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Start a debt management plan yourself

Start a debt management plan yourself

There is nothing to stop you setting up and running a debt management plan yourself. There are a number of steps you will need to undertake.

Included in this article:

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Prepare your Financial Statement

Before you can start negotiating reduced payment with each of your creditors you first need to prepare a financial statement. This should include a list of your household income, reasonable living expenses and all of the creditors you intend to include in the plan.

Your financial statement will also highlight the amount you can afford to pay into the Plan in total each month. This is calculated by deducting your total living expenses from your total income. The figure you are left with is called your surplus (or disposable) income.

You divide the surplus between the creditors you want to include in the Plan. This is done on a pro-rata basis. For example if the debt you owe to one of your creditors is equal to 25% of the total debt in your Plan you must offer them 25% of your surplus income.

When you use a Debt Management Plan all your creditors are treated fairly and paid off at the same rate. None are treated preferentially to any other.

Open a new bank account

If you are planning to start a Debt Management Plan yourself then you need to remember that you may need to open a new bank account. This is particularly important if you intend to include debts owed to your current bank.

If you continue to use your account with a bank where you owe money they can take money without your authority to make up any payments you have missed.

Banks are allowed to do this based on a rule called set off. The only way to protect against set off is to ensure that any income you receive from now on is paid into a bank account which is not related to any of the debts in your Plan.

Opening a new bank account to protect your income from set off is an absolutely standard procedure and it is simple to do.

Agree your reduced payments

You should start negotiations with each of your creditors by first posting or e-mailing a copy of your financial statement and reduced payment offer to them. If you are using the post make sure you send your letter recorded delivery so you have a record that it was received.

Your creditors will want to review your income and living expenditures to confirm that you are making your best effort to pay as much as you can each month. They will also want to check that they are all being paid a fair share of your disposable income.

Negotiating a Debt Management Plan yourself will take time. It will normally take up to three months and sometimes longer to get a reduced payment agreement for each of your debts.

Do not give in to any creditor who asks you to pay more than you can afford. This will mean that you will not be to maintain payments to the other creditors and your plan will fail.

Maintain your payments

As soon as you have sent your payment offer to each of your creditors you should start making your proposed monthly payment to each of them as soon as possible. You should not to wait for your creditors to agree your payment proposals.

Some of your creditors may not actually formally agree your Plan until they can see that you have started to regularly pay them the amount you have proposed.

Make sure that you pay each creditor on time and at the same time every month. If your payments are erratic or irregular your creditors may find it difficult to agree your Plan and may continue to add interest or even restart their collection procedures against you.

Starting to make your reduced payments straight away shows that you are committed to your Plan and that your creditors can trust what you say.

Review your financial situation regularly

If you start a Debt Management Plan yourself you need to remember to provide each creditor with a periodic update about your financial situation. Normally they will want an update at least every 12 months.

On the anniversary of the start date you should send them an updated version of your financial statement. If your situation has not changed you must still send them an updated copy even though the figures are the same.

Where your ability to pay has changed you need to explain what the payment will change to supported with the relevant changes to your income and living expenses.

When you review your Plan take the opportunity to review whether it is still the best solution for you. Contact us for more advice if you are unsure.

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