What is a Debt Management Plan?
What is a Debt Management Plan (or DMP)?
A Debt Management Plan is a simple and effective way to pay your unsecured debts. They are meant for people who are in debt and who are struggling to make there monthly repayments. A Debt Management Plan is one of the most effective forms of debt help as it can get you one lower monthly repayment instead of paying each of your creditors separately. It can also stop annoying letters and phone calls from your creditors.
How does it work?
We will go through your income, expenditure and debts with you and calculate a lower affordable monthly payment you can comfortably afford. On receipt of your payment to us, we will contact your creditors, set new arrangements in place and look to get interest and charges frozen for the duration of the programme. Any annoying phone calls and letters from your creditors will start to disappear.
What is the minimum criteria?
Usually, the plan is best suited to people who have a unsecured debts of £2,000 minimum, 2 creditors and can afford at least £100 towards their unsecured debts.
Is a Debt Management Plan for me?
A Debt Management Plan can help if you have experienced a sudden change in circumstances which has left you unable to meet you minimum payment requirements on your debts. This can include being made redundant from a job, received a pay cut, being faced with a sudden surge of expenses or just generally struggling to make your repayments.
What are the risks involved?
The risks involved in a debt management plan are relatively low because it is an informal agreement. Unlike an IVA debt help agreement which is legally binding.
The payment terms
The agreement will replace existing agreements with the creditors. Hence, the debtor will be required to pay only a single payment each month until the duration of the plan ends or when the unsecured debts get paid fully. Since payments are reduced and interest and charges can easily be added on, it is only suitable if you want to be rid of debt in the short term.
It is crucial that the Debt Management Plan is thoroughly reviewed by your Debt Advisors every 6 to 12 months. This is to see if there has been any change in circumstances and give you the option to increase or decrease your payment. It is important for your chosen debt advisors to secure approval of creditors towards early settlement of debts. Once the period of a Debt Management Plan ends, your credit file will be marked as ‘all debts satisfied’ and can get a financial fresh start.
Debt Management Plans are a good way to protect your assets easily. Unlike Bankruptcy, which poses a risk on even your home equity, in a DMP there is no such risk. Since DMP's are informal agreements between debtors and creditors, you do not need to inform your creditors about the assets or property that they have to own. In this manner, you can protect your assets easily and ensure that you clear off your debts. Many people have turned to Debt Management to help overcome financial hurdles on a short term basis.