How much will my Debt Management Payments be
There are no minimum or maximum debt management payments. The amount you pay into a DMP will depend on your financial circumstances.
- How much will your debt management payments be
- What if you can only afford small payments?
- Do you have to pay all your disposable income into a DMP?
- Will you have to prove your income or expenses?
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How much will your Debt Management Payments be?
Your debt management payments are based on the money you have left after all of your living expenses are accounted for. This amount is called your surplus or disposable income.
To calculate your disposable income you deduct your total living expenses from your total income. For example if your income is £1300 a month and your living expenses are £1150 your disposable income is £150/mth: £1300 – £1150 = £150
It is vital that you add up all your living expenses correctly. You must include all the expenses you need to live on from your rent and food to car insurance and entertainment. Use our living expenses guide to help you put together your list.
When totalling your income you should use all sources of income including your wages, benefits and any other money you receive such as pension payments.
What if you can only afford small payments?
If your debt management payments are relatively small compared to the total debt you owe this does not stop you using a Debt Management Plan. Your creditors will accept low payments if this is truly all you can afford.
However in these circumstances the issue you face is that your Plan may last a very long time. If its projected length is more than 6 years it might be wise to consider whether an alternative solution would be better for you.
If your surplus income is very low your payments could be supported by a third party. It is perfectly acceptable for your partner or any other third party to give you money to help increase the payments into your DMP.
If you know your income will increase in the medium term starting a Plan with smaller payments is generally not an issue. It will give you a breathing space until you can increase your payments.
Do you have to pay all your Disposable Income into a DMP?
It is generally recommended that you make your debt management payments as high as possible. This will mean that your debts are repaid in the fastest time. However there may be an advantage to holding some money back.
One reason for doing this is so you can save a little each month. It is always useful to have some savings so that you can pay for financial emergencies if they occur.
Saving can also help you repay your debts faster. Once you have saved enough you could use the funds to settle one or more of your debts early.
If your creditors believe you are not paying as much as you can into your Plan they may not agree your payments. As such it may be best to pay as much as you can initially.
Do you have to prove your income or expenses to start a DMP?
If you want your creditors to agree your debt management payments you will always have to provide them with an income and expenditure statement. This shows how you have calculated what you can pay them.
Your creditors will review your living expenses budget. Given that your expenses fit within their acceptable guidelines they will normally be happy. It is unusual that they will require any written proof.
If you are using a debt management provider to manage your Plan they will normally ask you to prove your income and expenditure with bank statements and wage slips.
A DMP is not a legally binding agreement. As such you are not legally obliged to provide evidence of your income or expenses to your creditors. However if you do not it could influence their acceptance of your payments.
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