How Much Does A Debt Management Plan Cost

Perhaps you have asked for some advice on managing your debt and the phrase ‘debt management plan’ has come up. But what is it and most importantly, how much does a debt management plan cost?

If you’re thinking about entering a debt management plan (or DMP) as an option, make sure you compare providers.

Some companies charge a fee for this service while other don’t. Remember, you don’t have to pay a fee if you don’t want to. Hence it’s important to look at the fees first, to decide if a debt management plan can help you or not.

• Introduction
• What Is A Debt Management Plan
• Commercial v Free DMP Providers
• Advantages Of A Debt Management Plan
• Disadvantages Of A Debt Management Plan
• Debt Management Plan Scams
• Affording A Debt Management Plan

What is a Debt Management Plan

A debt management plan is an agreement between you and your creditors through an intermediary company which helps you to reduce or get rid or your debt.

For example, perhaps you have several debts and you owe money to multiple companies. Maybe you have credit card debts, as well as catalogues, or payments for furniture or utility items that you can’t afford to pay back right now. Having multiple debts can be a stressful experience. Particularly if creditors are making demands on you to pay it back urgently.

A debt management plan provider will help you to work out what you can afford to pay back each month. Then, the company will negotiate those payments with your creditors. Helping to take the stress out of dealing with each individual creditor yourself.

The provider you choose will work out what you can afford as a single monthly payment. This payment then goes to your DMP provider directly. After they receive the payment, they will send out a share of it to each creditor on your behalf.

Some commercial providers charge a flat fee for their work, which others will take a percentage of the debt payment you make. Paying a fee to a Debt Management Company will extend the time it takes to repay your debts as not all the money is going to your creditors. Ultimately, this means it takes longer to clear your debt. So you need to ask yourself, how much can I afford to pay each month?

Free DMP Providers

The free providers are normally charities, often funded by voluntary contributions from the banks and credit card companies themselves. Hence, they don’t need to pass on fees to you.  It is still important to look at the terms and conditions, some charities may charge an administration cost, so always look closely at the agreement in case there are any hidden charges.

According to the Citizens Advice Bureau, there are three free debt management plan providers in the UK.

1. National Debt-line
2. StepChange
3. PayPlan

So if you opt for a free DMP, you can contact one or all of these providers. Then compare their services and decide which fits your budget.

Advantages Of A Debt Management Plan

Is a debt management plan a good choice for you? If you want to get rid of your debt, there are some advantages to having one.

• Having a single regular payment gives you more control over your money.
• It can help to reduce stress because you won’t be contacted by your creditors as much, once the plan is in place.
• By having a plan to stick to and finish, you will clear your debts.
• Many creditors will agree to freeze interest and charges whilst a Debt Management Plan is in place.

Disadvantages Of A Debt Management Plan

And of course, there are disadvantages to having a debt management plan too, including;

• Your creditors don’t have to agree to the plan, they can still say No.
• Having a DMP in place means none of your debts will be written off, you must make all repayments in full.
• Mortgages and other ‘secured’ debts are not covered by a debt management plan.
• Although many creditors will agree to freeze or reduce interest and charges a DMP Is not legally binding. Creditors can continue to add interest and charges or take further action to recover the debt if they choose to do so.

Debt Management Plan Scams

How much does a debt management plan cost is an important question. But you may get a variety of answers. Be careful when doing your research. You must make sure that any prospective company you may consider has the proper authorisation. DMP providers must be authorised by the Financial Conduct Authority (FCA) if they are going to offer you advice.  You can check a companies authorisation using the FCA Register. You can also contact The Debt Managers Standards Association (DEMSA).

If they are not authorised, then your money will be at risk. Anyone who says they are an expert in debt management should be happy to tell you who they are regulated by.

Furthermore, if you have any complaints about your provider, you should complain to them in the first instance. If you are unhappy with their response, you can refer your complaint to the Financial Ombudsman Service (FOS).

Some complaints about DMP providers include:

• The fees are too high.
• There are misleading claims in the promotional marketing.
• People experience cold calling by a DMP provider.
• Clients are unhappy with responses from their provider.

Affording A Debt Management Plan

The principle of a debt management plan is make an affordable monthly payment towards your debts each month so you only enter into a plan if you have some money available.

For instance, you need enough money left over every month once all your essential bills have been paid. So if you’re struggling with essential bills such as food, rent and utilities, then you should seek help from a money advice charity.  This might not be the right option for you.

Start by drawing up a budget to work out what you can afford. Include your monthly income and all your household expenses and bills. At this point, if you have some money left, you may want to consider adding your non essential items to your budget. Next, see if you can make any changes to your lifestyle that could save you money.

Then, if you can get by on your budget and still make payments towards clearing your debt, you can look for a debt management provider.

To conclude, always check for any hidden fees and make sure your DMP provider is regulated.