Advice on a Debt Management Plan
We’re here to answer all your questions and help with difficult debts.
A Debt Management Plan can be a suitable solution for people struggling to manage their debts. This option will depend on your level of debt and how much you can afford to repay each month.
If you would like to know if you are suitable for a debt management plan call us today on 0800 085 0226 and a debt advisor will be happy to help you.
What is a Debt Management Plan?
A debt management plan is a debt solution which enables you to make an affordable monthly payment to your creditors via a debt management company. A debt management plan means you only have to make one monthly payment to one company, who will distribute the money on your behalf. Your debt management plan will last until all of your debt is repaid.
People living in Scotland may wish to consider the Debt Arrangement Scheme as it offers legal protection and is a similar solution to debt management plan.
How To Enter A Debt Management Plan?
A debt management plan, most commonly know as a DMP, is an informal debt solution, for a persons unsecured debt. A debt management plan normally lasts for as long as it takes to repay the debt in full.
It is not legally binding and a creditor or debtor can usually stop the debt solution with 1 months notice. In a debt management plan a third party negotiates your monthly payments, this is turn makes your debt more manageable. Your payment will be divided between your creditors and similar to other debt solutions, the amount you pay each month will be based on your affordability (disposable income after paying essential living costs).
The length of time someone is in a debt management plan will vary from person to person, depending on your debt level and affordability.
A debt management plan is an informal debt solution it does not guarantee to freeze your interest and charges, this may also impact on how long the debt management plan will last for.
Once you meet specific criteria a proposal is submitted to your creditors.
It is always important, even when you are struggling with debt, to keep a good relationship with your creditors. It is within their interests to work with you in order to help you repay the debt owed.
What Debts Can Be Included
Only unsecured debts can be included into a debt management plan, such as:
- Credit / store cards
- Payday loans
- Previous years council tax
- Utility arrears
It’s important to stress than priority household bills must be paid, such as:
- Mortgage / rent
- Council tax (current year)
- Gas and electricity
- TV Licence
Benefits of a Debt Management Plan
- You will pay a monthly manageable sum to one company and they will distribute the money to your creditors on your behalf
- You may be able to get your interest and charges frozen
- A Debt Management Plan is an informal solution which means you are not tied in legally to the solution – you can usually leave a Debt Management Plan with a month’s notice
- You can increase or decrease payments if your salary changes
- You will be taking the first steps towards becoming debt free.
Negatives of a Debt Management Plan
- Your creditors do not have to accept your proposal
- Any spare income will be used towards the debt solution meaning you won’t have much disposable income
- You have to repay all of the money you owe – you can’t get any written off
- Some Debt Management companies will charge a fee for administering your case, however we can point you in the direction of free Debt Management Plans, if that is the best solution for you
- Freezing interest and charges is not guaranteed and court action may continue
- Repaying small amounts over a longer time may lead to an increase in the total debt to be repaid
- Your credit rating will be affected for 6 years
Criteria to enter a Debt Management Plan
You must have at least two different creditors
You must have unsecured debt of at least £5,000
You must have a disposable income of £100 or above each month
Help To Manage Debt
Debt Management Examples
Jim had found his debt had grown to an unsustainable level, he was making the minimum payments however due to interest and charges the debt remained at the same level.
Jim called us requesting information on entering an IVA, because it would freeze his interest and charges. We explained that while that would be the case, he would in the end be paying back more than the debt he owed.
He decided that a debt management plan was the route he wanted to go and if all interest and charges were frozen he would be debt free 1 year earlier than if he entered an IVA. Jim felt a huge relief knowing that someone was dealing with his debt on his behalf.