Debt Management Advice
What is a Debt Management Plan?
Debt Management Plans (sometimes known as a DMP) are informal agreements with your creditors to repay your debts at a lower monthly rate that is more affordable to you. If you are struggling to meet your monthly debt repayments, yourself or a debt management company can negotiate your payments, in order to get lower more manageable monthly repayments towards your debt.
A Debt Management Plan can be handled by yourself or on your behalf from a Debt Management Company. It can be a great debt solution for a temporary period, or when you can't manage financially every month. Because a Debt Management Plan is informal, you or your creditors can opt out of the agreement at any stage.
Advantages of Debt Management
- An Informal agreement that can be stopped at any time as your circumstances change (for better or worse).
- Interest & Charges could be frozen if creditors agree.
- Creditor pressure eased as they deal with us.
- 1 easy monthly payment to cover all unsecured debts.
- A debt management company will negotiate with creditors on your behalf, so offers are more likely to be accepted and interest frozen than if you try to do this yourself
Disadvantages of Debt Management
- A Debt Management Plan can remain on credit file for sometime after completion if a default notice has been issued.
- If your creditors refuse to freeze or reduce interest this can lead to increased debt level as repayments are less than original contractual payments. Any further collection actions may incur costs that will normally be added to the debt.
- Debts will be repaid over a longer period of time than if contractual payments were made.
- You will repay debts until they are paid in full
- Repaying debt over a longer period may increase the total amount to be repaid.
- Your ability to obtain credit will be affected in the short term and might be affected in the medium to long term.
Self-Help Debt Management
You can administer a Debt Management Plan by yourself and there are certain charitable organisations out there, to help you and show you how to go about this. You renegotiate your payment terms with your creditors showing them that you are struggling to meet payments, By doing this you will mostly find that they are sympathetic about it. The fact that you are dealing with the problem shows that you are committed to repaying the debt. If you leave it until your creditors are threatening some sort of action against you, they will be less sympathetic.
It isn't easy to set up and maintain your own Debt Management Plan. You'll need to be a 'tough cookie' in order to negotiate the best deal for you; they may in any case refer you to a Debt Management Company. This is discussed in the next paragraph.
Debt Managment Companies
A Debt Management Company is an organisation that negotiates and handles your Debt Management Plan on your behalf. There are so many firms that offer this service and most charge a fee for their service, which will come out of your monthly payment (usually ranging from 15% - 18%).
The good thing about a company handling your Debt Management Plan is they may have more weight when it comes to dealing with your creditors. In some cases, they may even get your interest frozen. They are normally very good at following structured guidelines for your income and expenditure and can normally come up with a reasonable monthly payment that will leave you comfortable to get by every month, whilst paying down your debt. Also, you will make one payment to the company and they will disperse it accordingly, instead of you having to handle all the payments yourself.
If you are thinking about entering into a Debt Management Plan, contact us at Debt Advice.
How long does a Debt Management Plan last?
The length of time of a Debt Management Plan depends wholly on how much the debt is, what your monthly payments are and how long your circumstances remain the same. You may want to remain in the plan until the debt is cleared, or you may see it as a more temporary measure. You may have little debt to pay off and have a lot of disposable income every month, or you may have higher debt and less disposable income.
If you want to remain in the Debt Management Plan until the debt is paid in full, a rough guide of the duration of the plan can be obtained by dividing your total debt by your new monthly payment amount giving you an approximation of the total number of months it is expected to last.
More Debt Solutions
If you need Debt Management Advice, you can discuss it with us at Debt Advice further, in confidence and for free.
If you feel you need more information on other Debt Solutions please see the links below or contact Debt Advice on our lo-call helpline 0800 043 5133.