A Debt Management Plan (DMP) enables you to pay off all of your debts at a reduced rate that you can afford, wrapped up in one monthly payment.
Debt Management Plans
A Debt Management Plan (DMP) enables you to pay off all of your debts at a rate you can afford, through an agreement between you and your creditors.
A DMP provider can help you work out what you can afford based on your income and expenses, and can talk to the companies you owe money to. You make one payment per month to your DMP provider, who then pays your creditors for you.
Debt management plans are suitable if:
- you can only afford to pay a small amount each month
- your debts are ‘non-priority’ – cards, loans overdrafts etc.
The Debt Management Plan process explained
Step 1 is to understand how much money you have coming in each month, and how much is going out. This will let you see what you have leftover to pay towards your debts. You can do this by completing our online form, or by talking to us.
We’ll take your costs into account like food, transport, phones, housing etc. If there’s some money left each month after all of your usual costs have been paid, that will go towards paying back your debts.
Making an offer to your creditors
Once we’ve worked out what you have leftover, we’ll talk you through your options and recommend the most suitable debt solution for you and your circumstances. Whether you act on this advice is completely up to you.
If you choose a DMP, the debt management company will contact all of your creditors for you and make them an offer of payment. This offer is often much less than you’re currently trying to pay each month.
Starting your DMP
Once it’s all been agreed, you’ll make one monthly payment to your debt management provider, who will then divide it up and share it amongst your creditors. Each company you owe money to will receive a payment on a ‘pro-rata basis’, which means that the one you owe most to will receive the biggest share. It’s done this way for fairness.
You’ll make payments each month until your debt is cleared. You’ll know how long that’s expected to be before your DMP is set up. Most creditors freeze interest and charges on the debts, so you can pay them as quickly as you can afford.
If you’re worried about the length of time it could take you to repay, you may want to consider an Individual Voluntary Arrangement (IVA). With an IVA all interest and charges will be frozen and you’ll probably be debt free in five years.
Is a DMP the right option?
If you owe more than £4,500 and have more than one debt, and you’re struggling to keep up with repayments, it could be a good option.
If you’re a homeowner and have lots of equity in your house it could be a good option as this isn’t factored into your DMP.
To find out more, with no obligation, contact us.
Calls and letters from your creditors
If you keep up with payments then the calls and letters are likely to reduce over time. Creditors are still legally allowed to contact you, although most will leave you alone while they’re receiving payments. If you start missing any payments though, the calls and letters could start again.