A Debt Management Plan is an non-legal contract/agreement between your creditors and yourself to say you will pay back all of your debts.
When should debt management plans be used?
Typically DMPs are only used when:
- You currently have financial difficulties that involve your ability to control debt.
- You are only able to payback fractions of the amount you borrowed in monthly instalments.
The agreement has to be made with the creditors and you agree on the monthly payments and any associated terms and conditions. There are also debt management companies who will agree to manage the process between you and your creditors. You would then proceed to send them a monthly amount that covers all your payments to all your creditors. They would then distribute the payment between all of your creditors.
How can I get a Debt Management Plan?
Contact a qualified debt management company. You can use this list to find a qualified and registered company Search the Financial Services Register.
They will ask you for your financial situation with your creditors. They use the information to work out what you will be paying monthly.
The debt management company then calls your creditors to get them to agree to the debt management plan they devise. Please note that creditors do not need to agree.
If you debt management plan does not express otherwise then your lenders can:
- Tell you to pay back all of your debt at any time in the future.
- They can take further action to get the money you owe them back.
When are Debt Management Companies suitable to use?
Unsecured debts are the only type of debt that debt management companies can create a debt plan for. Unsecured debts are debts that are not secured against your property.
What will a Debt Management Company charge?
Often a DMC will charge an initial fee for start up costs. They will also often charge a handling fee for every monthly payment you send.
A Quick Overview of a DMP
Advantages of a DMP
- You often pay back debt at a reduced rate.
- The monthly payment amount will never exceed what you can afford to pay.
- You will always have enough money after the monthly payment of a comfortable standard of living.
- All or majority of your debts will be written off at the end of the debt management plan.
- A debt management company handles all of your creditors and it means you only have to pay one payment a month.
- Creditors will be less likely to call you as they will contact the debt management company instead.
- Creditors will be unable to contact you after the DMP has been completed.
Disadvantages of a DMP
- A debt management plan can have a adverse impact on your credit rating for a long period of time. This will affect your ability to receive credit.
- High levels of debt can take years to pay off as you only pay small amounts back each month.
- Since a DMP is not a legal contract or agreement then creditors still have the ability and option to take you to court to settle the debt.
Still unsure about a debt management plan?
Call 0112 496 0919 for free advice regarding anything debt related. We will give your more information on debt management plans and answer any question you may have. Unable to make a call right now? Do not worry, you can make an appointment on our contact page.