Debt Management plans
Debt management plans (DMP) is a debt solution for people to be able to pay back their debts at a rate they can afford.
A DMP is suitable for people struggling to keep up with the monthly amount they agreed to pay their creditors.
With a DMP you make reduced, affordable to you, monthly payments towards your debts. this can give you breathing space to get your finances back on track. They are ideal for people who don’t want to go down the bankruptcy or IVA route, or dont qualify for them, but still need a debt solution.
If you are struggling to pay your current debts at the level of monthly payments you are currently paying but do actually have some money left over after all your essential monthly payments are made then a DMP is a solution worth taking a look at.
How does a DMP work?
A (DMP) is an agreement between you and your creditors to help you pay off your debt at a rate that is affordable to you.
a DMP is set up and managed by an FCA licensed DMP provider, you make 1 payment to the DMP provider and they dispurse the payment between your creditors and deal with your creditors on your behalf.
When setting up your plan, your DMP provider will help you put together a budget, This will show how much you can afford to pay to your debts after all your priority payments and living expenses have been covered.
With the money left over, after your living costs are covered, you’ll share this out fairly between your creditors. You’ll make a monthly payment to your DMP provider and they’ll pass on the correct payments to your creditors.
Is a DMP right for me?
We cant possibly say at this point as every single persons situation is different, many factors come into play. How much debt you have, how many creditors you have, how much disposable income you have left at the end of the month etc..
The best thing to do is to get some free debt advice by filling in our form and speaking a debt advisor. They can get a better understanding of your situation, then they can then advise the best course of action.
What are the benefits of a DMP?
- Theres 1 lower monthly payment to pay all your creditors and this will be set at a rate you can realistically afford
- You are not tied into a legal agreement and can leave a DMP at any time
- DMP’s are flexible and can be changed if your circumstances currently change.
- With negotiated terms and lower interest rates, most people with a debt management plan pay their debts within three to five years.
When you combine the lower interest rate with the accelerated repayment time your saving over the course of the plan can be substantial.
What are the disadvantages of a DMP?
- It will take longer to repay your debts as you’ll be making reduced payments
- Your interest and charges may not be frozen and not all creditors may participate (the interest and charges not being frozen is quite unlikely, when in severe debt the creditors don’t really want to make things worse)
- Making reduced payments to your creditors can affect your credit rating
- As its not a legal agreement like an IVA creditors can still take further action.
Is a DMP legally binding?
No, you don’t have to make a legal commitment when starting a DMP. You can stop a DMP at any time.
You will need to sign a DMP agreement form. This is only to give the DMP provider permission to contact your creditors on your behalf. The agreement’s not legally binding Though.
Can my creditors keep charging fees or adding interest during a DMP?
Whilst no DMP provider can assure you that all charges and interest is frozen. The reality is that most creditors will understand that when you’re in finacial difficulty, adding further interest or charges will only make things worse.
Why do I need to review my DMP payment every year?
Its actually an FCA regulation. The Financial Conduct Authority (FCA) has ruled that all DMP providers must conduct a plan review with their clients at least once a year.
This is to make sure a DMP is still the best option for you, and the payment you’re making each month is still a realistic reflection of what you can afford.
Will a DMP affect my credit rating?
Each debt that’s been included in your DMP can have a ‘payment arrangement’ note added to it on yourt credit file
A creditor can only add a DMP flag to your debt if they accept how much you’re paying them each month through the DMP.
There isn’t a specific place on your credit file that notes whether or not you’re on a DMP. But creditors will often default on your account once you’re been on a DMP for a few months. The default will stay on your credit file for six years.
as your DMP monthly payments are usually lower than the minimum monthly amount, This will affect your credit rating, as you’re unable to cover the minimum payment that was set out in your origional credit agreement.
Could a creditor make me bankrupt even though I'm on a DMP?
Possibly, but very, very unlikely. The creditor would also have to pay expensive fees to make you bankrupt, which is usually not worth the risk when the creditor can’t predict the amount of money they would get back.
A creditor is only legally allowed to make you bankrupt you owe them more than £5,000 in England, Wales or Northern Ireland, or£3,000 in Scotland.
If I miss a DMP payment, will it get cancelled?
It’s important to be aware that if you miss payments frequently, your DMP may be cancelled.
But, if unexpected circumstances occur in your monthly budget meaning you’re unable to make your next DMP payment. Your provider may ask to review your budget to see if a different solution may suit you better. Also, the term of your DMP is likely to be extended to accommodate the missed payment.
How much does a DMP cost
DMP providers charge around £38 a month, their value comes from their negotiation skills in getting your monthly payments down and hopefully, charges and interest frozen.
Speak to a debt advisor now!
Simply fill in out our application form here for some free, non jugdmental debt advice. Debt advisors are here to find the best debt solution for you dependant on your circumstances. Take the first step on getting your financial life back on track!