How much do you pay on a DMP?
Navigating debt can be a complex journey, and a difficult one to undertake alone – especially if you owe money to several different creditors. Debt Management Plans (DMPs) are intended to help those struggling to juggle multiple debts by consolidating their monthly payments into one.
If you’re thinking of starting a debt management plan, you may be wondering how much you’ll have to pay per month. As DMPs are tailored to each individual’s financial situation, there is no straightforward answer to this question. Your one monthly payment will depend on factors such as your income and the amount you spend on bills and regular expenses. Read on to learn everything you need to know about monthly DMP payments and how they work.
Debt management plans: How they work
A debt management plan (DMP) is a structured repayment strategy designed for individuals looking for help managing their unsecured debts. Rather than grappling with several individual payments, the debtor pays their DMP provider a fixed amount each month, which is then distributed amongst their creditors.
Every debt management plan is tailored to the individual’s financial circumstances. Because of this, there’s no ‘one-size-fits-all’ or average monthly payment for DMPs. Instead, the monthly payment and the duration of the DMP are calculated on a case-by-case basis, according to each individual’s financial circumstances. This ensures that people on debt management plans can manage their monthly expenses comfortably while chipping away at their debt.
How monthly DMP payments are calculated
When you apply for a debt management plan (DMP), your provider will carry out a thorough assessment of your financial situation, including your debts, income, and expenditures. They’ll then use this information to decide on an affordable, realistic monthly payment schedule, and calculate how long the plan will last. Here’s a step-by-step breakdown of how your DMP provider will determine how much you pay each month.
01. Calculating the total amount of debt
The first step in the process is understanding the depth of your debt. Your DMP provider will conduct a comprehensive review of your outstanding debts, identifying who you owe money to and how much.
It’s essential to differentiate between priority and non-priority debts at this stage. Only non-priority unsecured debts, such as credit card balances and personal loans, are typically included in a DMP. Once these eligible non-priority debts are identified, they are combined to calculate the total amount that will be addressed through the debt management plan (DMP).
That being said, the DMP provider will also take into account your priority debt payments when calculating your plan payment amount.
02. Assessing your monthly budget
Next, the provider will look into your monthly income and expenditures. They’ll consider:
- How much you earn each month (or take an average if this varies).
- Your existing financial commitments, such as rent or mortgage payments, utility bills, and other priority debts like car financing.
- Essential monthly expenses, such as food, transportation, and childcare.
Typically, they’ll also set aside a small amount for savings or unexpected expenses, such as home repairs. After all expenses have been accounted for, the remaining amount represents what you can realistically afford to pay towards the DMP each month.
For example, if your monthly take-home income is £1,800 and your total essential expenses amount to £1,500 (including rent, utilities, food and other necessities), you’ll be left with £300. This £300 would be your potential monthly DMP payment.
03. Deciding how much each creditor should get
Once your affordable monthly payment is determined, the next stage is to decide how much of this will go to each creditor. They will take into account the proportion of the overall debt owed to each creditor, and the monthly fee charged by the debt management company.
04. Determining the duration of the DMP
With the monthly payment amount decided, the provider will then use this to estimate the duration of the debt management plan (DMP). This involves dividing the total repayable amount by the monthly payment distributed to creditors to calculate how long it will take to clear the debt.
If your DMP Monthly payment is too high
Your monthly DMP payment is designed to be affordable based on your current circumstances. However, life can be unpredictable, and unexpected financial challenges can occur.
If you find that you can no longer afford your debt management plan, it’s essential to contact your DMP provider as soon as possible. They can offer personalised guidance, potentially re-assessing your monthly payment or even suggesting a temporary payment break. Always remember to prioritise your ‘priority debts’, such as utility bills and rent arrears, as these debts can have severe consequences if not paid.
If you want to pay more towards your Debt Management Plan
On the flip side, if you find yourself in a better financial position – e.g. if you’ve secured a better-paying job – you might consider increasing your monthly DMP payments.
Paying more towards your DMP each month has the obvious benefit of clearing your debts faster. You may also pay less in interest and fees overall. If you’re considering this route, reach out to your debt management plan provider: they can help guide you on which debts to prioritise and the best way to allocate the additional funds.
Find a debt solution that works for you with DFH Financial Solutions...
If you are grappling with multiple debts, you don’t need to face it alone. At DFH Financial Solutions, we are dedicated to guiding individuals through their financial challenges. Our team of experts can help you determine if a DMP is the right choice for you, and match you with a tailored plan that suits your needs.
Whether you’re just starting to explore your options or are looking to change debt management providers, DFH is here to assist. Apply online for free initial debt advice and we’ll work together to find the best path forward.Apply Now