Start Debt Management Plan Yourself
Because it is an informal agreement with your creditors there is nothing to stop you setting up and running a Debt Management Plan yourself. You are allowed to negotiate directly with your creditors and manage the ongoing payments on your own if you wish. Before starting your Plan it is important to understand that it will normally take significant time and effort. However if you are organised and prepared to stand your ground with your creditors there is no reason it should not work very well. There are a number of steps you will need to undertake to set up your Plan.
Step 1. 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. It should also show the amount you can afford to pay into the Plan each month.
You calculate what you pay into your Plan by deducting your total living expenses from your total income. The figure you are left with is called your surplus (or disposable) income. You then have to divide this between the creditors you want to include in the Plan. This is done on a pro-rata basis. In other words each is paid a percentage of your surplus income equal to the percentage of the total debt in the Plan that they are owed.
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. This ensures that all creditors in your plan are treated fairly and paid off at the same rate. This is very important. If they are not treated fairly they will be less likely to accept your reduced payment offer.
Step 2. 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 in the Plan. In this situation if you continue to use your account with them they can take money out 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.
DM4U Tip: Opening a new bank account to protect your income from set off is an absolutely standard procedure and it is relatively simply to do. You just need to ensure that you chose a new bank that is totally unrelated to any of the debts you want to include in your plan.
Step 3. Negotiate reduced payments with your creditors
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.
DM4U tip: 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 be tempted to give in to the demands of any creditor who asks you to pay more. This will mean that you will not be able to afford to maintain the payments to all of the creditors and your plan will be at risk of failure.
Step 4. Start making your Debt Management payments straight away
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 must not to wait for your creditors to agree your payment proposals. Paying straight away shows that you are committed to your Plan and that you are able to afford the payments.
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.
DM4U Tip: 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.
Step 5. 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 every six months and will be interested to hear if you can increase the payments you are making.
Every 6 months you should send then a revised version of your financial statement. If your situation has not changed you should still send them an updated copy even though the figures are the same. If 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.
DM4U tip: If your ability to pay your debts changes either up or down while you are managing a Debt Management Plan yourself you should take the opportunity to review whether this type of debt solution is still the correct one for you. You should take advice from us if you are unsure.
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