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 a Debt Management Plan (DMP) lasts will depend on your individual circumstances, but there are factors which can help you predict its length.
Debt Management Plans Vary in length
DMPs can vary in length significantly, but tend to be in the region of five to ten years. If you think that clearing your debts would take longer than this, with reduced monthly payments, a DMP might not be the best solution for you. You might consider instead a solution which allows you to write off a proportion of your debt, such as an IVA or Trust Deed. Factors which affect the length of your DMP include:
- Your Level of Debt
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 payments, 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.
Working out an Estimate
If you are considering a DMP, you can work out an estimate how long it will last using the following method:
- 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.
- Work out your total level of unsecured debt.
- 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. For comparison, IVAs last for five to six years.
Reducing the Length of a Debt Management Plan
The simplest way to reduce the length of a DMP is to increase your payments. 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.
For more information about DMPs, and whether one could be the right solution for you, speak to a Creditfix advisor today by calling 0808 2085 198.