What is a Debt Management Plan?
A Debt Management Plan (DMP) is an informal arrangement with your creditors which allows you to make reduced repayments to your lenders (creditors) over a number of years.
Payments are made until the debt is cleared in full or until you are able to make the full repayments again.
The monthly repayments are based on what you can afford after a realistic income and expenditure has been drawn up.
DMPs are not the perfect solution in all cases. Your financial situation is the most important factor of whether one is right for you or not.
You make payments that you can afford.
Your payments can be reviewed every so often so that any changes to your situation can be taken into account.
It can be used to tide you over until your financial situation improves.
It can be drawn up by you.
You can withdraw from the scheme at any time.
They are not legally binding.
You must pay your creditors in full.
Creditors are free to take whatever legal proceedings against you they wish at any time. This can include continuing to obtain county court judgements, a third party debt order or a charging order against your property; even when you are making every effort to pay.
You may never be rid of your debt, or it can take many years to repay if interest is not frozen and your payments are small.
Interest is not always frozen and, as you are in default, may continue to accrue at penal rates. Early withdrawal from the scheme may result in the debts you owe on exit being more than when you entered the plan.
It may stay on your credit reference file for 6 years (source: Information Commissioners Office Leaflet “Credit Explained”).
What fees will I have to pay for an Debt Management Plan?
We at Lawson Fox do not offer Debt Management Plans, but we can still advise you if one is suitable to your situation. There are non-fee charging organisations and charities who you can approach to set up and maintain an DMP arrangement. We would recommend you approach them rather than a fee charging business to reduce the total amount you have to pay and the duration.
However, a DMP must suit your own circumstance and these organisations may not be able to even suggest other more appropriate alternatives. We are still here to help, so if you need any assistance discussing your options please contact us. We offer impartial advice and will direct you to a reputable non-fee organisation if it is in your best interest.
A DMP arrangement can be drawn up yourself. There are a wide variety of companies offering this as a service. If you choose to use use somebody for a DMP, ensure they are going to be acting in your best interest, offer knowledgeable advice and manage your scheme diligently.
Your local Citizens Advice Bureau can also assist you in negotiating a debt management plan with your creditors. This is completely free of charge, however in the majority of cases once the scheme is set up, you will be responsible for making the monthly payments direct to your creditors.
Will a DMP work for me?
That depends. If you have a relatively small number of creditors (say up to 3) then it may well be possible to reach an agreement with them that will work as a permanent solution. You must be aware of the following:
- The more creditors you have, the greater the risk that one will “break ranks”, thereby effectively unravelling the plan, or refuse to agree to it at all.
- A long-term interest freeze by all will be crucial. Without one, you may find that your debts increase whilst you are in the plan as you have, of course, entered the plan because you are unable to make the minimum monthly payments. Whilst many creditors will agree to freeze interest, some will not, and others will only agree to do so on a short-term basis.
Try our instant calculator to get an understanding of your options. We would urge you to speak to us so we can assess your circumstances properly. Our expert advice is free – let us help you.