Knowing what you’re allowed to spend money on when you’re in a debt management plan (DMP) is vital to its success.
Compiling an effective budget and keeping your expenses in check will keep your DMP running smoothly right to the very end.
In this post, I’ll be looking at the allowable expenses in a debt management plan and how you can draft an effective living expenses budget for yourself.
What am I Allowed to Spend Money on During a DMP?
It’s important for you to note that a debt management plan involves you paying reduced payments towards your debts using your surplus income.
Your surplus income is defined as the income that remains after you have made purchases for your monthly essential expenses.
Your essential expenses would include everything you need for living such as groceries, bills, fuel, etc. as well as any payments towards priority debts that are not included in your DMP.
Once your surplus income has been determined, all of it needs to be paid towards your debt management plan. This is important because if any of your creditors feel that you’re not paying the entirety of your surplus income towards your debt management plan, they might reject your plan.
As a result of this, it’s easy to observe that during a DMP, you don’t have the liberty of spending money on any luxury purchases. You will only be allowed money for living expenditure 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.
How to Develop a Budget for My Essential Living Expenses?
In order to ensure that you are able to purchase all the items you need to run your household while keeping your DMP running smoothly, it’s a good idea to develop a housekeeping budget.
A housekeeping budget will determine the amount of income you’ll spend each month on living essentials such as food, groceries, toiletries, cleaning products, etc.
The amount of income you spend on these essentials can obviously vary but you can get a fair estimate of how much of an amount you spend on them by looking at your previous months.
Looking at your bank statements for the past 6 – 12 months can be an effective way to determine the average amount of money you spend on living essentials each month.
Next, you’re going to need to decide how you’re going to be shopping for these essentials once the DMP gets put into place.
I recommend doing one big trip to the supermarket at the start of every month in order to get everything you need for the month. Albeit, there will be some exceptions such as eggs, milk and bread which you may have to get more often.
Be sure to take your time to ensure that everything gets included within your housekeeping budget for your debt management plan.
|The housekeeping budget you provide within your payment offer for your DMP needs to be high enough for you to fulfil your needs but also low enough to be acceptable to your creditors.|
A lot of DMP providers and financial services which you may use to manage your DMP have their own set of 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.
Of course, 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: £210 per month
- A couple: £335 per month
- Budget per child: £80 per month.
In addition to these budgets, you are also allowed some extra budget for food at work and/or for school meals. This is £35 per month.
What Happens if I Spend More than the Recommended Amount?
It’s actually not too uncommon for debtors to have a household budget that is higher than the expenditure guidelines stated above.
That being said, you’re going to have to justify why you’re living costs are as high as they are. For example, a child of yours may have special dietary requirements or you may have a high electricity bill due to an appliance which you need to run your household properly.
You can always try to have a high budget for your essential expenditures as long as you can justify it to your creditors. 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 allow it to be lower than what you need. This is because if the costs within the payment offer for your debt management plan are lower than what they actually are, you’re going to end up spending more than what’s mentioned anyway.
This is going to then affect your monthly payments and it could jeopardise the success of your DMP. Your creditors could grow unsatisfied and reject it altogether.
It can definitely be overwhelming when trying to determine how much money you’re going to need to spend on essentials every month.
However, with the right planning and calculation, you definitely get an idea of how much money you spend on essentials each month and start addressing your debt effectively.