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DEBT MANAGEMENT PLANS (DMP): WHAT YOU NEED TO KNOW
If you’re having problems paying back your unsecured debts, a Debt Management Plan could be an ideal solution for you. A debt management plan is a perfect option if you have non-priority debts, such as store or credit cards, personal loans, overdrafts etc. A debt management plan will consolidate all your debts into one so you have one monthly affordable payment, while all your interest and charges will be requested to be frozen and your debt management company looks after all your creditor contact. Here are some of the frequently asked questions about a debt management plan.
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What exactly is a Debt Management Plan?
DMP stands for Debt Management Plan. It is an informal arrangement that allows you to make affordable monthly payments to your creditors through a debt management company. The proposed monthly repayment is based on what you can reasonably afford. It is arrived at after an analysis of your monthly budget.
A debt management plan only covers your unsecured debts. It does not include secured debts, such as homeowner loans and mortgages. You will still be required to pay back these loans as usual or your property will be at risk.
Our Simple 3 Step Process
How Does a Debt Management Plan Work?
Step 1: Finding a DMP Provider
The first step to creating a debt management plan is to find a debt management plan provider and we can help you do this simply get in touch by completing a form or calling us on 0330 133 1228.
The DMP provider you choose will help you create a debt management repayment proposal, which will be sent to your creditors. Your debt management proposal will then have to be accepted by your creditors before it begins which can take usually take between 1 – 2 months.
Step 2: Setting Up a Budget
Your DMP Provider will carefully work out how much you can afford by carrying out an income and expenditure to work out what your disposable income is. The adviser will examine your documentation, such as bank statements and payslips to determine how much you can realistically afford to pay back. Your creditors may also require proof.
If you do not have a disposable income left over, it will likely recommend that a debt management plan is not for you and we will let you know the other debt solutionsthat are available for your circumstances.
Step 3: Creating a Debt Repayment Proposal
Depending on the amount of disposable income you have available, your debt management provider will produce a proposal for your creditors. This will show your debt management company plan to distribute your disposable income amongst your creditors usually on a pro rata basis meaning each creditor receives a payment worked out on a percentage of the total debt they own, the creditors you owe more money to will get a higher payment compared to the creditors you owe less money to. Your DMP Provider will then contact your creditors to gain their approval.
Your DMP provider will attach any relevant evidence to prove how the proposal was arrived at, such as bank statements and payslips. Depending on the confidence your creditors have in you, they may agree to freeze your interest or charges, even though they are not legally required to do this.
Step 4: Approving the Debt Management Proposal
If your creditors accept the proposal or if after 21 days your creditors do not respond, your debt management plan will be approved and you will be allowed to keep up with the new payment schedule. You have to make to your payments through your DMP Provider who will then distribute it to your creditors.
In case a lender contacts you for any reason while in the plan, just inform them you’re in a debt management programme and ask them to talk to your DMP provider.
If your financial circumstances change during this time, be sure to inform your DMP provider as soon as possible. If your income has dropped, your DMP provider will try and arrange a more affordable repayment schedule for you.
You will be required to make the agreed monthly payments until all your debts are paid off, or until your circumstances have changed and you can afford to repay your debts as originally agreed.
Debt Management ADvice
We offer debt solutions to UK residents who are looking to take back control off their finances, we firstly assist you by finding out more about your current situation before recommending to you the most appropriate debt solution for your circumstances.
You must reside in the UK for us to assist you.
Benefits Of Debt Management
How Do I Qualify for a Debt Management Plan?
A debt management plan is designed if you are struggling to pay back any unsecured debts, such as utility arrears, catalogue debts, overdrafts, store credits, personal loans and credit cards. Your debt management plan cannot cover debts such as mortgages or loans which are secured against your home. You have to continue to make these payments yourself.
All though there is no limit legally on what you have to owe to enter a debt management plan, most debt management companies recommend you have £1,500 worth of debt & 2 creditors for them to assist you.
Your creditors do not legally have to approve your repayment plan. However, your debt advisor will negotiate with them on your behalf and come up with a solution that is fair and that everyone will accept.
Which Debts Can I Pay Off With a DMP?
A Debt Management Plan only covers non-priority debts, such as:
- Personal loans.
- In-store credit debts.
- Catalogue and home credit.
- Credit cards.
- Store card debts and payday loans.
- Building society or bank loans.
Which Debts Can’t I Pay Off with a DMP?
A Debt Management Plan does not cover debts, such as:
- Rent or loans secured against your home.
- VAT, National Insurance and Income Tax.
- Child support and maintenance.
- Gas and electricity bills.
- Council Tax.
- TV license.
- Court fines.
- Hire purchase agreement.
How Much Does a Debt Management Plan Cost?
The cost of a debt management plan differs from one company to the next. Some company will offer their services for free while others will charge you a fee. Fee-charging providers will require you to pay a DMP set-up fee, deposit or an on-going fee that is deducted from your monthly payments. The setup fee is usually 50% of your first six monthly payments from a minimum of £240 up to a maximum of £1400.
The DMP Provider may also include the cost of administering your DMP, which is usually a monthly fee that you will pay after you have paid the setup fee.
If you cancel your DMP, your provider may give you a refund of any charges or fees. However, some DMP providers may charge you a cancellation fee, be sure to check your agreement carefully.
DMP Companies: How to Choose the Best DMP Provider
There are many organisations and companies that offer debt management services. It is essential that you choose the best provider for you. This applies whether or not you choose to use a free debt management company or a fee-based company. Here are valuable tips on how to choose the right DMP provider.
Tip 1: Check if the Provider is FCA Authorised
Anyone offering debt management services must be authorised by the Financial Conduct Authority (FCA). This applies whether or not the DMP provider is charging a fee. An authorised DMP Provider has met the minimum standards set by the FCA. If things go wrong, you can complain to the Financial Ombudsman Service.
Tip 2: Go For a Provider Who is a Member of a Trade Association with a Code of Practice
Some companys are members of trade associations with a code of practice. This means they are audited regularly to ensure they are following the code of practice. If your unhappy with the service you can refer them to the trade association to investigate. The main trade association for debt managment providers is the Debt Managers Standards Association (DEMSA).
Tip 3: Ask if the Provider is a Member of the DMP Protocol Scheme
Some DMP providers are members of the Debt Management Plan protocol scheme. The scheme was set up by the government’s Insolvency Service. While membership to the scheme is voluntary, DMP providers who are members of the scheme are dedicated to certain standards in addition to the FCA rules and guidance.
Tip 4: Choose a Well Established and Highly Experienced Company
Consider hiring a DMP company who is experienced in the various areas of debt management. They should be able to guide you through the entire process of applying for a debt management plan.
If you do not qualify for a DMP, a good DMP Provider should help you choose another debt solution that is better suited for your circumstances.
Tip 5: Let Us Help
We are happy to help by assisting you in choosing the right debt management company to go with.
Will a Debt Management Plan Affect My Credit Rating?
Your debt management plan will have an impact on your credit rating. It will remain on your credit file for six years from the date you defaulted on your original credit agreement. Which can make it hard for you to acquire more credit in the future.
What is Better, a Debt Management Plan or an Individual Voluntary Arrangement (IVA)?
An Individual Voluntary Arrangement is a formal debt solution, meaning it is approved by the court and your creditors must abide by it. A Debt Management Plan, on the other hand, is an informal agreement between you and your creditors. Your creditors can choose to accept or reject it depending on the confidence they have in you keeping to the agreement.
An IVA is less flexible than a Debt Management Plan, you can still vary your payments by up to 15% on an Individual Voluntary Arrangement. A DMP is more flexible as you can change your repayments whenever your circumstances change.
Interest and Charges on Loans
An Individual Voluntary Arrangement guarantees that all interest and charges are frozen once it is granted. With a DMP, there is no guarantee that this will happen. Your creditors may continue to add them.
An Individual Voluntary Arrangement only lasts for 5 years. There is no a guaranteed end date for a Debt Management Plan as interests and charges may continue to be added by your creditors.
An Individual Voluntary Arrangement is a form of insolvency where a percentage of your debts are written off. A Debt Management Plan allows you to repay your debts in full over an extended period of time.
An Individual Voluntary Arrangement requires the approval of at least 75% of your creditors. Creditors do not have to accept a DMP agreement. It is recommendable you continue making your current repayments while DMP provider negotiates with them on your behalf.
What are the Pros and Cons of a Debt Management Plan?
Pros of a DMP
- Debt Management Plans are flexible, meaning your repayments can change depending on your circumstances.
- You’re not tied into the agreement. Thus, you can cancel the arrangement if you like.
- You are only required to make a single monthly payment, which is usually a set amount you can realistically afford.
Cons of a DMP
- It may take longer to repay your debts as you will be making reduced payments.
- Fees, interests, and charges on your debts may still be incurred, making the total debt level actually go up.
- Making reduced monthly payments will greatly affect your credit rating
- Your creditors can still take legal action towards you, for example, start a court action or pass the debt to a debt collection agency.
Once a debt management plan has been set up and accepted by your credits it should run smoothly for the duration as long as you do not fail to make the agreed monthly payments. If you are looking for the best DMP providers, Contact Us.
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