Want to understand more about a Debt Management Plan UK? Read on.
A debt management plan (also known as a DMP) is an informal debt solution. It combines your multiple monthly debt payments into a single lower instalment based on an amount you can afford. This helps you get your debts under control and pay them off in a sensible managed way.
In the following article, we answer the main questions when it comes to understanding DMPs. For example exactly what they are and how do they work? We are here to offer clarity and direction on your path to financial stability, whether you're looking for debt relief choices or want to learn more about DMPs.
A Debt Management Plan UK (DMP) is a structured debt repayment plan which can be implemented to assist you with managing your unsecured debt. This debt solution offers you two major benefits:
Firstly, the Plan allows you to combine several debt repayments into a single manageable amount – paid either weekly or monthly. This makes it much easier to budget and set aside what you need to pay your debts rather than having to juggle multiple payments.
Secondly - and most importantly - the single payment you make is based on an amount you can afford. This means you should always have sufficient income to make the payment each month. You will not be struggling to find the money and will no longer have to keep borrowing more to make the payment.
More information about how the amount you will pay is worked out is provided below.
A debt management plan UK is appropriate for those who have a steady income but are having difficulty making their monthly payments due to overwhelming debt.
You can implement a Debt Management Plan UK (DMP) yourself. However, it is normally best to get the help of a debt charity or regulated debt management organisation. The Plan is set up using the following steps:
When adding up your income, you need to make sure you include all your types of income. This might include your wages, any benefits you get and or pension payments. Your expenses budget should list everything you need to spend your money on each month. However, you should not include payments towards the debts you intend to put into your DMP.
Then you take away your total monthly expenses from your total income. The amount you are left with is called your surplus (or disposable) income. This is the amount you can afford to pay into your debt management plan.
This is done on a so called ‘pro rata’ basis. In other words, the percentage of your surplus income they given is the same as the percentage of the total debt in the Plan that they are owed.
Each creditor is then contacted with an offer of payment based on their allocated percentage of your surplus income.
Dividing your surplus income between each of your debts in this way means they are all treated equally and paid off at the same time. Treating them all fairly in this way means they are much more likely to agree to the Plan.
The advantage of using a debt management organisation is you pay them a single payment each month. This means you don’t have to carry on juggling multiple payments to different creditors.
Your debt management company then makes a payment to each of the creditors as per the amount calculated in ‘step 2’.
You continue making your payments into your Plan each month (subsequently shared between all your creditors) until all the debt you owe is paid in full.
Frequently Asked Questions About Debt Management Plan UK
There will be no agreed end date for your DMP. You will have to continue making your payments into it until your debt is paid in full.
This is one of the major disadvantages of this type of debt solution. Depending on the amount you owe and what you can afford to repay each month, your Plan could last for many years.
You can reduce the length of time your DMP lasts in two ways. First, by increasing the amount you pay into it each month (perhaps after a pay rise). Second, by offering to settle one or more of the debts you owe with a lump sum payment.
Interest charges (particular those added to credit card debt) are not automatically frozen if you use a debt management plan. However, given the Plan is implemented properly using a regulated debt management organisation, creditors will normally agree to assist you be freezing their interest.
Your credit score will be negatively affected by a debt management plan (DMP). Generally speaking the creditors included will register the payments you make through your Plan as ‘late’ on your credit file. They might also issue a default notice against you. As a result, your credit rating and ability to borrow more in the future will be negatively impacted.
You will be able to keep your car if you use a Debt Management Plan. Your creditors will not normally have any issue with your vehicle even if it is a relatively expensive and regardless of your need for it.
Whether or not an IVA (Individual Voluntary Arrangement) or a Debt Management Plan (DMP) is the best solution for you will depend on your particular financial situation, objectives, and preferences.
If you have calculated that your DMP will last for many years, an IVA might be better for you as it is completed after 5-6 years.
However, an IVA is far less flexible in terms of what happens if you earn more money or get a windfall. If flexibility is what you are looking for, a DMP might be best.
Speak to Bankruptcy Guide today. We will analyse your personal situation and advise which is the better option for you.
You can stop your Debt Management Plan (DMP) and start an IVA (Individual Voluntary Arrangement) at any time. There are no restrictions for doing this.
For advice on this procedure, get in touch with Bankruptcy Guide today.
Absolutely. If you are self-employed there is nothing to stop you using a Debt Management Plan (DMP). The only thing you need to be aware of is that some debt management organisations will not able to assist you to set up your Plan. These include Step Change and the CAB (Citizens Advice Bureau).
If you are self employed and thinking of starting a DMP, speak to us today. We can advise on whether it is the best option for you and who can help you implement your Plan.
Creditors can refuse to accept the reduced payments offered to them in a debt management plan. However, if it is clear that you are paying as much as you possibly can into your Plan and the funds available are being shared between all creditors fairly, it is rare that they will reject.
DMPs are not legally binding agreements. This means that even where a creditor accepts the Plan payments, they can still take further legal action to enforce the repayment of their debt at any time. This means, even if you are paying your Plan, any of the creditors can stil apply for a CCJ against you and a charge on your property if you are a home owner.
It is not easy to get a mortgage during a debt management plan (DMP). Most mortgage lenders will question your ability to afford mortgage payments if you are struggling to pay debt you already owe. You may have to wait to apply for a mortgage until your DMP is completed.
Our Debt Management Plan UK Advice
Do you have further questions about a debt management plan or want professional, confidential advice about whether this is the right debt solution for you? Here at Bankruptcy Guide we have years of experience providing debt advice and assisting people like you make the right financial decisions. Don’t hesitate a day longer. To resolve your debt problem, get in touch with us today.