Top 6 Quick Reasons For Considering a Debt Management Plan

If you have debts and the payments are becoming unmanageable a debt management plan can be a great way to handle debt in an effective way. But what is a debt management plan?

A debt management plan (or DMP) is an agreement between you, a Debt Management company and your creditors to pay all of your debts in full. You make one affordable monthly payment to the Debt Management company and they split this fairly between your creditors, after deducting their fee.

This allows you to focus on making one payment rather than having to juggle payments to multiple companies. If this sounds like it could work for you, keep reading!

Top 6 Quick Reasons for Considering a Debt Management Plan

1. Debt management plans can be a great way to manage debt
2. Debt management plans can help with budgeting
3. Debt management plans can help ease the stress of debt by allowing you to make one monthly payment rather than dealing directly with each individual creditor
4. By making one manageable payment you’ll be less likely to miss any payments which could lead to creditors pursuing you for payment.
5. Payments can increase or decrease depending on your situation.
6. The debt management company will negotiate with creditors on your behalf. This means that offers are more likely to be accepted and interest frozen.

Before committing to a long term plan, it’s important you fully understand the details.

Keep reading below to find out more and equip yourself with the knowledge required.

The Benefits of a Debt Management Plan

A debt management plan offers many benefits compared to other ways of handling significant debt. Let’s take a look at some of the benefits:

• Helps you budget effectively while still being able to live your life without worrying about how to pay.
• It’s a plan that creates an affordable monthly budget so you can repay your debts.
• If you’ve fallen behind with your household bills, consider adding the arrears to your debt management plan. Doing so will help get your accounts back on track, but still requires regular monthly payments.
• With a debt management plan, you make one monthly payment to the Debt Management company and they will manage the payments to the different creditors.
• A debt management plan is designed to help you pay off your debts while maintaining your household bills and essential expenses. Reviewers will evaluate your affordability on a regular basis to ensure you can afford the agreed payment and that it is fair to your creditors.
• Creditors may agree to freeze or reduce interest and charges.

The Drawbacks of Debt Management Plans

When managed correctly, a debt management plan can be an efficient long-term solution to managing your debt.

The drawback of this is that in a DMP, as you will pay all of the debt back,  it can take longer than other options. Take a look below for some more potential drawbacks:

• Your creditors may still contact you
• Most creditors will agree to reduce or stop interest and charges, but they don’t have to.
• Creditors usually don’t have to agree with your reduced payments, but they will still be paid.
• Creditors may still take legal action against you and get a County Court Judgement (CCJ) if you miss payments.
• It may help you pay less towards your debts, but it could negatively affect your credit rating.
• The debts will have to be paid in full, this could take a long time. 

How a Debt Management Plan Helps you get Debt Free

In a debt management plan you effectively restructure your various debt repayments into one affordable amount.  Over time each debt is repaid in full. 

How Long Does a Debt Management Plan Last?

There is no set time scale for a Debt Management Plan.  It depends on many factors including:

• How much debt you have
• How much you can afford to repay each month
• Whether all creditors agree to freeze or reduce interest and charges.

So if this sounds like something you’re interested in, keep reading below on how DMPs work and other important information before deciding which debt solution is right for your situation.

What Types of Debt Does a Debt Management Plan Cover?

A debt management plan works by combining all your unsecured debts into one monthly payment.

This includes credit cards, personal loans, catalogues, payday loans, benefit overpayments.

Please note: debt management plans cannot be used for secured debts, such as mortgages and car loans.

How to Setup a Debt Management Plan

You can set up a debt management plan with an FCA-authorised Debt Management company.

They will help you work out your monthly payments. You’ll have to give details about your financial situation, for example your assets, debts, income and expenditure.

They will then contact your creditors and ask them to agree to the plan (although they do not have to).

Conclusion: Should you Consider a Debt Management Plan?

To recap: A DMP is an agreement between yourself (the debtor) and creditors that allows you to pay reduced payment to your debts over time.

These plans usually involve paying one lump sum each month to one debt management organisation who will, in turn, distribute payments proportionately among your creditors.

It’s important to weigh up your options before committing to a debt management plan.

However, debt management plans can give people struggling with debt the time and flexibility they need in order to get their finances back on track and become debt-free again.