Can I start a Debt Management Plan on benefits
If you receive benefits you can start a Debt Management Plan. However you must be able to pay a reasonable amount towards your debt each month
Included in this article:
- Are you allowed to start a DMP if you are on benefits?
- What if your benefits fall during the plan?
- Is a DMP the best solution on a low income?
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Are you allowed to start a DMP if you are on benefits?
The source of your income is not relevant if you want to start a debt management plan (DMP). You can use this solution where part or even all of your income is made up of benefits.
However you will need to think carefully about how much you can afford to pay towards your debts each month. Your income (from benefits and any other sources) must be sufficient to cover all your living expenses with enough spare each month to make a reasonable payment into the Plan.
You can work out how much you can pay by deducting your total living expenses from your total monthly income. The amount left over is known as your disposable income. Ideally this figure should be at least £100/mth.
If you receive benefits your income may be relatively low. Before starting a DMP you must ensure you can make a reasonable payment towards your debt.
What if your benefits fall during the Plan?
If your income falls because your benefits are cut you may struggle to maintain your DMP payments. In these circumstances you might be able to reduce them. You will need to discuss the situation with the organisation managing your Plan.
Where it is possible to reduce your payments, remember that by doing so it will take even longer to repay your debt. As such you should also review whether it is still the best debt solution for you.
If your benefits reduce to a point where you can no longer afford to make any payments into your plan, you will need a different solution. If you have no assets bankruptcy or a Debt Relief Order are sensible options. These will not require you to make any ongoing monthly payments at all.
Where your benefits have been cut because your wages have increased, your total income may stay the same. In these circumstances you might be able to maintain your DMP payments.
Is a DMP the best solution if you are on a low income?
One of the key problems with a DMP is you have to repay all the money you owe. Non is automatically written off. Because of this if the only monthly payments you can afford are low, the Plan could last a very long time.
Where you are facing the prospect of having to make payments for more than 5 years you should also consider the other options. If you are a home owner an IVA might help you become debt free more quickly.
Where you have no assets bankruptcy may well be a better option. Where your only income is benefits you will not have to make any further payments towards your debts. After 1 year your debt will be written off.
If you are already in a DMP you can stop it at any time. You can then switch to a different solution if you feel it would be better for you.
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