How to work out your debt management plan payment
Your DMP payment should be based on your surplus income. This is the affordable amount left over after allowing for all of your reasonable living expenses.
Included in this article:
- How to calculate your monthly DMP payment
- How is the payment split between each creditor?
- What information do you give to each creditor?
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How to calculate your monthly debt management plan payment
The most important step to implementing a successful debt management plan is to work out what you can afford to pay into it every month. This is known as your surplus income (or disposable income).
To achieve this, you first need to complete an income and expenses budget.
The budget must include all your different sources of income (wages, benefits and any others). It also needs a list all your different living expenses. You must ensure the expenses figures you put down are reasonable.
You can then calculate your surplus income by deducting your total expenses from your total income.
If your total income is £1700/mth and your total expenses are £1550, your surplus will be £150 (£1700 less £1550).
How is your DMP payment split between each Creditor?
Each of your creditors must be offered a fair portion of your surplus income.
To work out how much this is you need to divide the surplus on a pro rata basis. In other words each creditor receives a percentage of your disposable income relative to the percentage of the total debt that they are owed.
For example, if one creditor is owed 50% of the total debt they must be offered 50% of your surplus income figure.
The pro rata system ensures each creditor in your DMP is treated fairly. Each debt is paid off at the same time. No one creditor is paid any faster than the rest.
It is possible to pay off one creditor more quickly than others. However this is normally done by offering an early settlement after the Plan is has been running for at least 6 months.
What information do you give to each creditor?
The payment offer to each of your creditors should highlight a number of things.
Each needs to be shown the total amount you are able to pay into your plan (your surplus income). A copy of your income and expenses budget must be enclosed to back this up.
Then all the creditors included in the Plan should be listed showing what each is owed and how much of the monthly payment they will be offered. This ensures they all know that you have multiple debts and each is being treated fairly compared to the others.
If this process is followed, your creditors should accept your reduced payment proposals. In addition they should agree to freezing interest on your accounts. This is not guaranteed but most banking creditors will assist in this way.
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