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How are debt management payments calculated?

Debt management plans are designed to help people who are struggling to afford their unsecured debt repayments as they stand. Other debt solutions are available which may be more suitable for your personal circumstances, so talk to an expert.

If your lenders agree to a debt management plan, they'll expect you to repay as much as you can every month, but only after your other essential living costs - such as your mortgage payments, food costs and utility bills - have been covered. In other words, all your costs should be affordable.

Because you are paying less each month, it may take you longer and cost more to repay your debt, and your lower repayments will also be recorded on your credit report for up to six years.

How we calculate your debt management payments

At Gregory Pennington, we take a number of factors into account when calculating your debt management payments.

We'll ask you to show us some documents and other information - such as recent bank statements, wage slips and the reference numbers for your debts. These documents tell us how much you can realistically afford to pay your lenders each month.

Your Personal Finance Team will work out our new payments by helping you put together a budget plan. They will make sure that your new debt management payments won't interfere with any of your essential costs - such as your mortgage and bill payments, and feeding and clothing your family.

All this helps them calculate how much money you have left over every month to put towards your debts. The aim is to strike a balance that both you and your lenders will find acceptable - so you're not in financial stress and they can see that you're paying as much as you realistically can.

How debt management payments are divided between lenders

One monthly payment to us will cover all the debts included in your debt management plan. However, it's our job to make sure each lender gets a fair cut of this payment. As long as we have details of your finances, you will not need to do anything: your PFM will do all the calculations, and will let you know once an agreement has been reached with your lenders.

Payments to each lender are normally calculated on a 'pro rata' basis - which means they would each receive a proportionate amount of your total monthly payment. So if you owed one lender 60% of your total debt, 30% to another and 10% to another, they would usually receive a similar percentage of your available monthly payment (after we've taken our monthly fee).

Your lenders are not guaranteed to accept a lower monthly repayment. But, in reality, they're likely to agree as long as it's clear you can't afford your existing payments - and that you're offering as much as you can afford. In some cases, however, one or more lenders may ask for higher payments, in which case your PFM will try to rearrange your monthly payments accordingly.

We'll also ask your lenders to agree to freeze interest and charges on your debts - which will reduce the overall amount you have to pay back (so you'll be out of debt sooner). However, we can't guarantee they will agree to do this. If they don't, the longer repayment period will increase the total amount of interest you pay.

If you'd like to know more about how we negotiate with your lenders, click here.

What is my debt management budget?

This is simply the budget your PFM helps you put together to work out how much you can afford to pay towards your debts.

They'll do this by looking at your monthly income and working out how much you have left to pay towards your unsecured debts after you've covered your mortgage/rent, bills and other essential costs.

Of course, nobody's situation stays the same forever. If you find yourself struggling at any point, your PFM can help you recalculate your budget and reduce your debt management payments if necessary. Likewise, if your available income increases you'll be able to increase your payments to repay your debts more quickly.

How do I know where my debt management payments are going?

If you're interested in how your debt management plan is going, as a client of Gregory Pennington you can use Gregory Pennington Online.

Here, you are able to track your progress. You can see how much is going to each lender and how much debt you have left to repay. You can also check which of your lenders have frozen interest and charges on your debts.

You can use Gregory Pennington Online to order prepaid envelopes (to send lenders' letters straight to your PFM) and change your details if you wish.

If you have any further questions about your debt management plan, or your circumstances have changed, you can also call us or your PFM.

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