Are you looking for a low-cost, efficient and worry-free way to manage your debts? A debt management plan (DMP) could be the answer.
What is a DMP?
A DMP is an informal agreement between you and your creditor which acts as confirmation that you will pay off all your debts. This solution can help you manage your debts by reducing your monthly repayment(s) into one payment which is more manageable for you.
If you’re struggling to keep up with payments on credit cards, loans or store cards then a DMP may be the right solution for you. Get in touch with a debt charity/DMP provider to see if this is the best option for you.
Do I qualify for a DMP?
There is not a minimum or maximum level of debt you need in order to qualify for a DMP. There are just three questions to keep in mind when considering your eligibility:
- Are you struggling to make repayments for your existing unsecured debts?
- Would you be able to afford lower monthly repayments?
- Can you afford to pay your debts in full within a reasonable amount of time?
If you can answer ‘yes’ to all three of those questions a DMP may be the right option to manage your debt.
The benefits of a DMP
- Your monthly debt repayments will be reduced to a level you can afford.
- If you opt for a 3rd party managed DMP, you will no longer have to deal directly with your creditors.
- Some creditors may freeze the interest on your debts when you enter your DMP.
- If you have any county court judgments (CCJs) or similar actions against you, the CCJ creditors may agree to suspend taking further action.
- DMPs are informal agreements – which can sometimes be a disadvantage (see below) – which can help you to avoid formal insolvency procedures such as bankruptcy.
The drawbacks of a DMP
- If your debts are extensive then a DMP may not be helpful for you as you may end up in debt for a very long time or you could end up without much hope of becoming debt-free.
- Your credit rating will be negatively affected.
- Because DMPs are informal, your creditors are allowed to change their minds at any time without recourse, unlike in an IVA where you are protected by the formal proposal process which is legally binding on all parties.
- Not all creditors will freeze interest under DMPs, particularly where you have debts in arrears which are at higher interest rates than the original loan rate.
- The reduction of your monthly repayment may make debt repayments more affordable but it is likely to take you longer to repay your debts.
The DMP process
DMPs consolidate all of your existing debts into one, single monthly payment which is likely to be more afforable to you. Your monthly payment will be divided amongst your creditors by your DMP provider. While the DMP process may differ between providers, you can expect something along the following lines:
- Your DMP provider will typically start by asking for a budget which lists income, debts and expenditure. You will also need to provide an indication of the funds available once all priority debts are paid for.
- Your provider will deal directly with your creditors in order to negotiate a lower repayment for you.
- Once agreed, a new direct debit instruction will be issued to you for the single monthly payment.
- DMPs are not legally binding, therefore there should not be a minimum contract time or debt repayment limit which you are obliged to adhere; this enables you to cancel the plan at any time.
- Similarly, creditors are not bound to any terms so they may continue to charge interest and can take legal action if they choose
As we are not providers of DMP’s, we suggest you get in touch with Stepchange or the Money Advice Service to set up a DMP. However, for advice regarding debt and which debt solution is the most suitable for you, get in touch with us.
Is a DMP right for me?
A DMP could be the perfect solution for you, if:
- You are struggling to keep track of your creditors
- You are unable to respond to creditors in a timely fashion
- You are struggling to keep up with your loan or credit card debts, but can afford other priorities such as your council tax or mortgage repayments
- A single, set monthly payment will help you to budget your finances
In many cases, DMPs are a lifeline for those struggling with multiple unsecured debts with multiple creditors. If you are confident you can afford to pay off the debt within an acceptable timeframe, a DMP could be the answer to your problems.
DMPs are only one solution to personal debt problems and we always advise that you consider every option available to you before making a decision. For further advice from specialist advisers, contact us on 0800 901 2488 as soon as possible.