A Debt Management Plan allows you to get back in control of your debt. Your monthly payments are reduced to an amount you can afford.
- What is a Debt Management Plan?
- The effects of a DMP. Is it right for you?
- The cost of a DMP
- How to start a Debt Management Plan
Want to start a DMP? Give us a call (0800 077 6180) or complete the form below to speak to one of our experts
What is a Debt Management Plan?
A Debt Management Plan (DMP) is one of the most common debt management solutions. How much do you have to pay towards your debts? What is the main advantage of a DMP? To find out more please visit: http://beatmydebt.com/debt-management-plan/what-is-debt-management-plan
What is a Debt Management Plan?
A Debt Management plan (DMP) is an agreement with your creditors allowing you to reduce your debt payments each month. This means the payments fit within a budget you can afford.
The agreement is informal. As such it can be started quickly. It allows you can reduce your debt payments immediately. However debt is not automatically written off.
If you use a DMP you still have to repay the debt you owe in full. Repayment times are therefore normally considerably increased.
There is no obligation on your creditors to stop charging interest or late payments. It is possible that they will but this cannot be guaranteed. If interest continues to be added this will extend the length of the Plan.
Is a Debt Management Plan right for you?
Only unsecured debts can be included in a Debt Management Plan. You have to continue paying any secured debts you owe such as your mortgage or car finance agreement.
It is difficult to add some types of unsecured debt in a DMP. These include money owed to HMRC. It can also be complicated to add County Court Judgments.
A DMP is normally only a sensible option if it allows you to repay your debt in reasonable time. However it can also be very useful if all you need is temporary respite from your creditors until your circumstances improve.
If you are a home owner an advantage of the Plan is that you are not obliged to release equity from your property. However your home may still be at risk from Charging Orders.
Although the Plan is informal it still negatively affects your Credit Rating. The fact that you are making reduced payments will be recorded on your credit file. As a result your ability to get new credit or other financial services will be seriously affected.
The cost of a Debt Management Plan
The amount your Debt Management Plan costs will depend on how you implement and manage it. If you wish you can set up your own Plan. This costs nothing other than your time.
Alternatively you can use a debt management provider to implement and manage the Plan. There are different organisations that can help you do this.
A commercial debt management company may charge you a fee. However there are a number commercial companies and charities who provide the service for free.
Most commercial debt management companies are funded by the fees their customers pay. Free debt management services are provided by organisations which are funded by the creditors themselves.
How to start a Debt Management Plan
If you want to start a Debt Management Plan you will need to go through a number of steps. Firstly you must decide whether to put the Plan in place yourself or get help from a debt management provider.
Either way you then need to put together a financial statement. This includes information about your income and living expenses. It is used to work out what you can afford to pay towards your debts every month.
Next reduced payment offers have to be made to each of your creditors. It can take up to 3 months or more to agree the new payments with them all.
Once you have given a DMP proposal to your creditors you can reduce the payments you make to them immediately. You do not have to wait for the new payments to be agreed.
Government Advice about Dealing with Debt
As well as the information found on this website the Government’s Insolvency Service has produced a useful guide to personal debt solutions which you might also find useful: “Options for paying off your debts“.
The Money Advice Service (MAS) are an independent service set up by the Government to provide people with free advice about all aspects of personal finances. For help from MAS if you are struggling with debt please follow this link: MAS – Help if you are struggling with debt.
It is also recommended that you read this one page document produced by MAS entitled “Dealing with debt – 5 things you should know”.
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