subject: What Happens If My Circumstances Change While In A Debt Management Plan? [print this page] If your circumstances change while you are in a debt management plan, you can increase or decrease your monthly payments accordingly. However, reducing your monthly payments will significantly extend your debt repayment period.
A debt management plan (DMP) is an agreement with your unsecured creditors to reduce the amount you pay back each month to a sensible affordable amount.
A DMP offers benefits such as enabling you to ring fence payments to your priority debts such as your rent or mortgage and stops the need for borrowing from one creditor to pay another - robbing Peter to pay Paul.
Another of the major advantages of a debt management plan is flexibility.
Payments can increase or decrease
If your income falls while you are repaying your debt using a DMP, you can simply reduce the payments that you make to your creditors to compensate.
Of course there are some downsides to reducing your payments.
The most obvious is that it will take longer to repay your debt. In addition, there is a risk that your creditors may start to add interest and charges to your accounts once again while the reduced payments are been negotiated.
You should therefore always maintain your debt management payments where possible and if you have to reduce them for any reason, try to increase them again as soon as you can.
Save to settle debt
If the money you have available to repay your debt increases, one option is to simply pay more each month into your debt management plan. This will reduce the time it takes to pay off your debt overall.
However, an alternative course of action is to start a separate savings plan for the extra money you have.
If you are able to save a lump sum, you can use this to settle one or more of your debts.
By settling with one or more of your creditors (particularly the ones which continue to add interest) you will significantly reduce the amount of time it will take to pay back your total debt overall.
Alternatives to debt management
One of the downsides to a debt management plan is the length of time it takes for you to repay your debt.
Many people find that using a DMP means that paying their debt will take over ten years. If your income falls and you pay even less each month, the repayment period will be even longer.
For this reason, if you do choose to reduce your debt management plan payments, you should always try to increase them again as soon as possible.
If you are unable to do this or your repayment period seems impossibly long, it would be sensible to consider the alternatives to a DMP. The main alternative is an individual voluntary arrangement (IVA).
Using an IVA means that unpaid debt is automatically written off after five years giving you light at the end of the tunnel. However, if you do not have enough money each month to do an IVA, you could also consider bankruptcy which in many circumstances, is definitely not as bad as it sounds.
A debt management plan is suitable for many people who are struggling with debt because of the flexibility it offers. Monthly payments can increase and decrease depending on your circumstances.
However, you must always remember that if you reduce the amount that you pay into your plan, the debt repayment period will inevitable increase.
If your debts are large, this may mean that the DMP is no longer a realistic way or resolving your debt problem and you should investigate the alternatives such as IVA.
