Debt Management Plan Allowable Living Expenses Guide

Are you thinking about a Debt Management Plan (DMP)? Wondering how much you’re allowed to spend on basics like food and bills?

You’re in the right place for answers. Each month, over 170,000 people visit this site seeking advice on debt solutions.

This guide will help you understand:

• What you can spend money on during a DMP.
• How to create a budget for your essential living costs.
• Whether you could write off some debt.
• The guidelines set by DMP providers for monthly spending.
• What happens if you spend more than the suggested amount.

You might feel worried about having enough money left after making DMP payments, and may be uncertain about seeking help.

This is quite common. In fact, Citizens Advice revealed that 60% of adults facing financial difficulties hesitate to seek assistance.¹ Don’t worry, we’re here to help you figure things out.

Do DMP providers set monthly expenditure guidelines?

A lot of DMP providers and financial services which you may use to manage your DMP have their own monthly expenditure guidelines. 

The guidelines for these financial services include a list of the amount of money which they think is reasonable for a standard family to spend on living essentials. 

The amount of money varies depending on the number of family members that you have in your household. 

Also, the guidelines may vary depending on the debt management company.

Always ensure that whichever company you’re using to manage your DMP is authorised and regulated by the Financial Conduct Authority (FCA).

For a typical debt management company, the acceptable expenditure guidelines are: 

• Single individual: £215 per month 
• A couple: £345 per month 
• Budget per child: £85 per month

In addition to these budgets, you are also allowed some extra money for food at work and/or for school meals.

Please Note: The above information is provided as a guideline only.

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What am I Allowed to Spend Money on During a DMP?

You need to note that a debt management plan involves paying reduced payments towards your debts using your surplus income.

DMP surplus income calculation is defined as the income that remains after paying your monthly essential expenses.

Your essential expenses would include everything you need such as groceries, bills, and fuel. Plus any payments towards priority debts that are not included in your DMP. 

Once your surplus income is determined, it all needs to be paid to your debt management plan.

This is important because your creditors might reject your plan if they feel that you’re not paying all your surplus income into your debt management plan. 

As a result, it’s easy to see that during a DMP, you don’t have the freedom to spend money on any luxury purchases.

You will only be allowed money for living expenses and the rest of your income will go towards your DMP. This is why determining a budget for your monthly living expenses is so important when applying for a DMP. 

If you set your living expenses lower than they actually are, you’re going to have trouble maintaining your household.

If you set them higher than they are, then you’re going to have trouble getting your creditors to accept the payment offer for your DMP. 

Case study

See this message one concerned person posted on a popular online forum about their situation.

Source: Moneysavingexpert

What Happens if I Spend More than the Recommended Amount? 

Don’t worry, it happens.

It’s not too uncommon for debtors to have a household budget that is higher than the expenditure guidelines stated above.

The impact of overspending in a DMP means you’re going to have to justify why you’re living costs are as high as they are.

For example, a child may have special dietary requirements. Or you may have a high electricity bill due to an appliance needed to run your household properly. 

You can always try to have a high budget for your essential expenditures provided you can justify it to your creditors.

Negotiating with creditors in DMP when you overspend is the first step in making sure the agreement doesn’t fail.

As long as creditors are satisfied that you’re not spending any extra money on luxuries, they’ll allow you to spend a higher amount on essentials. 

Make sure you never set it lower than you need because if your budget is lower than what they are, you’re going to end up spending more than what’s listed in the DMP. 

It will affect your monthly payments and it could jeopardise the success of your DMP.

Your creditors could grow unsatisfied and reject it altogether. 

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Consequences of abandoning a DMP

You must contact your DMP provider and ask to cancel the plan. The provider informs your creditors the agreement has been cancelled.

In short, you would have to deal with your creditors yourself.

DMP cancellation consequences could leave you worse off.

However, before going down this route, you may need to ask yourself the following:

• How do you intend repaying your debts once the DMP is cancelled?
• Will you receive a refund for the fees you paid?
• Will there be a cancellation fee?
• Did the DMP provider mislead you? Therefore, you want to cancel the agreement

Should I review my DMP regularly?

There are several advantages to regularly reviewing a DMP. Plus, you can review your plan online.

I’ve listed the benefits of regular DMP reviews here:

• You can review your budget to make sure it’s still feasible
• You get to check the progress of your DMP and how much longer it lasts

I suggest that you review your plan regularly or every 12 months. Sooner if your circumstances change.

Another option is to contact one of the leading UK charities that provide free debt advice. Their help, advice and support could prove invaluable when you need it the most.

I’ve listed some of the free debt advice UK charities here:

• Citizens Advice
• StepChange
• Debt Advice Foundation
• National Debtline
• Money Helper

References

1. StepChange – Credit safety net report