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How can I pay off my DMP early?
If you are in a DMP (debt management plan) one of the issues you face is that it is going to take a very long time to pay off your debt. If you want to become debt free sooner one option is to try and pay off your debts early.
While you are in a DMP it is possible to pay off your debt early by paying more towards the debts each month. However the alternative solution is to offering a lump sum to your creditors in return for them writing off some of your debt.
Paying off your DMP as soon as possible is always a good idea. This is because the DMP solution is an informal arrangement and there is no guarantee that interest will be frozen or late payment charges will be stopped. If these charges continue to be added to your debts it will increase the length of time it takes to pay off your DMP.
As such if you can pay of any of the debts in your DMP early it will have a substantial effect on reducing your DMP’s length. The question is how to do this.
Increase the payments into your DMP
Because a DMP will continue until you have paid all of your debts in full or agreed cash settlements with your creditors, you should always try to make it a priority to pay it as quickly as possible.
If at any time your circumstances improve and you are able to increase the monthly payments towards you make into your DMP you should consider this. Increasing the amount you pay into your DMP in this way will result in your debts being paid off faster and your DMP ending sooner.
Of course it is not always possible to increase your monthly payments while you are in a DMP. However this does not mean that you will never be able to pay off your DMP early. The other way to end your DMP early is by offering a cash lump sum to your creditors in return for them writing off some of the debt for you.
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Settle individual DMP debts early with a cash lump sum
If you have access to a cash lump sum, can make an offer to any or all of the creditors in your DMP to pay them this in return for them writing off the outstanding balance and cancelling the debt you owe immediately.
Normally if you have been paying your DMP for some time and your creditors can see that it is unlikely that your circumstances are going to change any time soon they will be willing to consider accepting a cash lump sum equal to 50% of what you owe them to settle the debt. However it might be possible to get them to agree to a lower offer or 40% or even 30% if this is the best you can do.
If you do not have access to a sufficiently large lump sum to try and settle all of the debts in your DMP at once, you can chose to target an individual debt and agree a settlement on just that one. You might chose a creditor which is continuing to add interest.
You then continue to pay the same monthly amount into your DMP meaning that the remaining debts are paid off faster because these creditors will each be receiving a higher percentage of the money paid into the plan each month.
It may seem unlikely that any of your creditors would agree to accepting a cash lump sum and write off debt for you but this is not the case.
Your creditors are aware that it can take a very long time to recover the total debt you owe if you are in a DMP and the cost to them of managing and accounting for the small payment they are receiving from you each month can be very high. Therefore the offer of a lump sum to settle your DMP early may actually be welcomed.
Where to find the lump sum to use to pay your DMP early
The option of paying off your DMP early with a cash lump sum may sound very appealing. However for most people it seems simply impossible to get any kind of lump sum together.
Of course the first thing to consider is whether friends or family would be willing to loan you the money. You might think that borrowing more is the last thing you want to do. however by borrowing in this way you might well be able to write off 50% of the debt you owe or more. Your family might be prepared to help if they understand this.
You might also come into a cash lump sum because of a windfall. Perhaps you receive an inheritance, a compensation payment or even a redundancy payment. If this happens, managed properly this windfall can often be used to settle some or all of your DMP debts.
If you are unable to get a lump sum, then you can consider saving a small amount each month to put towards a lump sum.
If your income increases then instead of simply paying more into your DMP, you could keep the extra you have each month aside and put this towards a lump sum. If your income does not change you could still try and save a small amount from your living expenses budget each month and eventually use this to settle individual creditors within your DMP one at a time.
How to negotiate an early settlement with your creditors
If you are using a DMP company to run your DMP one option is to ask them to negotiate settlements with each of your debts on your behalf.
However if your DMP company is unwilling to help then you can make any offers of an early settlement either wholly or individually to your creditors yourself. You simply need to approach the creditor and make the offer.
One really good option to consider if you have been able to get a cash lump sum together is actually make a settlement offer to all of your creditors under the umbrella of a lump sum settlement IVA.
There are two significant advantages of doing this. This first is that you do not have to negotiate with every single creditor individually which can be really time consuming. Secondly it is likely that an agreement will be made to settle your debt for a far smaller lump sum then you would need if you negotiate with each creditor yourself individually.
As such if you are currently in a DMP and plan to pay off your debt early with a lump sum, you should always take advice from a debt expert about the possibility of using a full and final settlement IVA.
Arrange a call with an IVA Expert