How long does a Debt Management Plan last?

When deciding which solution is the best fit for your debts, knowing how long it is likely to last can be a huge factor. How long debt solution lasts often depends on your individual circumstances, but there are factors which can help you predict its length.

In this guide we’ll examine the Debt Management Plan and explain what it is, how long it lasts, and the biggest factors that influence the length of the arrangement.

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What is a Debt Management Plan (DMP)?

A Debt Management Plan (DMP) is an informal arrangement that you can come to with your creditors – the people you owe money to – in order to repay your debts over time.

A DMP works by consolidating all your debts into one, affordable monthly payment which is sent to your creditors each month, and lasts as long as it takes for you to repay your debts.

As an informal agreement, a DMP is not legally-binding, which means creditors aren’t obliged to stop contacting you or freeze interest and charges on your debts during the arrangement. Although some creditors will be happy to accept those as terms of your DMP, it’s not a legal requirement.

What debts can be included in a Debt Management Plan?

Debt Management Plans are only for taking care of unsecured debts, meaning debts that aren’t secured against your home, your car, or another valuable asset.

The most common types of debt that are paid off using a DMP include:

• Credit card debt
• Store card debt
• Personal loans
• Overdrafts

If you do have secured debt, i.e. a mortgage on your home or a hire purchase agreement on your car, that will remain your responsibility to pay throughout the length of your Debt Management Plan.

How long does a Debt Management Plan last?

Put simply, it’s possible for DMPs can vary in length significantly. Although the average Debt Management Plan tends to last in the region of five to ten years, there is no strict payment term like there is for a debt solution like an  IVA or Trust Deed.

There are various factors that can influence the length of a Debt Management Plan, and we’ve listed some of the most important below.

Factors which affect the length of your DMP

Your Level of Debt

One of the biggest factors influencing the length of a DMP is how much debt you have. The more debt you have, the longer it will take to pay off. Higher levels of debt tend to lead to longer-lasting DMPs.

How much you can afford to pay

Your level of disposable income will also have an impact on the length of your DMP. If you could manage higher monthly debt repayments, you will usually clear your debt more quickly.

Whether creditors freeze Interest

Some creditors will agree to freeze interest and fees on your debts to help you pay them off. If they agree to do this, the length of your DMP can be significantly reduced. Bear in mind that creditors are not obligated to do this, though, and if they do it could prove temporary.

Whether you or your Creditors cancel the DMP

Because a DMP is not legally binding, both you and your creditors have the potential to stop it at any time. This could end up increasing the time it ultimately takes you to repay your debts.

Is there a way to estimate how long my DMP will last?

While there is no hard-and-fast rule for how long a Debt Management Plan will last, there is a way to use the information you have to make an educated guess about how long it might take you to settle your debts via a DMP.

If you are considering a DMP, you can work out roughly how long it will last using the following steps:

1. Work out your level of surplus income. Add up all of your essential monthly expenses, and subtract the total from your total income. You will be left with the maximum amount you could afford to pay into a DMP.
2. Work out your total level of unsecured debt.
3. Divide your total debt by your level of monthly disposable income. This will allow you to work out how many months your debts would take to clear, assuming your creditors agreed to freeze interest.

For example, if you had £4,000 of unsecured debt, and a surplus income of £55, you could expect a DMP to last for around six years. A DMP would likely be a suitable solution for this person.

With higher debt levels, though, a DMP might not be the best solution – especially if you had a relatively low level of disposable income. For instance, for a person with £12,000 of debt, and £70 of disposable income, a DMP would probably take 12 years or more. By comparison, an IVA would likely last five to six years.

Can I reduce the length of a Debt Management Plan?

Because the length of your DMP is largely based on your financial situation, the length of the arrangement isn’t set in stone. If your financial situation changes, the length of your payment term can change too.

Increasing your monthly payment

DMPs tend to be fairly flexible so, should your circumstances improve, you will be able to increase the amount you pay each month.

Conversely, if you can no longer afford your original payments, your creditors will usually be willing to allow you a break and might agree to lower payments in the future. Do bear in mind that the latter is likely to increase the length of the plan, though.

To learn more about how DMPs function, click here.

Where can I get help choosing the right debt solution?

When your debt problems are getting out of control and your creditors start hounding you for money, all you want is a payment plan that provides a roadmap out of debt.

At Creditfix, that’s what we do. As a leading UK debt management company, we offer free debt advice and financial guidance, as well as formal debt solutions that can put you back in control of your financial situation.