This post is a guide to help you with setting up a Debt Management Plan.
A Debt Management plan is an informal arrangement between you and your creditors. It can help you with getting back in control of your finances.
I am currently using a Debt Management plan myself and have found it to help me with making regular payments towards my debts.
It has also stopped the constant phone calls demanding payment.
Getting help with setting up a Debt Management plan
If you are not confident enough to set up your own Debt Management plan then you can get help. Visit the Debt Help page on this blog to get started.
Most of the organisations on the Debt Help page will not charge you to set up and administer a Debt Management plan. They are worth considering if you would like to start sorting out your debts, or if your debt problem is very severe.
They may also discuss other options which could be more suitable for you. The bottom line, it is worth talking to them.
Setting up your own Debt Management plan
So you want to be like me then? No problem. Ha just kidding. OK let’s begin with setting up the Debt Management Plan. I should point out that by setting up your own plan, you would still make individual payments to your creditors.
If you elect to choose a company to set up a debt management plan on your behalf, you would only make one payment as the company would sort out disbursement of your payment.
Things you are going to need to know
How much do you owe?
The first thing you need to do is to find out how much you owe to each creditor. Dig out all those letters you have been hiding and take a look at the most recent ones. Make a note of the name and balance of each creditor.
Priority and None Priority Debts
Work out which of your debts are priority debts and which ones are not. I have written about priority debts along with examples of them. Read about them to find out more. If you have priority debts then I would recommend getting professional Debt Advice. If you are like me and do not have any priority debts, read on.
Calculate your monthly expenses
You need to know how much you pay for your petrol, food, rent etc before you can make an offer of repayment. Check your bank statements to see what you spend and don’t forget to include everything. However there are limits to what is acceptable, but that depends on your own circumstances.
For example if you put, nights out £100 then that would be something that is not acceptable.
Working out how much you have to pay
Now you have calculated your monthly expenses, take this off the amount of income you receive. The amount you are left with is called your surplus income, and it is this surplus income we will use to repay your creditors.
OK so you have got this far then? Good stuff, glad you are still with me. Next you need the following two things: –
Examples of both the above can be found on this blog. Click on the links above to find out more then come back, if you want to that is.
The Income and Expenditure Form
What you need to do now is to input your Income, Expenditure and Debt information onto the Income and Expenditure Form.
The income and Expenditure Form will calculate the pro rated payment for you. However for your records the calculation is performed as in the example below: –
The total of all your Debt is £40,000
You owe money to three companies.
Company 1 is owed £15,000
Company 2 is owed £20,000
Company 3 is owed £5,000
After all your expenses, you are left with a surplus of £400
Payment to Company 1
400 * 15000 / 40000 = 150
Payment to Company 2
400 * 20000 / 40000 = 200
Payment to Company 3
400 * 5000 / 40000 = 50
Or in other words your surplus multiplied by the amount owed divided by your total debt equals the payment.
Hopefully I have explained that OK. Not to worry though as like I say the example Income and Expenditure Template will do that for you anyway, assuming you are OK with using Excel.
The Offer of Repayment Letter
Now you have completed the Income and Expenditure form, you are ready to fill in the offer of repayment letters with each creditors details and offer amount.
When you have finished creating all your letters, put an Income and Expenditure Form with each one. The next step is to send them to the creditor or debt collection agency.
Some debt collection agencies do have e-mail addresses so you could always e-mail them. However if you prefer to use the post you can do that too.
I usually hear back in around a week with confirmation my repayment has been accepted.
Sometimes I am told the arrangement has been set for six months. If at the end of the six months my situation has not changed, I just send the same information again and the plan is reset. At the end of the day, we can’t pay back money we don’t have.
The Creditor will not accept my repayment
If a creditor rejects your repayment proposal then pay them anyway. Unfortunately a Debt Management Plan is an informal agreement and this can happen. When I had this issue, after I started paying the agency they suddenly accepted the repayment.
If a creditor threatens you with Court action then I would recommend seeking professional Debt Advice.