What is a Debt Management Plan?
A Debt Management Plan (DMP) is an informal arrangement between you and your creditors which allows you to repay your debts, normally in full, at a rate that you can afford without relying on further borrowing. If during your DMP you are able to offer creditors a lump sum to settle your debts, it is possible to agree discounted settlements.
Is a Debt Management Plan suitable for me?
A Debt Management Plan is suitable if you are struggling to meet their minimum debt payments but have some surplus money available each month once you have paid all your household bills. Household bills includes “priority payments” which includes rent, mortgage and utilities plus something toward any arrears. Our advisors will assess your situation and determine if a debt management plan is suitable for you.
There are other solutions including IVA’s, Debt Relief Orders, Bankruptcy and Dealing Directly with your Creditors which may be appropriate. If you live in Scotland, the solutions are different, please visit Scottish Debt Solutions.
For full debt advice and whether a Debt Management Plan would be your best option, you can also speak to one of our advisors.
How has debt management helped others?
These are real life stories from 3 customers who have successfully cleared their debt using DMP’s.
Katie paid for Debts in Full using a Debt Management Plan, Kelly Ann negotiated to pay 50% of her debt with a debt management plan and Marek used our foreign language polish advisory service to tackle his debts.
Katie settled her debts in full
“Thank you so much for everything you achieved for me on my plan. I found the debt management plan so helpful and I am so pleased that I have cleared my debts. The Debt Advisor is thorough and professional but definitely has a very human side.”
Read Katie’s Story Here
Kelly Ann was able to write off 50% of her debt
“Thank you so much for the way you conducted yourself throughout the whole process of negotiations with my creditors. You were so respectful and very understanding at this incredibly difficult time in my life and for that I can’t thank you enough. Being debt free tops it all. Once again a HUGE thank you for all of your hard work”
Read Kelly Ann’s Story Here
Marek settled his debts in full
“I have struggled greatly with debt since living in England. Getting myself out of this problem has been very difficult. Now I am with the Debt Advisor I have someone to talk with in my own language, the picture is now so much clearer now. I am thankful for all the hard work and guidance provided by The Debt Advisor. Again, thank you so much”
Read Marek’s Story Here
Debt Management Plans – Advantages and Disadvantages
Doing the right thing is only possible if a clear picture is available of the advantages and disadvantages of a Debt Management Plan. A debt management plan needs to very quickly get your debts under control and relieve the stress of debt but there needs to be a longer term plan to clear your debt.
A Debt Management Plan is designed to allow you to pay what you can realistically afford to your creditors each month. Generally creditors will agree to accept reduced payments and freeze or reduce interest charges.
- The major benefit that we find our clients appreciate is having us liaise and deal with all creditors and their correspondence. This includes dealing with phone calls, letters and takes away the stress of creditor interaction.
- Creditors may freeze interest and charges
- If you’re struggling to meet your normal payments to creditors, a DMP allows you to pay an affordable monthly contribution
- A DMP is flexible. You can terminate your plan at any time.
- A DMP is an informal solution and should ideally provide for you to clear your debt in less than 10 years. If the plan looks like it could take more than 10 years, a DMP may not be appropriate unless you feel your circumstances are likely to change which will enable you to clear your debt in a 10 year period.
- Creditors may stop further action. Our team are attentive and will work hard to ensure creditors do accept your plan.
- A DMP is an informal debt solution and creditors are not obliged to freeze interest and charges. Some creditors may agree to reduce interest charges rather than freeze them. Continued charges could result in it taking longer and costing you more to repay your debts.
- As a DMP is an informal arrangement, there are certain debts such as arrears of council tax which cannot be included due to the risk of action against your assets. There are other solutions such as an IVA which can include arrears of priority bills.
- A DMP could have a negative impact on your credit file. Creditors can issue default notices which will remain on your credit file for 6 years. Your ability to obtain credit will be affected.
- You may from time to time receive an unwanted call from a creditor especially if they are using a debt recovery company. Politely tell them you are in a DMP and state our company name and your personal advisor. We will take care of the rest.
- We cannot guarantee that creditors will not take legal action or that they will stop collection activity. Such action could result in a judgment and could potentially lead to a charging order if you have a property.
- If you cancel your DMP, creditors could end payment arrangements previously agreed and charges could be reapplied to your debts.
What does the service cost?
The fees we charge we believe are fair and cover:
- Review of your engagement pack and supporting documentation to ensure a DM plan is still appropriate
- Drafting your plan, sending this to creditors, chasing up responses and ultimately gaining creditors approval of your offer
- Dealing with creditors’ queries
- Monitoring your payments and distributing these to creditors within 5 working days of your funds clearing our DM account
The fee we charge to cover our services is calculated at 17.5% of your monthly payment, subject to a minimum of £25.00 if your monthly payment is £99.99 or less and a minimum of £30.00 if your monthly payment is £100.00 or more. Our maximum management fee is capped at £100.00.
During the first 6 months of your plan there is an additional charge to the work of setting up your plan, which is calculated as:-
- Up to 5 debts £10 per month
- 6 – 10 debts £15 per month
- 11 + debts £20 per month
Creditors will receive a reduced payment during this time of not less than 52% of your monthly payment. You may go in to arrears or further arrears during this period but these arrears will be included in your plan.
All debt solutions should be very carefully considered. Fees will be charged if a solution is taken in order for us to set up your plan and maintain it – all fees will be outlined during your consultation. For further information on fees, please see the FAQ section of the different solutions available. Retained payment may place you further into arrears. You have the right to a cooling off period of 14 days. It is likely that your ability to obtain further credit in the short term will be affected and this may also be the case over the medium to long term. Calls to our free phone number from mobile phones and other networks may be charged.
The Insolvency Service website has helpful information on https://www.gov.uk/options-for-paying-off-your-debts/overview to support those who find themselves in financial difficulty during the recession.
The Debt Advisor Ltd is regulated by The Financial Conduct Authority. This means we are able to offer debt advice and deliver both formal and informal solutions. DMP’s do need to be carefully considered and you must take independent debt advice. We hope that the information and debt advice on this site including Frequently Asked Questions, will help inform you.
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.