Start a Debt Management Plan
If you want to start a Debt Management Plan there are a number of steps you will need to follow. This article takes you through them one by one.
Included in this article:
- Complete your Financial Statement
- Agree reduced debt payments
- Maintain your agreed payments
- Review your financial circumstances regularly
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Complete your Financial Statement
To start a Debt Management Plan you will first need to put together a financial statement. This is often called a statement of affairs. It is a summary of your financial situation.
The most important part of the statement is your monthly income and living expenses budget. You need to list all your forms of income for example wages and any benefits you get. You also need to complete a living expenses budget.
For a complete list of the expenses you are allowed to include in your budget, download a copy of our free living expenses guide.
The document also needs to include a list of your unsecured creditors and what you owe to each of them. These are the debts you will include in your Plan.
At this stage you need to decide whether you will need to open a new bank account. You will usually have to do this if your current bank is one of the creditors you are going to include in your Plan.
Agree reduced debt payments with your Creditors
Once you have listed your income and expenses you can work out what you can afford to pay into your Plan each month. To do this deduct your total monthly expenses from your total income. The surplus income (also known as disposable income) you are left with is the amount you can pay in.
Each creditor included in the Plan must then be offered a fair share of your surplus. This is achieved by dividing it up on a pro rata basis. In other words if one creditor is owed 10% of your total debt they must be offered 10% of your surplus. The amount each will get is shown clearly so they can all see they are being treated fairly.
A copy of your financial statement and proposal of payment is then sent to each of the creditors. Some may accept the reduced payment offer without any further comment. Others may want to argue for higher payments.
It will normally take around three months to agree a debt management plan with all your creditors. Once they agree they will usually stop adding further interest and charges to your accounts.
Maintain your payments as agreed
Start making the proposed payments to your creditors as soon as you send them your offer. Don’t wait for them to agree to it. Some will not agree until they can actually see evidence that you can maintain the payments that you have proposed.
Continue paying to each creditor even if one or more of them refuses the offer. Be very careful about agree to paying them more. If you have calculated what you can afford to pay correctly, you are not in a position to offer them more money as you simply do not have it.
Once you start your Plan it is very important that you keep paying it on time every month. If you miss payments or pay at different times your creditors may continue to chase you and will not freeze their interest charges.
Need help negotiating with your creditors or want to make a single payment into your plan each month? Give us a call (0800 044 5407) or complete the form below.
Review your financial circumstances regularly
After you start a Debt Management Plan will must regularly review your financial circumstances. It is normal to do this once a year on the anniversary of the start date.
You will need to resubmit your financial statement to each of your creditors. Where your circumstances have changed the differences should be highlighted in your revised income and expenses budget.
If your situation has improved you may be able to pay more into your Plan. You are not legally obliged to do this but it will mean your debts are paid faster. If your circumstances have become worse you may need to negotiate a further reduction of your payments or consider using a different solution.
Most of your creditors will require a review of your Plan at least once a year. You must send them an up to date version of your financial statement even if nothing has changed.
Government Advice about Dealing with Debt
As well as the information found on this website the Government’s Insolvency Service has produced a useful guide to personal debt solutions which you might also find useful: “Options for paying off your debts“.
The Money Advice Service (MAS) are an independent service set up by the Government to provide people with free advice about all aspects of personal finances. For help from MAS if you are struggling with debt please follow this link: MAS – Help if you are struggling with debt.
It is also recommended that you read this one page document produced by MAS entitled “Dealing with debt – 5 things you should know”.
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