Should I pay for a Debt Management Plan or use a free service?

A Debt Management Plan (DMP) is one of the most popular ways of dealing with personal debt problems. Because it is an informal agreement with your creditors there is no reason why you cannot implement the solution yourself for free.

However many people do not have the time or the nerve to negotiate reduced payments with their creditors or simply welcome the option of being able to make one payment each month and let someone else deal with everything for them.

If this is you then when deciding on which debt management company to use you need to decide if you want to pay a debt management company or use a free debt management service. We consider these options in more detail.

Will you have to wait for a free Debt Management service?

One of the traditional arguments used by fee charging companies is known as “going NHS v Private”. The inference here is that you may be able to get a free service but you will have to wait a long time for it whereas by paying you will get your debt management plan far more quickly.

If you are planning on using the CAB (Citizens Advice) to help advise you about your debt problem then you may certainly have to wait to get an appointment.

However there are organisations which will help you implement a debt management plan for free where you will not have to wait. They have large call centres and are manned by many staff waiting to take your call.

Do you want help to start a DMP? Give us a call on 0800 077 6180 or complete the form below to speak to one of our experts

Are there any downsides to using a free DMP service provider?

Despite the fact that the NHS v Private argument is generally a non issue there are other things to consider when deciding to use a free service.

The question you need to ask is who is ultimately paying for the service to be provided? Free providers are unable to maintain a staff of many hundreds of employees on thin air. So how is it that these staff are paid?

The answer is that when you start to pay a debt management plan agreed by a fee provider, these organisations are paid a percentage of the money they collect by the creditors themselves.

This in itself is not a problem. However if they are paid by the creditors it does then raise the question of exactly whose interest the free providers are working for. The free providers need to adhere to strict guidelines laid down by the creditors which you may find unreasonably inflexible.

Using a paid for DMP service

The alternative to using a free DMP service is to pay a commercial debt management company. Generally speaking the advantage of doing this is that you are paying the DMP company to work in your interests.

When putting together your DMP living expenses budget the DMP company will guide you on the living expenses amounts that you should stick to in order that your creditors will agree to your proposed payments.

However ultimately you decide what you need to live off and what you want to pay to your creditors each month. The DMP company will generally accept your wishes and put forward the offer you wish to make.

A paid for debt management company will normally work hard to ensure that your creditors stop further interest and charges on your accounts. It is in their interest to do so as if they achieve this you will clearly be pleased with the service and not want to move away from them and stop paying their fee.

If your circumstances change for the worse or you find yourself in a situation where you have been forced to borrow more (for example from a payday lender) your DMP company will be happy to help and add the additional creditor to your plan if necessary. They are unlikely to tell you they can no longer deal with you as they would be losing a valuable client.

How to change your DMP company if you are not happy

At the end of the day the major advantage of using a free debt management service is that you do not pay a monthly management fee. Everything you pay each month goes towards paying your debt.

This is a very powerful argument. However there are still very good reasons why you might want to pay a company to work on your behalf and these should not be overlooked.

Ultimately when choosing a DMP provider you will have to make a personal choice. However, the good news is that the Plan is a flexible informal solution which means that you can start or stop it whenever you like.

You can change the company helping you to run your agreement at any time if you think you would get a better service elsewhere. As such if you chosen to start your DMP with fee charging provider, you can always move to a free service later if you feel you feel your interests would be better served by doing so or vice versa.

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