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How long does a Debt Management Plan Last

How long does a Debt Management Plan Last

Typically, most debt management plans last for 5-10 years. However, there is no standard length. It will depend on the amount of debt you owe and what you can afford to pay each month.

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How to work out how long your DMP will last

A debt management plan (DMP) will last until either you have paid all your debt in full or come to settlement agreements with each of your creditors. How long your agreement will last therefore depends on the amount you owe and how much you can repay each month.

With this in mind, you can calculate how long your Plan is likely to go on for in the following way:

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

Most debt management plans last 5-10 years. If you have worked out that yours will last longer than this, you should consider whether alternative solutions might be more suitable.

Will interest affect how long a debt management plan lasts?

Once a Debt Management Plan is place your creditors are under no obligation to freeze interest and charges. If they continue to add interest, your Plan will take far longer to repay.

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, there are some options you can consider.

If you are able to earn more, you can increase the amount you pay this account so it is repaid faster. Alternatively you could settle the debt with a lump sum payment.

Additional interest will significantly increase the length of your DMP. The fact that interest is not automatically stopped is a significant disadvantage of this solution.

Other things that will affect the length of your Plan

One of the most common reasons for the length of a debt management 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.

Want help deciding if a DMP is right for you? Give us a call (0800 044 5407) or complete the form below. The advice is free and confidential.

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