A Debt Management Plan (DMP) is a very popular way to resolve debt problems. There are no official numbers but it is estimated that tens of thousands of people start this type of agreement every month.

However with so much information available, trying to decide whether this solution is right for you is not always easy. We explain some of the myths and uncover the truth.

Myth 1. Contact from creditors will stop immediately

You may think that as soon as you start a DMP all the collection letters and phone calls that you have been receiving from your creditors will stop immediately. This is not the case.

It will normally take your creditors two to three months to accept your reduced payments and suspend their collection activities. Some of your creditors may not accept your Plan at all and will continue chasing you for much longer.

As standard throughout the duration of your Plan you will be periodically contacted by your creditors with a demand to increase your payment or for a financial review. If this happens you will simply have to go through the process of agreeing your monthly payment with that particular creditor once again.

Myth 2. I will get a charging order against my property

A DMP does not give you legal protection from your creditors. As such even if you are in a Plan your creditors are still free to take further action against you to collect their debt if they wish.

This means that even if you are making your agreed monthly payments on time your creditors could still apply for a County Court Judgement (CCJ) against you. They could then apply for a Charging Order against your property if you are a home owner.

Having said that if you are making regular agreed monthly payments it is less likely that any of your creditors will take further actions against you. But you need to be aware that it is a possibility.

BMD Tip: Since this article was written the law governing when creditors can apply for a charging order against property has changed. Now as soon as a CCJ is issued they can make an application for a charging order whether or not agreed repayments are being maintained.

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

Myth 3. I can leave debts out of my Debt Management Plan

Because it is an informal arrangement there is no legal requirement for you to include all of your debts in a DMP.  If you want to continue paying a particular creditor or continue using a particular line of credit such as a credit card it is possible to leave this out of your Plan.

Having said that it is always the best policy to include all of you creditors because those that are included will expect you to pay all of your disposable income into the agreement each month.

If you hold some cash back to keep paying the debt you leave out it may mean that the creditors you include are less inclined to agree to the payment offer you have made.

Myth 4. I cannot have a bank account in a Debt Management Plan

This is certainly not correct. Using a DMP means that you remain in control of your finances.

You still need a bank account to receive your income and to maintain your normal payments to your priority debts such as your mortgage or rent, utility bills and other monthly living expenses.

You may have to change your bank account if you owe money to the bank you are currently banking with. However generally this is relatively easy to do and can do done simply before your Plan starts.

Myth 5. I have to be in arrears before a DMP can start

It is true that by the time you start a DMP you may have begun to miss debt payments and have already fallen into arrears. However this is not a prerequisite for starting the Plan itself. You can do so if you have never missed a single payment.

Very often you have only been able to maintain the payments to your debts this because you have been borrowing from one to pay another. This situation has to stop.

If when you calculate your disposable income you simple cannot afford to continue paying your debts without borrowing more then you are clearly eligible for this kind of solution and your creditors will recognise this even if you have paid them on time up until now.