How to Pay Off 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 acheieved.
- Why pay off your Debt Management Plan early?
- Pay off your Plan early by increasing your payments
- Use a cash lump sum to settle your debts
- Consider an alternative debt solution
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Why pay off 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 important to pay off your DMP as quickly as you can. If you can see your debt balances are reducing you are far more likely to stick with the arrangement.
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 at least 6 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%.
You do not have to offer to settle all your debts in one go. Ultimately the plan is an informal agreement. As such if you only have a small amount of cash available you can settle one at a time if you wish.
Settling your debts one at a time means that those remaining will also be paid faster. This is because each will receive a higher percentage of the money you continue to pay into your Plan.
Where can you get a lump sum to pay off your DMP early
The option to settle DMP debts early is clearly appealing. It could save you a lot of money and mean you pay off your Plan a lot faster. However the question is always going to be where to get the required cash.
One option is to try and save. Instead of using any extra money you have to increase your debt payments put it to one side. After a while you may have sufficient to settle at least one of your debts.
You could also borrow from friends or family. They might be willing to lend you money if they understand it will help you write off some of your debt and pay off your Plan earlier.
You might receive a windfall. If you receive a compensation or redundancy payment you may be able to settle all of your debt with this cash.
Consider an alternative Debt Solution
You may have no opportunity to pay off your DMP early. Increasing your payments may be impossible and cash lumps sums are simply not available. Where this is the case you could consider using a different debt solution.
One option is an Individual Voluntary Arrangement (IVA). This allows you to make payments towards your debts for just 5-6 years. After this any outstanding debt is likely to be written off.
If you have a lump sum negotiating with each individual creditor can be difficult. Instead you could offer a lump sum IVA. This solution could allow you to settle your debt in full. It may be possible to do this for less than 30% of what you owe.
If you are not a home owner you should also consider the options of a Debt Relief Order and Bankruptcy. These solutions will allow you to write off your debt without having to make any further monthly payments if you cannot afford to do so.
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