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How are Creditors repaid in a DMP?

A Debt Management Plan (DMP) allows you to reduce the payments you make to your creditors. You still have to repay what you owe in full. The rate of repayment is dependent on your Surplus Income. This is divided between the creditors Pro Rata.

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How much are Creditors repaid in a Debt Management Plan?

The basic fundamental of a Debt management Plan is that you still have to pay back all the debt that you owe. However the payments you make each month are reduced to an amount you can afford.

Your payments are based on your surplus income (also known as disposable income). Surplus income is the amount that you have left over from your income each month after all of your reasonable living expenses have been budgeted for.

DM4U Tip: Your creditors will normally agree your reduced payments if they can clearly see that you are making your best effort to pay as much as you can.

How is your Monthly Payment divided between your Creditors?

Each of the creditors included in your DMP is paid a fair share of your monthly payment. This is calculated on a Pro Rata basis. In other words they are paid proportionally dependent on the amount of debt they are owed.

For example you may owe one creditor £5000 but the total amount of debt you owe all of them is £20,000. As such that creditor is owed 25% of the total debt. They will be therefore paid 25% of your surplus income each month.

DM4U Tip: The Pre Rata method of repaying creditors means that they are all paid back over the same time period. Non is paid back faster than the others. They are are all treated fairly and equally. This is another reason why they will accept reduced payment proposals.

Can Creditors be repaid early during a Debt Management Plan?

A Debt Management Plan is not a legally binding debt solution. As such there are no legal rules regarding when and how you should repay your creditors. This means that you can repay one or more of them early if you want.

It is possible to simply pay one creditor more money each month so they are repaid sooner than the others. This is known as snowballing. However the money for this would have to be found from outside the standard Plan payment.

Early repayment of one or more of your creditors during a DMP can also achieved by offering a cash lump sum to settle the debt. This can significantly reduce the time that your Plan lasts overall. The money that was being paid to the settled creditor can now be shared out amongst the others thus repaying what they are owed faster.

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