How long does a Debt Management Plan Last
It is relatively simple to estimate how long your debt management plan will last. However the time it takes to become debt free may increase or reduce for various reasons.
Included in this article:
- How to work out how long your DMP will last
- Will interest extend the length of the Plan?
- What other things could affect the Plan’s length?
- How can you reduce the time it takes to become debt free?
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How to work out how long your DMP will last
This is how to calculate the length of your Debt Management Plan. First add up the total amount of debt you will include in the Plan.
Next divide the total debt by the amount you will pay into the Plan each month. This will give you the total number of months that it will take you to repay what you owe.
Lastly to get the length of the Plan in years you need to divide the total number of months by 12. For example if your total debt is £12,000 and you will pay £130 a month the Plan will last for c8 years:
£12,000 divided by £130 = 92 months; 92 months divided by 12 = c8 years
The length of your DMP can only be estimated. The actual time it will last may increase or reduce depending on the amount you pay, interest charges and your personal circumstances.
Will Interest Charges affect how long a Debt Management Plan lasts?
Once a Debt Management Plan is place your creditors are under no legal obligation to freeze interest and charges. If they continue to add interest the amount you owe will increase. As a result your Plan will last longer.
Generally speaking creditors will freeze interest if they feel your living expenses budget is reasonable. This is because they believe you are paying as much as you can afford into the Plan.
If you are paying as much as you can afford but a creditor continues to add interest you may need to question whether the Plan is working for you. In these circumstances it might be best to consider a different debt solution.
What other things could affect how long a DMP will last
Most DMPs last for 5-10 years. As such one of the most common reasons for the length of the Plan to increase or reduce is a change in personal circumstances.
If your income increases this might mean you are able to increase your DMP payments. As such the time it lasts will reduce. However if you cannot maintain the payments and have to reduce them this will extend the length of the Plan.
Another reason why the length of your Plan may be extended is if you use a commercial debt management company to manage it. Their fee is deducted from your payment. This reduces the amount paid to your creditors and means it will take longer to repay your debt.
You can avoid paying debt management company fee by either setting up your own Plan or using a free debt management service.
How can you reduce the time it takes to become debt free?
One of the simplest ways to reduce the time it takes to complete your DMP is to increase your monthly payments. You might find you are in a position to do this if your income has improved or your living expenses fall.
If you have spare cash instead of increasing your Plan payment as a whole you could overpay one specific debt. Known as snowballing this allows you to pay off that debt faster than the others. It can be helpful if a particular creditor refuses to freeze interest.
Another way of paying your Plan faster is to settle debts early. You can do this at any time by offering a cash lump sum to your creditors in return for them writing off the remaining debt. You can choose to settle one debt at a time or all of them at once if you have sufficient cash.
If you have been in a DMP for 6 months or more your creditors may accept a cash lump sum of as little as 30% of what you owe to settle their debt.
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