Debt Management Expenditure Guidelines
How your monthly Debt Management Plan payment is worked out.
Prior to starting a Debt Management Plan (DMP) you will need to agree a monthly income and expenditure statement with the company handling your debt management plan.
This income and expenditure statement lists all of your regular monthly income. It will also list all of your essential monthly expenditure. Your essential expenditure will be subtracted from your total income to work out how much the DMP payment will total each month.
This should guarantee that you have enough money to live reasonably. It should also ensure that your creditors understand you are doing your best to repay the amount of debt you can afford.
Why do debt management expenditure guidelines exist?
If the creditors believe you are able to repay an amount greater than that laid out in the DMP repayment plan they are unlikely to accept the proposal. However, it is not in their best interests to question or challenge every item in the debt management plan as this will cause a large delay in the repayment of the debt.
Therefore it is sensible that guidelines exist to help determine reasonable expenditure levels during a DMP. Creditors can quickly establish that a debt management plan repayment proposal is fair. In addition, DMP companies and their clients have a mechanism to allocate a budget for the client which should be manageable for the entire duration of the debt management plan.
The guidelines are based on figures provided by the Consumer Credit Counselling Service (CCCS). These figures are reviewed periodically by a committee which reviews general living expenses as they apply to individuals and families in the UK at the time. The figures are then circulated amongst creditor organisations and the advisers providing the debt advice and solutions.
Do the guidelines cover every type of expenditure?
Some items of expenditure are not specified by the guidance. Examples include mortgage payments, secured loan payments, rent and council tax.
The reason these areas are not specified is to ensure it is understood that they vary enormously from family to family and from area to area. It is also not easily possible for anyone to change these expenses from existing levels.
Car hire purchase payments are also not specified, but may be subject to challenge if they are considered to be excessive.
So what is included in the debt management expenditure guidelines?
The vast majority of expenditures that most households pay for are covered by the guidelines.
For example, this will include utility bills, food, insurances, telephones, travel expenses or petrol, childcare, TV packages and predictable medical expenses.
Also included is the provision for some less obvious expenditure which includes sports and leisure activities, children’s activities, hairdressing, dry-cleaning and newspapers among others.
A contingency or emergency allowance may also be included to cover expenditure which does not neatly fit into the other categories.
Covering less regular expenditure
It is understood that some purchases are made only occasionally rather than every month. It is important that allowance is made for these irregular purchases so that over the longer term they remain manageable.
This includes expenditure such as car repairs, car tax, and home repairs. A monthly allowance should be included to cater for such expenses.
It is then up to the debtor to put this money aside each month so the cash is available as and when the need arises. We suggest that a second bank account is opened and this money is set aside in the new account each month specifically for this purpose. Along with the contingency budget, these allowances should allow individuals to cope financially without the need for new credit to be obtained.
Are the guidelines set at exact amounts each month?
The guidelines are generally set within ranges considered to be acceptable.
The lower end of the range serves to ensure that people do not leave themselves with too little money to be able to survive (and live reasonably) during the term of their debt management plan.
The upper end of the ranges serves to ensure that creditors perceive they are being treated fairly and are being repaid an amount which can be reasonably afforded.
The use of ranges also allows for differences in the ways individuals and families choose to live their lives and spend their money.
How does this work for couples?
When calculating a DMP payment, even for just one person, all household income and expenditure will be recorded. This produces a figure for the total surplus income in the household after all essential expenditure is covered.
The surplus income for the household will then be divided between the two partners. Most commonly this will involve a division of the surplus based upon the relative earnings of each individual.
For example, if both partners earn the same amount they would each be deemed entitled to 50% of the surplus. If both persons were to start debt management plans they would each use this amount (50% of the total surplus) to pay into their DMP each month. If only one partner was entering into debt management proceedings they might pay their 50% to the DMP, with the other partner retaining their 50% share to spend as they wish.
If one partner earned twice as much as the other then the situation would be different. That person would be deemed entitled to two thirds (67%) of the surplus household income which might become their debt management plan payment. The other partner could spend their third (33%) as they wish (including funding a DMP or other debt solution where appropriate).
This system ensures each partner effectively pays their fair share of the household expenditure, which then allows them access to their fair share of the household surplus income.
Are the debt management expenditure guidelines publicly available?
CCCS request that their guidelines are not made publicly available. We understand that this is due to their concern that they will be misused by debtors either to set their expenditure levels at the highest level allowable, or to manipulate their expenditure to qualify for debt solutions which are in fact inappropriate for their circumstances.
A good debt adviser or debt management plan company will be able to work with you to create a budget which is both manageable and sustainable; this will help you and the adviser to identify appropriate debt solutions, and is likely to be acceptable to your creditors or their representatives.
We recommend advice is sought from a qualified debt adviser rather than relying upon the (frequently inaccurate) information on debt management expenditure guidelines you may find posted elsewhere on the web.
For further information on debt management expenditure guidelines or to clarify any point regarding DMP expenditure contact our team of experts now on 0800 043 7203. Alternatively, fill out the contact form on this site and one of our friendly experts will get back to you.