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What is a Debt Management Plan and how can it help clear your debts?

Published on:April 24, 2019Author:alex

In the UK population of 52.1 million, there are over nine million people currently struggling to pay their debts each month.

If despite your best intentions you are having difficulty managing your debts, it can be difficult to know where to turn.

The Debt Advisor can help you to better manage your debt.

With a Debt Management Plan (DMP), you can rest assured that your payments will go out to creditors every month and we will liaise with your creditors requesting that they stop action, freeze interest and charges, and accept your payment plan.

For most people, this is preferable to taking on more credit only to find that your debts continue to increase.

There are upwards of 400,000 people in the UK using FCA regulated practices to help them manage their debts.

What is a DMP?

A Debt Management Plan (DMP) is different to an Individual Voluntary Arrangement (IVA) as it is an informal arrangement between you and your creditors.

We will help you work out what you can afford to pay each month. The payment is sent to The Debt Advisor who then distribute this money to your creditors (within 5 working days).

A debt management plan is suitable if you are struggling to meet your minimum unsecured debt payments each month but you have some surplus money available each month once you have paid all your household bills.

Household bills refers to “priority payments” which includes rent, mortgage and utilities, plus something toward any arrears.

Our advisors will talk to you to assess your situation and determine if a debt management plan is suitable for you.

Debt management plans can only be offered by debt solution companies that are authorised and regulated by the Financial Conduct Authority. The Debt Advisor is one of a limited number of companies in the UK who have FCA authorisation to offer debt management plans.

Why should I choose a DMP?

1. It’s affordable

Your plan will be based on making affordable monthly payments into your plan. Our advisors will discuss your monthly budget with you to determine how much money you need each month in order to afford essentials and bills.

If you can afford to pay your contractual payments, proposing a debt management plan does not make sense.

The aim of a DMP is to clear your debt in a reasonable period of time. If it is going to take longer than 5 years, there are other solutions which may be more appropriate.

Our debt calculator can help you work out how your “affordable” monthly payment compares with the amount creditors want, as well as the amount of disposable income you currently have.

2. Your debts will be properly managed

A managed DMP will mean you avoid the stress of having to deal with your creditors each month.

Our DMP team will:

PROVIDE updates to your creditors

ENSURE creditors are freezing interest and charges

MONITOR your plan to make sure your debts are reducing

DEAL with your queries and suspend your plan if you are struggling to make your payment

We do charge fees to manage your plan and the fees are deducted from your monthly payment.

The length of your debt management plan depends on your individual situation, as well as your level of debt and monthly surplus.

If creditors agree to freeze interest and charges, the length of the debt management plan will be significantly reduced.

For example: If you owe £5,000 and you can afford to pay £200 per calendar month, the DMP will last for just over two years (25 months), provided the payments are maintained each month and your creditors freeze interest and charges for the duration of the plan.

Your DMP can also be completed sooner if your circumstances, income and living costs improve and your payments can be increased.

3. Interest and charges may be stopped

Generally creditors will agree to stop action and freeze interest and charges. However as DMPs are informal arrangements, creditors are not obliged to freeze interest and charges.

If creditors do freeze interest and charges, the length of the debt management plan will be shorter.

4. You can stop a DMP at any time

A debt management plan is an informal arrangement between you and your creditors, so you are free to stop the DMP at any time.

We only ask that you give us as much notice as possible so we can inform all of your creditors. Be aware that once the DMP is cancelled, creditors may resume interest and charges that had previously been frozen or reduced.

If you experience further financial difficulties, we may also be able to restructure your debt management plan for you.

Similarly, if your financial situation improves, we may also be able to restructure your DMP accordingly or you may be able to finish your debt management plan early.

5. Reduce stress

Almost a third of those in the UK affected by problem debt are stressed, anxious or depressed because of it.

Talking about debt and dealing with your finances can have a positive impact on mental health.

If you’ve been feeling down and anxious about your debts for a while, that worry may have taken a toll on your mental health, on your life and on your relationships.

A debt management plan can make a real positive difference to your life as you’ll know the debts are under control and being taken care of.

What debts can be included in a DMP?

You can only use a debt management plan for non-priority debts, including:

  • credit card debts
  • store card debts
  • overdrafts
  • personal loans
  • bank or building society loans
  • payday loans
  • money borrowed from friends or family
  • catalogue, home credit or in-store credit debts.

Debts that cannot be included in a DMP include:

  • court fines
  • Council Tax
  • gas and electricity bills
  • TV Licence
  • child support and maintenance
  • Income Tax, National Insurance and VAT
  • mortgage, rent and any loans secured against your home
  • hire purchase agreements, if what you’re buying with them is essential.

Is it possible to end a DMP early?

It is sometimes possible to finish your DMP early.

This usually happens when your circumstances have changed for the better and you can return to the original contractual payments and, as a result, be able to pay off the debts included in your DMP sooner than expected.

Before setting up a debt management plan, our advisors will help you work out how much money you need each month to live on, before paying your debts.

However, you might find that you don’t need all the money allocated for this and that you could actually be contributing more towards your debt repayments each month. If you decide you want to pay more each month, our debt management team can arrange this for you.

It’s also possible that you could find yourself with a lump sum of money through inheritance, redundancy, a PPI reclaim, or even lottery winnings. In this case, you can try to clear your debts once and for all with a lump sum payment.

In a lump sum situation, you may not even have to pay the whole amount you owe, as your creditors may accept a lower total payment if it means clearing your debts once and for all.

How much they’re willing to accept will depend on the particular lenders you’re dealing with.

If you do find yourself with a lump sum of money while on a DMP, you should get in touch with our advisors and they can talk you through your options.

What happens at the end of a DMP?

When your DMP is completed, you’ll be debt free of all the debts which were included in the plan.

The money you were putting towards your debts will now be disposable income and be yours to spend as you wish.

Once your DMP is over, you can also start rebuilding your credit history.

You can read more about the advantages and disadvantages of DMP’s here.

Is a DMP right for me?

Our advisors will chat to you about all your options which may include a debt management plan.

If a DMP is the best solution for you, The Debt Advisor can help guide you and support you through the process.

If a DMP is not the best solution for you, you may qualify for another debt solution such as an Individual Voluntary Arrangement (IVA),Debt Relief Order (DRO) or Bankruptcy.

If you are a resident in Scotland, there are a number of Scottish Debt Solutions available to you.

The Debt Advisor Ltd is authorised and regulated by The Financial Conduct Authority, number 659920.

This means we are able to offer debt advice and deliver both formal and informal solutions. All debt solutions do need to be carefully considered and you must take independent debt advice. Your credit rating will usually be affected by a DMP. We hope that the information and debt advice on this site including Frequently Asked Questions, will help inform you.

To speak to one of our advisors about DMPs and other debt solutions, you can request a callback or call us directly on 0800 085 1825.

There are sources of free debt advice and services. You can find out more by contacting the Money Advice Service on 0800 138 7777 or by visiting their website.