A debt management plan can be a good way of getting your debts under control. We investigate how long a debt management plan will last once it is started.
One of the main advantages of a debt management plan (DMP) is that it will reduce your monthly creditor payments to an amount that you can afford.
However, it is important to understand that your creditors are simply agreeing to accept reduced payments. They are not agreeing to write any debt off for you.
This means you still have to pay back all of your debt if you use a debt management plan.
Because you still have to repay all of your debt, the length of time the plan will last will depend on the amount you can afford to pay to your creditors each month.
Calculating how long your DMP will last
You can calculate how long your DMP will last very simply. You just have to divide the total debt you have by the amount of your monthly DMP payment.
This will give you the length of time the plan will last in months. If you want to see the time in years, then simply divide the figure again by 12.
Remember, you must think about the length of time you have worked out as an estimate only.
There are many other things which could happen which will cause your debt management plan to last even longer.
Account interest added
One of the main things that will affect the length of time your debt management plan lasts is how much additional interest and late payment charges your creditors continue to add to your accounts.
Because your debt management plan is an informal agreement with your creditors, they do not have to stop charging interest.
It is true that after a few months, some or all of your creditors may agree to suspend these additional charges once they see your DMP payments being paid regularly.
However there is never any guarantee that this will happen and your creditors also reserve the right to begin adding charges again if your plan payments stop or change for any re ason.
For this reason, it is almost certain that your first estimate of how long your DMP will last will need to be extended.
Other things affecting length of a DMP
There are also other things which will affect how long your debt management plan will last.
If you use a debt management company to help manage your DMP for you, they may charge a fee for doing this. The charge will be deducted from the monthly DMP payment that you make.
These charges will therefore automatically reduce the amount you pay each month to your creditors and extend time that your DMP lasts.
Of course there are some things which may happen which will mean that reduces the time your DMP lasts.
If your financial circumstances improve meaning that you have more disposable income available, you can increase the amount you pay towards your DMP each month. This will mean that your debt will be paid faster and the length of your DMP will be reduced.
For t his reason it is always important to try and pay as much as you can into your DMP each month.
Lump sum settlements
One way to really reduce the length of your DMP is if you can settle any of your debts early with a lump sum.
If for example you owe one of your creditors ?1000 and you are able to offer them ?500 in a single payment, they may agree to settle and write off the remaining ?500.
Cleary if you can do this with one or more of your debts, the time it will take to repay them will be dramatically reduced and your DMP will be shortened.
If at all possible, it is therefore a good idea to try and save a little each month towards a fund which can be used to make lump sum settlement offers.
Undertake regular reviews
A debt management plan will last as long as it takes to pay off all of your debt. For this reason, the key to success is to pay as much as you can each month so your debt is paid as fast as possible.
R eview your circumstances regularly and if you can afford to pay more you should try to do so, or save this extra money towards a debt settlement fund.
The best way to ensure your creditors stop adding additional interest or charges is to maintain your payments in full and on time each month. If you miss or reduce your payments, creditors are likely to start adding interest once again.
Finally if you are looking at the length of time it will take to pay your debt using a debt management plan and it seems like a lifetime, regularly review whether the DMP is still the best solution for you.
The alternative to a DMP is an individual voluntary arrangement (IVA) or bankruptcy.
Both of these options have their owe implications. However they both have a significant advantage over a DMP in the fact that they will generally resolve your debt problem in a far shorter time period.
Related DMP articles
If you are interested in reading more expert articles about debt management plans, please click on the following link: http://www.beatmydebt.com/forum/viewforum.php?f=49
What to do next:
If you are struggling with debt, visit beatmydebt.com. Our experts are available to speak to you about your debt problem and offer advice and solutions. Our vibrant debt forum gives free access to experienced industry experts and others who have suffered with debt problems. Useful guides, calculators and information are also available designed to help you understand how to manage and resolve debt problems.
James Falla is a debt adviser from BeatMyDebt.com in the UK. For more quality and unbiased information on Debt Management Plans, visit our website at http://www.beatmydebt.com.
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