A Debt Management Plan (DMP) exists only to manage “unsecured debts”. Unsecured debts generally include credit cards, store cards, bank overdrafts and loans, catalogue debts etc. Secured debts cannot typically be included in a debt management plan. Examples of secured debts would be a hire purchase agreement (perhaps to purchase a car) or a mortgage on a property. We explain whether you can also leave out any of the unsecured debts that you owe.

Excluding a credit card from a DMP

The bottom line is that you should not leave out any of your unsecured debts if you start a Debt Management Plan. Some people wish to exclude a credit card which may be used to cover work expenses. Such a situation is often the exception to the rule that it is typically wise to include all debts in a DMP.

Where employment depends upon the personal financing of travel and entertaining, the ability to manage the expenditure is clearly vital. In such circumstances it is advised that the debtor set aside one credit card that is used just for business expenditure.

The speedy reclaim of expenses from the employer should enable the card to be cleared fully each month thereby avoiding interest and the further build-up of debt.

Leaving debts owed to family out of a DMP

Money which has been lent by a family member or friend is generally unsecured. As such, this debt should be included in a debt management plan. For personal reasons some people understandably wish to try to repay the money as a priority over and above their other debts. However, this could cause a problem in terms of the debt management plan being accepted by the other creditors.

As part of a debt management proposal an income and expenditure schedule is forwarded to all creditors. If an allowance to cover the expense of the repayment of family debt were included in the schedule it might be reason for other creditors to object to the debt management plan.

If the repayment amount is not included in the expenditure record the debtor may find they do not have sufficient money to repay the debt, cover their living expenses, and make the debt management payment each month.

Paying excluded debts as part of living expenses budget

An important reason to not leave a particular debt outside of a debt management plan is that no provision can normally be made in the income and expenditure schedule to facilitate the repayments to be affordable. As such, the pressure on an individual’s finances could continue to grow, which is the opposite result to that which debt management should achieve.

Leaving regular types of debts outside of a debt management plan is unwise. Creditors could perform a credit check on people seeking to repay their debts via debt management.

While most creditors are supportive of debt management cases, if they discover that an individual continues to repay one debt in full while asking all of their other creditors to accept reduced payments (and to make interest concessions such as freezing the interest) they will be much more likely to reject the debt management plan.

Therefore it can be concluded that leaving a debt out of a DMP may eventually turn out to be an expensive error.