Debt Management Plans

What is a Debt Management Plan 'DMP'?

A DMP is an affordable repayment programme set up by an independent company who will negotiate with your creditors to agree an affordable monthly payment with a sum paid to each creditor each month. You will be asked to provide an accurate Personal Finance Statement (SOA) to show / prove your disposable and available funds to be paid to the debt management company.

You pay the amount to the Debt Management Company who then pays each Creditor

To be able to use a DMP you need to be able to satisfy the 3 below conditions:

a) have debts of £5,000 or more.

b) have 3 or more individual creditors.

c) have £100 or more available income per month.

A DMP is a good option if you can afford to make regular payments to creditors.

Debt Management Programs can be an effective way to reduce debts, particularly if most is unsecured credit card debt. But debt management plans have limits: participation by creditors is voluntary, and the repayment plan may continue for several years and still leave you with significant debt. Details of being in a debt management plan may be noted on your credit report and some agencies pay their employees on commission or receive other compensation from your creditors when you enroll in their program

Negotiating a payment plan

Negotiating the plan with your creditors may take several weeks. You may find that some creditors or debt adencies may decline this option. If most of your debts relate to unsecured consumer debts such as credit cards and unsecured personal loans, then creditors may be more likely to accept a repayment plan.

You need to clarify whether creditors are offering to reduce your outstanding balances. Participating creditors sometimes agree to significant reductions in the interest payments but may be more reluctant to offer reductions in the principal balances.

Calculate how much of your payment is being applied to reduce the balance and how long it will take you finish repaying your creditors. Look to see if there a realistic "finish line" at which time you will be debt free? Check that your payment plan leaves you with an affordable free cash flow to live without getting into further debt.

The Debt Management Company

Check your chosen debt management company. Are there any complaints against them? Have you been given a written agreement detailing their obligations to you, including an itemized written description of all of their fees and charges? Ask whether any employees are paid on commission when you sign up for services.. Some credit counseling organizations receive additional compensation from your creditors when you enroll in a payment plan. Ask your debt management advisor if they disclose this compensation

What about the ones that won't accept ?

Harassment by debt collectors is likely to continue with creditors that do not accept the proposed plan. Secured creditors may also be reluctant to accept a payment plan if they think the value of their collateral is at risk, so they may chose to bring a foreclosure action instead. Many debt management plans limit payment programs to consumer debts only..

Be aware that if you do miss a payments on a credit debt, this will be recorded on your credit reference file by your creditor and some may also ask for a note to be put on your credit reference file to say you are on a DMP.