What is a Debt Relief Order and how does it work?
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'Disposable income' is the money you have left over after you've paid for everything you need. This is all you need to pay every month on a debt management plan.
If you're struggling with unsecured debts and your income doesn't cover your costs of living as well as your repayments, don't worry - there is help available.
Debt management is one way to deal with debt repayments that you cannot afford. You could qualify for debt management if you can't afford your agreed payments, but can still repay your debts within a reasonable amount of time.
On a debt management plan, you only spend as much as you can afford on your debts. We call this your 'disposable income'. People generally have to spend a major chunk of their income on their essential costs of living - so they can only afford to spend what's left over on unsecured debts like credit cards and loans.
Find out more about debt management plans here.
So your 'disposable income' is your income minus your essential expenditure. When you're in debt, you must pay for the things you need first, before repaying unsecured debts like credit cards or loans.
Unsecured debts are not the priority because you need enough money to live on - your debts are important, but putting food on the table and keeping a roof over your head are more important, and lenders understand this.
Under debt management, we ring-fence enough of your income for the essentials, and you repay lenders with what's left over. Essentials include your mortgage or rent, your food and water, heating, transport, and the cost of looking after your children.
Your lenders would need to be asked to accept lower repayments, because they don't have to let you. Some people might find this daunting, but there's no need to do it all on your own - negotiating with lenders is just part of what we do for people on a debt management plan with us.
Do I have to use all of my disposable income?
When we work out your disposable income, we make sure you keep enough back for the things you need to get by. Your disposable income does go to your lenders - and to pay for the costs of running your plan - but we make sure that that's an amount you can realistically afford.
Repayments on a debt management plan are also flexible enough to allow for unexpected events. If you ran into an unexpected cost, for example, your lenders might agree to even smaller payments for a while, or to let you skip a few payments if you just can't afford them. Just make sure you understand what the consequences would be before you agree to anything like this.
See more about debt management payments here.
Debt management can only work as long as it's affordable. We'd work with you to keep it at an affordable level and make sure that you only repay a realistic amount every month. If you'd like to find out more about how debt management could help, speak to us today for some expert debt advice.
by Emily BancroftBack to blog home