About Debt Management Plan Duration

 

Debt management plans continue until your debts get fully repaid.

 

No fixed term applies. The duration depends upon several variable factors that we explain in detail below.

 

Many DMPs run for between five and ten years, but your plan could actually be much shorter or longer than this in reality.

 

For help estimating the length of your DMP contact our debt experts.

 

The Debt Management Term Calculation

 

To estimate the length of your debt management plan:

 

1. Add up your debts

2. Work out an affordable monthly payment

3. Divide your total debt by your monthly payment

4. Divide this result by 12

 

Example 1:

 

• John has total debts of £12,000

• He can afford a £100 per month payment

• £12,000 divided by £100 = 120 months

• 120 months divided by 12 = 10 years

 

John can estimate that his debt management plan might last 10 years.

 

Example 2:

 

• Jane has total debts of £24,000

• She can afford a £400 per month payment

• £24,000 divided by £400 = 60 months

• 60 months divided by 12 = 5 years

 

Jane can estimate that her debt management plan might last 5 years.

 

The Assumptions

 

The above debt management plan length calculation relies upon several assumptions.

 

If any of these assumptions turn out to be incorrect a DMP might last for a longer or shorter period of time than estimated.

 

The main assumptions are:

 

1. Creditors accept a reduced regular payment

2. Creditors immediately stop interest and charges

3. Your monthly payment amount never changes

4. You don’t come into money during the DMP

5. You aren’t paying debt management fees

 

Creditor Acceptance

 

It is likely that your creditors will accept a reduced payment if you make fair debt management proposals to them.

 

Acceptance isn’t 100% guaranteed however. Creditors also retain the right to change their mind and a DMP provides no formal legal protection from them.

 

Legal action would add costs and therefore extend the length of a plan.

 

Interest and Charges

 

It is likely that your creditors will agree to suspend interest and charges if you make fair debt management proposals to them.

 

Frozen interest and charges aren’t guaranteed however. Even where creditors do agree to a freeze their decision may not be immediate.

 

Continued interest and charges will extend the length of a debt plan.

 

Change in Circumstances

 

Over the course of several years it’s likely that your financial situation will change.

 

An increase in your income might make it possible to increase your monthly payment. You’ll become able to reduce the length of your DMP.

 

An increase in your bills might leave you needing to reduce your monthly payment. This will extend the term of your debt management plan.

 

Full and Final Debt Settlement

 

It’s possible that you’ll receive a lump sum during your debt management plan.

 

Common examples include an inheritance, a work bonus, a pension lump sum, or a gift from a relative.

 

One (or more) of your creditors might agree to accept a reduced lump sum to settle a debt. This could greatly reduce the length of your repayment arrangement.

 

Fees

 

There are three main options to put a debt management plan in place:

 

1. Commercial providers that charge a fee

2. Free-to-client providers that don’t charge a fee

3. Self-managing your own DMP

 

If you pay a fee it reduces the amount of money used to repay your debts. This could result in your debt management plan lasting longer than using a free option.

 

Scottish Debt Management Option

 

If you live in Scotland you can use a different and more formal type of debt management plan.

 

The Debt Arrangement Scheme provides several extra benefits:

 

1. Interest and charges guaranteed to stop

2. Legal protection from creditors

3. Creditors bear the cost of the fees

 

These three factors combined make it possible that a Debt Arrangement Scheme will clear your debts faster than an informal debt management plan.

 

The Length of Alternative Debt Solutions

 

Once you have estimated the length of your DMP you can compare it to other types of UK debt solutions.

 

In England, Wales, and Northern Ireland:

 

An IVA typically runs for five years but this is extended to six years for some homeowners. This debt solution can be extended if you miss payments or fail to declare receiving extra cash or assets.

 

Bankruptcy usually runs for one year until you get discharged. If a monthly payment is deemed affordable by your bankruptcy trustee it will be payable for a total of three years.

 

A Debt Relief Order usually runs for one year.

 

In Scotland:

 

A Scottish trust deed runs for a minimum of four years but sometimes a longer term is required to secure creditor acceptance. This debt solution can be extended if you miss payments or fail to declare receiving extra cash or assets.

 

Sequestration (bankruptcy) usually runs for one year until you get discharged. If a monthly payment is deemed affordable by your trustee it will be payable for a total of four years.

 

Sequestration (bankruptcy) operates a separate minimal assets process for applicants with limited income, assets, and debts. Discharge from this route to bankruptcy occurs after six months.

 

Getting Debt Advice

 

For expert advice about debt solutions please get in touch.

 

Our experienced friendly advisers will help by identifying suitable debt management solutions and comparing their merits for you.

 

The length of time it will take you to become debt-free is a key component of the debt advice we provide.

 

 

Author: Andrew Graveson

Qualified Debt Adviser & Bright Oak’s Founder

 

Page Last Updated: 30/06/2020

 

 

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