What is the length of a Debt Management Plan (DMP)?
Summary: This paper seeks to address the issue of the length of a Debt Management Plan (DMP), and factors that may affect the length.
A DMP is an informal debt solution, enabling a debtor to repay their debts through a structured, managed plan. Usually a DMP company will work out with the debtor, a repayment level based on what is left from a person's income after all essential and reasonable expenses are met. The length of a DMP will depend on a number of factors including size of repayment relative to amount of debt, and any changes of circumstances along the way.
For many, repaying their debt at an affordable rate, gives them an opportunity to comfortably live without needing more credit. Their circumstances are relatively stable, and even though the plan may have many years to run before the debt is fully paid off, at least the debt is under control and decreasing. With the goodwill of the creditors, such a plan can remain place for a lengthy period of time.
Short term plans
For others though, a DMP can be a means of coping with a shorter term problem. It may be that we are hoping that income will increase and/or outgoings will decrease at some point in the not too distant future. It could be someone running their own business that need a couple of years to enable business to start showing a profit, or it could be a couple where childcare costs are soon to stop and or both parents are planning to return to work. A short term DMP can keep the debts under control through such a tricky period.
Change of circumstances
Some changes are known and built into the expectations of a DMP. E.g. a car HP deal will end in 2 years and the money that will be saved then could be channelled into debt repayments. However some changes are unexpected - a change of job, relationship change etc. Generally such changes can be incorporated into a DMP and of course the repayment level will determine the length of the plan. A DMP can always be stopped by a debtor and an alternative solution sought.
People entering DMP's may have slightly different priorities. For some it's vitally important to clear the debt as quickly as possible. Maybe this is to do with rebuilding credit rating in order to buy a property, or it could be simply for peace of mind. The idea of being debt-free is the great goal. For others though, whilst they certainly want to be debt-free, it's also important to have available funds to treat the children or maintain a certain lifestyle level, and as long as not considered excessive by creditors, they would rather spread the repayment over a slightly longer time period.