If you receive benefits, you might be wondering whether you can use a debt management plan to bring your debts under control. The answer is yes. DMPs are very flexible, and setting up a DMP can be a really good way to turn your finances around.
The good news is that any income can be used to fund repayments under a DMP: benefits, wages or any other source of income. Your DMP isn’t a formal, legally-binding agreement, which means that the requirements are less strict than they would be under an IVA. You can pull out of your DMP, or vary the terms you’ve agreed, if you feel that it isn’t working for you. However, you should avoid setting up an agreement that you know you definitely can’t afford.
DMPs and Benefits
The one problem with managing debts on benefits is the amount of money available to deal with the outstanding debt. In general, benefits tend to cover essentials only; food, utility bills and so on. You may find that you can only make token payments towards your debts, although it is theoretically possible to do this. It’s crucial to speak to a professional who will help you draw up a plan that works with your own budget.
If you are in employment and receiving benefits to help with the cost of living, you might find that a DMP is affordable, but you’ll still be asked to restrict unnecessary spending. A professional will work with you to determine a reasonable monthly spend on food, bills and other essentials. Remember: with a DMP, you definitely won’t lose your home, so it can be a very good way to deal with your debt problem – providing you’re willing to commit over the long term.
Whether you’re in work and receiving benefits, or you depend on benefits as your only income, a DMP will have an effect on your credit rating for six full years. If you’ve already missed payments or defaulted on some of your debts, this probably won’t be much of a concern.
Remember that a DMP isn’t right for everyone, and if you’re receiving benefits, there’s a good chance you don’t have a lot of money to go around – so you may benefit from a different route to becoming debt free. Depending on your own circumstances, you may find that there is a better solution. It’s always worth looking into individual voluntary arrangements (IVAs) and bankruptcy, particularly if you are receiving benefits but also working.
Guest Post by James