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Drowning in debt and need help searching for debt management solutions? Then having a clear debt management plan (DMP) could be the answer to resolving your current financial circumstances.
What is a Debt Management Plan (DMP)?
A debt management plan is designed to help manage multiple unsecured debts by condensing them into a single affordable monthly payment and could be the solution to help clear debt from your life.
These plans, or DMPs, can be arranged by the debtor with their creditors or through an authorised debt advisor acting as an intermediary between the debtor and creditor to repay the outstanding amount for an agreed fee.
Debt Management Plan
Whether you apply yourself or a debt advisor suggests it as a suitable option, starting a DMP could be the first important step to clear debt from your life.
If you choose a debt advisor, the process will usually begin with the debt advisor company contacting your creditors to inform them of your situation and asking them to freeze any interest on what you presently owe. However, your creditors are under no obligation to freeze any interest or charges, but they may do so to assist in the set up of your DMP.
Next, your income and expenses will be organised into a budget to create a clearer picture of where all your money will be going. A proportion of your income will then go to the DMP to manage your debt repayments.
There are a number of debt solutions available and these can vary relative to your needs. A debt management plan could be a suitable solution if you have a variety of different, unsecured debt owed to lenders, such as:
- Banks loans
- Personal loan
- Payday loans
- Credit card debts
They are not however available for debts relating to:
- Council tax
- Utility bills
- Rent or Mortgage
- Income Tax and National Insurance
- Court fines
Be aware that some debt management companies will charge fees for their services, such as a setup fee or a fee each time you pay. Ensure that if you do take out a plan, that you fully understand any extra expenses that may incur and the effect that these may have on your overall costs. You should consider other places you can go to for advice, which are free and impartial such as The Money Advice Service.
Debt Management Plan Pros and Cons
Knowing the best solution to taking back control of your debt can be tricky, but the following debt management plan pros and cons could help you in your decision.
- The debt advisor will organise your monthly payments and pay creditors on your behalf.
- The debt advisor can assist in helping to freeze any interest and charges from your creditors.
- The debt advisor may also offer better ways of managing your money.
- Many debt management plans are fee-free.
- The debt management plan should be set up to work as an affordable option for you and should be regularly reviewed to ensure it remains so.
- It could help you to feel more in control of your situation, which may lead to less stress and worry.
- It could help you to pay off your debts faster.
- Creditors do not have to agree to your plan and can still continue to add charges and interest if you do not contact them.
- Your creditors may continue to contact you and could still take further action against you.
- Your repayments could still take years to clear.
- The DMP may show up on your credit record, making it harder to get credit in the future.
When it comes to debt management plan pros and cons, there’s plenty to consider, but what it comes down to is whether such a solution works for you.
It’s also worth noting that there are alternatives to debt advisors when it comes to managing the money you owe. Creditors can also assist by freezing interest and charges to help you set up affordable repayment plans, though these will still need to be managed by yourself.
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If you’re drowning in debt, it can feel as if your situation may never be resolved. Having a clear debt management plan, however, could soon see you on your way to a less stressful and debt-free life. If you need further free and impartial advice on available debt solutions, or whether a debt management plan is right for you, then the Money Advice Service can help.