Debt management plan; Is it right for you?
A debt management plan (DMP) helps you manage your debts and pays them off at an affordable rate by reducing monthly payments.
If you wish to set up a debt solution with one of our Trusted Partners, you may be subject to their individual set up fees. Free Debt Helpline is not permitted to hold any client money and we do not do any debt solutions in house. All debt solutions are carried out via external partners.
For the client's assurance, the debt management plan is not considered a loan. It is a consolidated process that your creditors work with whilst collaborating with debt managing companies to reduce your debts.
There are multiple advantages of having a debt management plan including;
- Make one regular monthly payment, allowing you better control of your finances
- In some cases (Not All) your Creditors may agree to freeze interest and charges on your debt and may even stop any further action like taking you to court or instructing bailiffs
- Peace of Mind - You will no longer be contacted by Creditors directly
- Should you finish your plan, your debt will be cleared
Disadvantages of a Debt management Plan
- Your Credit rating may be affected adversely
- Future Credit may be difficult or even impossible to obtain
To consider other things with Debt management plan:
Your creditors don't have to agree to the payment getting reduced offering a DMP, but even if they don’t, they will still be sent your payments as they must accept them as your debt repayment legally. Your creditors will not receive payments on your behalf until your DMP has fully been set up.
Considering a Debt management plan:
A debt management plan will allow consolidation of your debts as well as effective organization of the payments with more realistic representation of your personal finances. In addition, the plan will minimize the applicable interest rates on your debts with credit card consolidation.
We at Free Debt Helpline also provide information regarding credit card consolidation as well as providing effective information on DMP.
Before opting for the debt management plan, you should consider the following facts:
- With the formation of the consolidated credit card, the creditor organization opting for you may restrict applications for new or other credit cards while the client is still enrolled in the plan Lower interest rates as well as lower monthly payments can also be opted. .
- In case there are delays within your plan, the consumer is viable to face a gap in information regarding decreased debt and lowered interest rates.
- The period for payment of debts using the debt management plan is from 36-60 months (3-5 years).
You must be aware that if the creditors carry on adding interests and charges, this can increase the amount that you owe currently.
It will take longer to repay your debts on a DMP than you are carrying on making on your contractual payments as you will be making lower and more affordable payments.
Signing for a Debt Management Plan:
Before signing up for a debt management plan, consulting your credit counsellor will allow you to gain an insight regarding the important information to be included in the plan. This will allow you to negotiate the terms of interest rates as well as compile a payment plan that suits you.
Your credit counsellor will provide information on your monthly expenses as well as the amount to be consolidated for the debt plan. Signing up for the plan will concise your expenses as well as provide an organized view of your financials.
Researching online is one of the beneficial and quick ways to find debt management companies for the plan. Multiple profit and non-profit organizations offer DMP services for £25 to £55 per month although this is not a definitive price and these can vary depending on the debt solution you opt for and depends on the Debt Solution provider.
While applying for the plan, ensure that the company contacted is credible. In addition, ensure that you provide accurate financial information in terms of your income and expenses.
During the establishment of the credentials for the plan to signing up, you must:
- Ensure monthly payments to your counsellors.
- Review the monthly statements sent by your counselling firm to keep track of the payments and your financials.
- Ensuring which debts are paid as DMP takes care of unsecured debts typically.
- Be honest in providing your financial information as it will allow the creditor company to assess your financial feasibility in a better manner.
- Avoid new credit lines as it will increase the amount of debt you currently have and will cause fluctuations within your plan.
- Ensure that your counselling agency reviews your finances in depth and work their way to reduce interest rates on your plan as well as offer educational tools for your understanding of the terms used in the plan.
- Make sure effective communication with the creditor agency as well as creditors in terms of status of your financials.
Finding out about Debt management Plans
Will a Debt management Plan be right for me?
If you have some surplus money available every month once you have met your priority costs which consists of food, accommodation and utility bills, you will need to create a budgeting plan which meets the needs of your household. Any left-over money will go straight to your creditors.
How does a Debt management Plan work?
You will be making a single monthly payment, which will then be divided to those you owe money to. A Debt management Plan helps you to deal with your creditors.
What should I do I am far behind with my household bills?
If you have fallen behind with your priority household bills i.e.: gas, electricity or mortgage and built up arrears, then these may be added to your Debt Management Plan depending on the provider of the Debt Management Plan. Not all providers can include utility arrears in a Debt Management Plan or treat them as priority debts. If you do manage to get these arrears added onto your Debt Management Plan, this will help you clear your debts. However, this is not always guaranteed