Debt Management Plans – How Do They Work?
One type of debt solution is called a debt management plan (DMP). This is the process of creating a plan with affordable repayments, making sure someone can clear the whole debt. Those who struggle to meet the original repayment amounts will find this type of plan helpful.
In the majority of cases, the monthly payments will be reduced, but you still pay off the debt. The DMP just makes it easier to prevent a debtor getting into further debt or struggling to pay for normal, essential living expenses.
Third party companies will usually arrange the DMP for you. These third parties are usually debt management companies or debt charities. They will contact your creditors on your behalf and arrange one single monthly payment. The debt management companies or charities send portions of the new repayment to your various creditors. It is possible to create a plan by yourself, but you will need to be confident in negotiating and talking to your creditors.
It doesn’t matter where you are in the United Kingdom, as there are DMPs available all over. If you’re struggling with any debts, get in touch with DMPs to help arrange a more affordable repayment plan so you can get your life back on track.
How DMPs Work
Before you get involved with any DMP, you’ll want to know as much as possible about these types of plans.
The first stage to create your DMP is to create a budget that is realistic and affordable to live on. This will consider all household costs, mortgage payments, grocery costs, and utility bills. The only payments that won’t be initially included are your debt repayments.
Including everything other than the debt will help determine the amount you have available to clear your debts.
From the realistic budget, a DMP company will arrange the monthly payments with your creditors. The DMP provider will work in your best interests to make sure you can afford your bills and living costs first.
The Types of Debts Covered By DMP’s
Only unsecured debts can be included in one of these agreements. These types of debts include store card/credit card debts, overdrafts, personal loans, and unpaid utility bills.
Anything that is secured, like a mortgage payment, car loan, or court action debt can’t be included in your DMPs. You will need to stick to the amounts that have already been set, whether agreed to by your or ordered by a court.
When we get to work with your budget, we will take these secured debts into account before setting an affordable amount with the DMP. However, we can also help with some management of your secured, priority debts.
Things You Need to Know Before Applying for DMP’s
There are risks involved with taking out a DMP, like with any financial loan or plan;
- Repaying debts will take longer, since you’ll have lower payments
- You may end up paying more, since interest can still be charged
- There is the chance of your credit rating being affected
- A creditor doesn’t have to accept the offer made
- Creditors can take other action to arrange the repayment of your debt, including court action or debt collection companies
- Your creditors can still get in touch with you
Interest and Charges Are Still Possible
In the majority of cases, the creditor won’t continue to apply interest or charges to your debt once a DMP is created.
This isn’t a guarantee, though. Because you signed a contract that stated your creditor could apply charges or interest, they can still do that with a DMP in place. Most creditors realize that you are in a tough financial position and will agree not to add yet more to your debt.
Make Changes When You Can
The benefit of DMPs is that they are flexible. If your situation changes (whether you make more money or less) you can arrange for changes with your DMP.
There’s No Guarantee the DMP Will Be Accepted
Creditors are allowed to reject any plan to reduce your monthly payments. Some creditors will pass on your information to debt collection agencies instead of sitting on it for a longer period of time. Debt collection agencies tend to be more willing to work with DMP providers, knowing that they will get the payment eventually.
Tips to Choose Your DMP Provider
We want you to get the best company to work with you, so encourage you to look around. One thing that we want you to do is look out for fee-free providers, so your money only goes on the debt.
Make sure you carry out research into any type of DMP provider, so that you do make the best financial decision. Here are some considerations you need to make:
- Does the FCA authorise the DMP provider? Check the postcode or name online for this information.
- Will the DMP provider consider all your debt solutions available? This helps you find the perfect solution for your situation.
- If there are any fees involved, how are they paid? Will they be upfront or within your monthly payments?
- If you need to cancel or change your plan, what are your options? Will you need to pay a fee?
Changing Your DMP Provider
Your DMP provider may have shut down or you may not be happy, so now you may consider changing to someone else. If your Debt Management company has closed down, you can read more about your options here.
But if you just don’t want to stick with your current provider, there are options available. Make sure you check your current provider first for information about cancellation notice and fees applicable to your account.
We do have fee free options available if you want to change your DMP provider. We’ll work with you to find the perfect solution for your financial needs. And you won’t need to spend a penny to find out more. Our free Helpline is available and we also have an online debt advice tool to use.