Debt Management Plans

A Debt management plan, or DMP, is usually considered to be the first step in resolving your debt problems. Your creditors will often prefer that you enter a DMP than entering an IVA. The reason for this being that the creditors will have a much greater opportunity to get the majority of their money back in a shorter period of time.

If you don’t owe too much money and your debt problems are likely to be short term, it will be to your advantage to enter a debt management company the effect on your credit status is far more appealing and you will have more financial freedom in a shorter period of time, than with an IVA.

Debt management plans can be put in place either by you or you can employ the services of a specialist debt management company. Often your creditors will insist you use a debt management company as it usually will mean that payments are continuous without the creditor having to chase you. The involvement of a debt management company, will however incur extra charges as you will have to pay for their services.

Debt management companies will charge you as much as you can afford. The fees vary, but typically you will have to pay 15% to 18%. For this the debt management company will negotiate with your creditors and try. The debt management company will act on your behalf to reduce the monthly repayment to as little as possible and gain agreement with your creditors to freeze or reduce interest. The debt management company pass your money to the creditors on a monthly basis less their monthly charges.

Debt management plans typically last ten years and the amount to be repaid will not be much less than the original debt, although the long term effects are much more attractive than those relating to an IVA and bankruptcy.

Self Help debt management plans are simply managed by you. You will need to negotiate with your creditors yourself. The earlier you approach this, the better as many creditors will not negotiate with you once they have begun to chase you through the courts.

The advantages of a DMP are as follows…

• DMP’s are an informal agreement between you and your creditors and will avoid insolvency procedures associated with and IVA or Bankruptcy.
• Your monthly repayments should be reduced.

The disadvantages of a DMP are…

• Your creditors may still pursue collection procedures as the agreement will not prevent them legally from doing so.
• You may end up paying more than the original debt as in many cases interest is not frozen.
• You can end up in debt for a much longer period.

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