Settling a DMP with a lump sum

One of the disadvantages of a debt management plan is that 100% of the outstanding debt has to be repaid. Unlike in an individual voluntary arrangement, creditors do not agree to write any debt off.

This means that it will normally take significantly longer to repay your debt than if you had maintained the agreed payments.

See How long will a DMP Last to calculate how long it will take you to repay your debt using a debt management plan.

A way to reduce the time it takes to repay your debt through a DMP is by settling one or a number of your creditors early with a lump sum payment.

If you have been paying into a debt management plan for a while, a creditor may well be prepared to accept a settlement for as little as 50% of the amount owed if they receive this payment in a lump sum.

Settling one or more of your debts early will accelerate the time it takes to repay your debt in two ways. Firstly your total debt will reduce and secondly, your remaining creditors should be paid off faster as they will take a greater share of your monthly payment

How to raise a lump sum

There are a number of ways that you could raise a lump sum. This could be from friends and family or an unexpected windfall such as a bonus from work.

Alternatively if you are a home owner you could release equity from your property. Depending on the amount of equity you have and what can be released, you may be able to settle a number of your debts or all of them.

An alternative way to generate a lump sum is to save for it. If it is possible for you to save a small amount each month from your living expenditures, once a reasonable sum has built up, you can use this to settle one of your creditors.