Settle a Debt Management Plan Early
You can reduce the time it takes to pay your Debt Management Plan (DMP) if you settle your debts early. Debt settlement can be achieved by offering a cash lump sum to your creditors in return for them writing off the remainder of your balance. Depending on the circumstances your creditors may well be prepared to accept far less than what you owe if it is paid as one lump sum.
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How much cash do you have to offer to settle debts early?
The obvious question when you are considering settling your Debt early is how much cash will you need to offer each creditor? There is no easy answer to this. As a rule of thumb they will generally accept an offer equal to 50% of the amount you owe. However in certain circumstances it may be possible to agree a settlement for less than this.
The timing of your settlement offer is important. The longer you have been paying your Debt Management Plan the more likely it is that your creditors will accept a lower cash settlement. However if you have been paying for at least 6 months your creditors will normally then be open to settlement offers.
DM4U Tip: Ideally you need to pay your Plan for at least six months before making settlement offers to any of your creditors. By this time your account should have been moved under the management of the bank’s debt collection department. It is this department which has the authority to make settlement agreements.
Can you choose which debts to settle early?
Because a Debt Management Plan is an informal agreement there are no rules on how you should go about settling any of the included debts. There is nothing to stop you settling just one of the debts if you want to. You can then continue to pay the others as normal within the Plan.
This can be extremely useful as it means that you do not have to have enough money to settle all your creditors at once. You can choose to settle the most problematic debts first. You may have a particular creditor which is refusing to freeze interest. If you settle this debt early this problem goes away.
DM4U Tip: If your Debt Management Plan is managed by a free service provider they may tell you that it is not possible to settle your creditors one at a time. They might say that this would be treating the rest unfairly and so must not be done. This is incorrect. It is certainly possible to settle your debts one at a time. In fact your remaining creditors will also benefit. They will start to receive a larger share of the Plan payment meaning that they will also be paid off faster.
How can you get the cash together to settle your debt?
Given that you will need to offer up to 50% of the outstanding balance as a settlement offer you may think that you will never be able to get this money together. However there are a number of ways to do this which you may not have thought about.
The first option is to save the cash you need. If you are currently paying as much as you can into a Debt Management Plan the idea of trying to save any money each month might seem impossible. However you might be able to put aside just a small amount from your monthly living expenditures. Alternatively if you receive any bonus or overtime payments this extra money does not have to be paid into your Plan. Instead you can save it towards making lump sum settlement offers.
The other option is to borrow the money you need. If you are able to borrow a lump sum from family or friends then this is a very good way of raising the funds to make early settlement offers to your creditors. Remember you will normally only have to borrow 50% or less of the outstanding debt you want to settle.
DM4U Tip: Because you can settle just one debt at a time you might only need to save or borrow a few hundred pounds. This may then allow you to get started with settling one of your smaller debts.
Is it possible to Re-Mortgage your Home to settle a Debt Management Plan early?
If you are a home owner you might have the option of release equity from your property to settle your Debt early. During the Credit Crunch re-mortgaging was severely limited. However times have now moved on. It is unlikely that your current mortgage lender will be willing to help you due to your poor credit rating. However there are other lenders who will be prepared to consider you.
If you are thinking about re-mortgaging you should always bear in mind that releasing equity from your property will mean that your monthly payments will also go up. However if the result is that all of your unsecured debts are settled and your Plan is completed it may well be worth it.
DM4U Tip: Remember you will not need to repay 100% of your Debt management Plan debt. Releasing equity to offer settlements of 50% or less of what you owe will normally be sufficient to achieve settlements with your unsecured creditors.
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