What is a Debt Management Plan (DMP)? A DMP typically consolidates all of your unsecured debts into a single and more affordable monthly repayment; this is then paid to your creditors over an agreed period of time.
A debt adviser will take on the role of handling your debts and will negotiate with your creditors to organise the repayment of the debts.
It is important to maintain the payments in a DMP because failure to pay can result in creditors cancelling the agreement and demanding repayment of their debt in full. You need to avoid this situation at all costs, if you start to have problems making payments into a debt management plan, make sure you contact the administrator who can renegotiate the deal.
A debt management plan is flexible both ways:
A DMP allows lenders to increase the monthly payments if they wish, but it also allows you to tell creditors when there are problems and allows you to negotiate a lower monthly payment. A DMP should be regularly reviewed to see if you can settle with creditors earlier than first thought.
The Process for Creating a Debt Management Plan
Review Your Budget:
The first step is to review your household budget, taking into account all of your current debts, essential outgoings such as the mortgage, council tax, electricity bills etc. and your current income. Your debt adviser should help you with this and also help you to calculate:
How Much Spare Money?
The next step is to determine how much spare money you have each month. The debt management plan should ensure that the single payment to your creditors is an affordable payment, taking into account your essential outgoings such as your mortgage, utility bills, council tax etc. This is an important step to ensure you do not miss any payments to your essential outgoings or to the debt management plan itself.
Your Debt Adviser Contacts Your Creditors:
Once you have discussed in detail your financial situation with your adviser and you have agreed to the Debt Management Plan created by your debt adviser, your adviser will contact your creditors and present them with a detailed statement of your finances. The adviser will offer to your creditors a monthly payment based on the finances available, this is usually stated as a number of pence for every £1 of debt.
Your Debt Adviser Requests Interest and Charges to be Frozen:
Your debt adviser will request your creditors to freeze interest and other charges such as penalty fees on your debts. Creditors will also be asked not to take any other action to recover the debt, provided that you keep to the terms set out in your debt management plan.
Your Debt Adviser Negotiates Your Repayment Fee:
Your debt adviser will negotiate your payments to your creditors and cut your debt payments, this will be a full and final settlement at the lowest possible level.
Your Debt Adviser Writes To Your Creditors To Confirm The Plan:
Letters are sent to each of your creditors and they should agree to the plan.
You Pay A Monthly Fee To Your Debt Adviser:
Once the plan is agreed, you pay a monthly fee to the debt management company handling your plan. Your debt adviser passes the funds to your creditors until the successful completion of your debt management plan.
Completion:
Once a debt management plan is complete, you will be debt free and you can make a fresh financial start. Your credit rating will have suffered some damage, but not as much if you would have opted for bankruptcy or an IVA.
What is a Debt Management Plan (DMP)? A DMP typically consolidates all of your unsecured debts into a single and more affordable monthly repayment; this is then paid to your creditors over an agreed period of time.
A debt adviser will take on the role of handling your debts and will negotiate with your creditors to organise the repayment of the debts.
It is important to maintain the payments in a DMP because failure to pay can result in creditors cancelling the agreement and demanding repayment of their debt in full. You need to avoid this situation at all costs, if you start to have problems making payments into a debt management plan, make sure you contact the administrator who can renegotiate the deal.
A debt management plan is flexible both ways:
A DMP allows lenders to increase the monthly payments if they wish, but it also allows you to tell creditors when there are problems and allows you to negotiate a lower monthly payment. A DMP should be regularly reviewed to see if you can settle with creditors earlier than first thought.
The Process for Creating a Debt Management Plan
Review Your Budget:
The first step is to review your household budget, taking into account all of your current debts, essential outgoings such as the mortgage, council tax, electricity bills etc. and your current income. Your debt adviser should help you with this and also help you to calculate:
How Much Spare Money?
The next step is to determine how much spare money you have each month. The debt management plan should ensure that the single payment to your creditors is an affordable payment, taking into account your essential outgoings such as your mortgage, utility bills, council tax etc. This is an important step to ensure you do not miss any payments to your essential outgoings or to the debt management plan itself.
Your Debt Adviser Contacts Your Creditors:
Once you have discussed in detail your financial situation with your adviser and you have agreed to the Debt Management Plan created by your debt adviser, your adviser will contact your creditors and present them with a detailed statement of your finances. The adviser will offer to your creditors a monthly payment based on the finances available, this is usually stated as a number of pence for every £1 of debt.
Your Debt Adviser Requests Interest and Charges to be Frozen:
Your debt adviser will request your creditors to freeze interest and other charges such as penalty fees on your debts. Creditors will also be asked not to take any other action to recover the debt, provided that you keep to the terms set out in your debt management plan.
Your Debt Adviser Negotiates Your Repayment Fee:
Your debt adviser will negotiate your payments to your creditors and cut your debt payments, this will be a full and final settlement at the lowest possible level.
Your Debt Adviser Writes To Your Creditors To Confirm The Plan:
Letters are sent to each of your creditors and they should agree to the plan.
You Pay A Monthly Fee To Your Debt Adviser:
Once the plan is agreed, you pay a monthly fee to the debt management company handling your plan. Your debt adviser passes the funds to your creditors until the successful completion of your debt management plan.
Completion:
Once a debt management plan is complete, you will be debt free and you can make a fresh financial start. Your credit rating will have suffered some damage, but not as much if you would have opted for bankruptcy or an IVA.