages, utility bills and car finance, cannot be paid off via a debt management plan. This is something worth noting before you try to set one up.
If you need help when it comes to setting up a debt management plan or want to know more about how long one lasts then get in touch with one of our team of experts here at PayPlan who offer free impartial advice.
Give them a call on 0800 280 2816, get in touch via our live chat service or fill in our contact form to receive a free callback.