How to pay a Debt Management Plan early
It is a good idea to pay off a Debt Management Plan early. There are a number of ways this can be achieved.
Included in this article:
- Why pay your Debt Management Plan early?
- Pay your Plan early by increasing your payments
- Use a cash lump sum to settle your debts
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Why would you pay your Debt Management Plan early?
A Debt Management Plan (DMP) only finishes when your debts are paid or settled in full. As such if you are paying a relatively small amount into it every month the agreement can last a very long time.
The problem is that this is demoralising. It can feel like you are paying each month but never getting any closer to becoming debt free. As a result you might consider giving up. Trying to pay off the Plan early will help overcome this.
It is also unlikely that your credit rating will start to improve until your debts are paid in full or settled. If you are thinking about getting a mortgage in the future you will first need to complete your Plan.
A DMP will last for as long as it takes you to pay or settle your debt in full. Based on monthly payments this could take a very long time.
Pay off your DMP early by increasing your payments
One way to pay off your DMP early is by increasing the amount you pay into it each month. If you do this your debts will be paid faster and your Plan will end sooner. Of course increasing your payments is not going to be easy.
You can try to do this by regularly reviewing your living expenses. See if you can make any savings which would allow higher payments. Of course if your income improves you can more easily increase the amount you pay.
If you are able to make extra money available simply increasing your Plan payment may not the best option. Instead you could use a process called snowballing. Concentrate on overpaying one debt. When this is paid move to the next.
Snowballing can be a useful way to pay off a DMP early. You will feel good each time one of your debts is paid off. You can also use it to target difficult creditors who may still be adding interest.
Use a lump sum to settle your DMP debts
It is possible to pay off your DMP early using a cash lump sum. Your creditors will often be willing to accept a one off cash payment and in return write off the balance of the debt.
If you have been in your Plan for 6-12 months creditors will often accept a lump sum of just 50% of the outstanding balance. Depending on the circumstances they might accept less than this. Perhaps as little as 30%.
If you are able to earn extra income you could save the money required to make settlement offers. Alternatively you could use a cash windfall you have received such as a compensation payment or borrow from a family member or friend.
As and when you have available cash lump sums you can settle your debts one at a time. Those remaining will also be paid off faster.
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