Case study - couple - Debt Management Plan
A Debt Management Plan (DMP) is an informal debt solution allowing the debtors to repay their debts but in a structured and affordable way. For some, the only way to meet contractual requirements on debts as well as financing household and personal expenses is by continually using further credit. This creates a vicious circle of credit-dependency.
When credit runs out
For Martin, it came as a shock when his bank declined to extend his overdraft further. He had always made minimum payments on his credit cards, but his overdraft crept steadily upwards as half his income was needed for the debt repayments. He and his wife Martha kept their finances separate and disclosed little to each other. Martha also had debt issues, but each were fiercely independent and a little embarrassed to admit they weren't really coping.
When a credit card is declined
The crunch came when at a supermarket together Martins' card was declined. Without realising it he had hit the limit and had ignored a letter the previous month from the card company to make contact. Martha stepped in to pay for the goods - but a serious conversation was required and they both knew it.
Facing financial reality
It came as something as a relief to each of them to discover that the other was also struggling. When they started making lists it became obvious that their living costs and debt repayments combined were way more than their combined income. At this point they resolved to find professional advice. After talking to a debt advisor, they found out more about the DMP option. It was explained to them that because they were homeowners and a fair amount of equity in their property, that neither an IVA nor bankruptcy was an available solution.
With the help of an advisor, Martin & Martha constructed an expenditure budget that they hoped would cover all their outgoings - right down to hairdressing and charitable giving! When they deducted the total budget from their combined income they were left with a sum of money they could afford to repay to their combined creditors. It was considerably less than their contractual repayments but the advisor assured them that once creditors saw that they were repaying the debt at an affordable rate and that each creditor was being treated equally, they would agree to the proposal and the debt, albeit over a period of time, would be sorted.
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