Budgeting with a Debt Management Plan

What is a DMP?

A Debt Management Plan, or DMP for short, is an informal arrangement between you and the companies you owe money to. A DMP needs to be set up and managed by a Debt Management company, like PayPlan. All Debt Management Plan providers must be authorised and regulated by the Financial Conduct Authority.

In a DMP, you can make one affordable monthly payment that’s split fairly between the companies you owe money to. It’s a debt solution that can be used to pay off most forms of non-priority unsecured debt, such as overdrafts, personal loans, store cards or credit card debt.

Why do I need a budget in a Debt Management Plan?

To help you stay in control of your plan, it’s important to understand how much money you have and where you spend it each month. To do this, we’ll create a budget with you that shows your income (how much money you have coming in – this could be things like wages, pensions or benefits) and your expenditure (how much money you have going out, such as rent, mortgages, grocery shopping and utility bills).

In a DMP, we’ll work with you to create and update your budget annually or whenever something changes. Your budget will cover all your essential household bills and any priority debts. You’ll need to make payments directly to these, so it’s important that you know how much to pay them. The leftover amount will be your DMP payment.

How can I stick to a budget?

Budgeting can be difficult, but it gets easier throughout your plan. If you’re ever not sure, we’re here to help. Before you start your plan, we’ll help you to create a realistic budget that shows everything you receive and pay out. The left over amount should be an affordable amount for you to pay towards your plan. In a DMP, you’ll need to review and update your budget with any changes every year, or whenever something changes that affects your affordability.

If you choose to enter a solution with PayPlan, we’ll help you to create a budget. But if you prefer, you can work out your budget by:

Work out your income

Make a list of everything that you get into your bank account each month. This could be your wages, benefits, pension, etc. Add these together for your total income

Work out your expenditure

Make a list of everything you pay for regularly. Remember to include household costs, utility bills and priority payments like your rent. Don’t include any payments to your unsecured debts.
Make a list of everything you pay for that isn’t regular. This could be things like birthdays or car maintenance.

If you don’t get paid or pay for everything monthly, here’s how to make it all fit into a monthly budget:

Weekly – multiply it by 52 and divide it by 12.
Fortnightly – multiply it by 26 and divide it by 12.
Four weekly – multiply it by 13 and divide it by 12.
Six monthly – divide it by 6.
Yearly – divide it by 12.

Make it into a budget

To find out how much you have left over after you’ve paid for all of your essential costs, subtract your expenditure from your income. This amount is how much you have to pay towards the companies you owe money to in your plan.

Budgeting isn’t just about spending less on unnecessary items; however, it can also be making a little go a long way.

There are lots of small changes you can make to save money, and these all add up! Consider ways you can save money. Could you carshare to work to save costs on fuel? Or could you switch to public transport to save on parking and to do your bit for the environment?

You might also find that paying in cash instead of tapping your phone or card makes you more aware of what you’re spending. Furthermore, you may find you start to prioritise your shopping and spend less on items you don’t need.

Benefits of budgeting in a DMP

There are loads of ways that budgeting can help you in your plan. One of the main advantages of budgeting is the control it provides you over your financial situation. This is even more important in a DMP when your finances may feel a little restricted. It can also help you if any unexpected costs arise.

Budgeting isn’t simply a case of spending less and saving more. It can also allow you to track your finances in other ways, such as monitoring your bills and subscriptions, such as your phone bills or gym memberships.

Keeping an eye on contracts that are due for renewal or expiration can remind you to look around for better deals, or even make you think twice about whether you actually need the subscription, and the money you save monthly from cancelling can go towards areas of your budget that you might be feeling stretched in, or towards your DMP to finish your plan faster.

What if I need to make changes to my plan?

We know that things can change, and every year we’ll complete a review of your plan with you to update it. However, if something changes before your review is due, get in touch!

If something happens that means you can’t afford your normal payment, the companies you owe money to normally ask to see your budget so they’re comfortable that you’re making the best offer you can.

If your situation improves, you can use this money to increase your payments and finish your plan sooner. Or if you receive a lump sum, our Settlements Team can negotiate with the companies you owe money to so that you can clear some or all of your balances.

Are you unsure about budgeting with a DMP?

If you’re in a DMP and feeling stretched, get in touch! We’re here to help, there are loads of different ways we can help you to make sure you’re in the right solution and that your payments are affordable.

If you’re struggling to stay on top of your debts and want to explore the options available to you, call us on 0800 316 1833, or chat with us on WhatsApp or Live Chat