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Living on a debt solution

How to manage your budget on a Debt Management Plan

Posted 01 August 2016

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Learn how to manage your budget if you have a DMP.

If you’ve spoken to a professional debt advisor and they’ve advised that a Debt Management Plan (DMP) is right for you, it’s really good to have a plan in place to tackle your debts. In the right circumstances, a DMP can really help you manage your repayments and get on firmer financial footing. 

You might have heard that you need to stick to a budget while you’re on a DMP and maybe you’re not sure what this means exactly. How will a DMP affect how you manage your money? 

In this blog, we’re going to explain the effect a DMP will have on your month-to-month finances and how best to manage your budget while the plan is ongoing.

What’s a DMP?

A Debt Management Plan (DMP) is an informal arrangement with your creditors to pay back your unsecured debts at a rate that’s affordable for you. 

If your creditors agree, your payments will come down and they also freeze interest and charges on your debts in most cases. 

It may take you longer to repay your debts overall, but you won’t be struggling month-to-month. 

There are other debt solutions available that work differently – you need to speak to a debt advisor to find out which one is best. You can use the options on the left to do this or seek help from the Money Advice Service. 

Managing your budget

When you start a Debt Management Plan (DMP), you will put a budget together with a debt advisor. They will make a note of everything and send out a copy to you for your own records. 

When you’re managing your budget on the plan, you can always refer to this so you know how much money you’ve allowed yourself to spend on each area. 

If a DMP is right for you, you should find that it’s much easier to manage your budget than before because your unsecured debt repayments will decrease to an affordable amount. You’ll be able to repay all your debts and afford life’s essentials as well.

Find my solution

We’ll work out your income and expenditure

When you speak to one of our debt advisors to set up a Debt Management Plan (DMP), one of the first things they will do is work out how much you spend each month and how much you bring in each month. When it comes to your expenditure, our advisors will look at absolutely everything you need to spend money on. Food, rent, bills, mobiles phones, council tax, socialising, transport, cleaning products and anything extra like hobbies for your children are all taken into account. 

We understand how stressful it can be if you can’t afford everything month-to-month and we want to put you in a better position. The point of going through everything in such detail is to make sure we work out what you can realistically afford to put towards your debts. 

There are guidelines to consider

We have a lot of experience working with creditors and they do have certain guidelines which tell us what they consider acceptable for a Debt Management Plan (DMP) budget. So for instance, creditors might expect a family of four to spend up to a certain amount on food each month. And if you’re a couple, it might be a lower number each month. 

If you fall a long way outside these guidelines we might see whether there’s any way to get it back in. So if it seems as though you’re not allowing yourself enough money to spend on food, we might just check with you this amount is definitely enough. Or if you seem to be spending more on a certain area than the creditors expect, we might see whether there is any way to cut back on spending in that area. 

Of course, if there’s a specific reason why you’re spending over the guidelines on one area, we’d also take this into account. For example, you might be spending more on fuel if you have to take a disabled child to a particular school every day. We will make a note of anything like this and always make sure the creditors understand why you need to spend a certain amount. 

Our advisors do all this because we want to make sure that a) you have enough money to cover all your essential outgoings each months, and b) the creditors can see you’re putting everything you can towards your debts. Our aim is always to create a new payment plan that’s fair to both you and your creditors. 

There’s no need to worry about this budgeting process. When we arrange a DMP for you, we take on the responsibility of making sure that everything stacks up. We’ll have a detailed conversation with you and make sure you’re comfortable with how much we’re allowing for each area of spending in your life. 

What if there’s a change with my expenses?

We’ll always go to every effort to make sure that your budget is right when we first go through it, but we know that life doesn’t just stand still – things change. Your child might leave full time education putting a stop to your child benefit, or your rent might increase, meaning your monthly expenses goes up. 

If you find there’s a change in your budget, all you need to do is give us a call and let us know. If it’s necessary to negotiate with your creditors for lower payments we’ll handle all this for you. Similarly, if you find that your income has increased, it’s a good idea to let us know and put this towards your debts – this way you’ll be debt free faster. 

We hope this has put your mind at rest if you were worried about managing your money whilst on a DMP. You can find out lots more information about this particular solution on our Debt Management Plan (DMP) page. 

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.