Debt Management Example

A Debt management Plan is based on the amount of money you have left after paying your priority bills and accounts every month (mortgage, household bills, childcare, groceries etc).  All other accounts such as credit card bills, loans etc are considered non-priority accounts.  We determine the amount of surplus income you have available each month (after your priority bills have been paid) based on your actual income and outgoings.  This amount is then used as the basis of calculating your monthly debt plan payment and what percentage of this amount is allocated to your creditors.
Feel free to call us on 0191 454 0226 for a confidential discussion or send us a quick email.

A typical debt management plan customer has the following attributes:

• They have more than two major creditors

• Their major debts are a credit cards, unsecured loans and overdrafts

• The majority have secured loans on their property

• A large percentage have less than 20% equity in the properties

• They are either a month in arrears or have made late payments

• Their combined debt for unsecured lending is between £4,000 and £32,000

• They have one or two other debts (generals bills or mortgage) in arrears

Example debt problem:

In the example below the applicant only has £200 per month as disposable income available for his non-priority debts (credit cards, loans etc) which effectively leaves him short of £300 per month.

He has 3 creditors, with a total outstanding debt of £10,000

 

Income (Salaries, wages etc)	+£1,300
General outgoings (Mortgage, bills etc)	-£1,100
Disposable income (Available cash as priority bills)	£200
Less Payments on Financial agreements (Credit cards, loans etc)	-£500
Shortfall	-£300

Example Solutions:

With a debt management plan we apply to the creditors and use only the disposable income as a basis for total amount of that can be distributed to all his creditors.

Income	+£1,300
General outgoings	-£1,100
One single payment in to debt management to pay all creditors	-£200
Shortfall	£0

What the debt management plan will look like in summary:

To illustrate, see our example of how the monthly payment is distributed among the creditors.  Notice how we have allocated the £200 disposable income per month across the debts.

Total combined value of debts	£10,000
Total term of debt plan (the period which the plan will run for)	50 months
Single monthly payment (the combined agreed monthly payment)	£200
Allocation of monthly debt plan payment of credit card 1	£40
Allocation of monthly debt plan payment of credit card 2	£60
Allocation of monthly debt plan payment of credit card 3	£50
Allocation of monthly debt plan payment of unsecured loan	£50

 

The payments are calculated by allocating a percentage of the monthly payment to each creditor, in the same ratio that the outstanding amount makes up the overall debt.

 

Eg:  Credit Card 3 has an outstanding balance of £2,500 , which represents 25% of the total debt.  Therefore 25% of the clients monthly payment will be allocated to this account.  Hence the monthly distribution to Card 3 of £50 (£200 x 25%)

More complex financial problems

The example used above is fairly straightforward.  We can cope with the most complex of situations and each client and their circumstances are different.  Our online application can process even the most complicated scenarios- you can simply apply online, saving you a lot of hassle of having to explain your situation to a person- We don't mind if you would rather call us though!

 

 

Have a look at how a debt management plan works at our debt management process page

Debt management process >>

 

Have a look at our debt management frequently asked questions for more detail

Visit our Debt management FAQ's >>

 

Feel free to call us on 0191 454 0226 for a confidential discussion or send us a quick email.