Debt Management Plan
What is a Debt Management Plan?
A Debt Management Plan (DMP) is an informal debt solution that allows a person with debt problems the opportunity to make reduced payments to their creditors.
A Debt Management Plan is a recognised debt solution, specially structured to allow lower repayments to be distributed amongst creditors when temporary circumstance restrict a debtor's ability to afford his financial commitments.
Payments are made on a 'pro rata' basis - the larger the proportion of debt a creditor holds, the larger the proportion of repayments he receives.
The actual repayments are calculated at being what the applicant can afford to pay, as opposed to the contractual demands of the creditors.
In general, a Debt Management Plan only truly helps debtors deal with short term debt problems, such as redundancy or medium term illnesses.
Longer term debt problems tend to be better dealt with by the formal solutions of either Bankruptcy or an IVA.
Also, due to the informal nature of a Debt Management Plan, there are not the same level of protections as would be experienced within a formal arrangement such as an IVA.
Debt Management Pros include:
- Reduced repayments.
- No need to wait for creditor acceptance of plan.
- One single payment makes managing debts easier.
Debt Management cons include:
- A Debt Management Plan cannot freeze interest of debts.
- A Debt Management Plan cannot stop late payment charges.
- A Debt Management plan cannot guarantee a debt write-off.
- A Debt Management Plan will make repayment of debts take longer.
There are primarily 3 types of Debt Management Plan:
- Self Help Debt management Plans. Self Help Debt Management Plans are self administered plans. An individual contacts his creditors by himself and arranges repayments directly to each creditor, without any intermediary assistance.There are no charges associated with a Self Help DMP.
- Charity Debt Management Plans. Charity Debt Management Plans are assisted plans. The individual contacts a support charity and they assist with contacting creditors and establishing the size of the payments the applicant will make into the plan. There are no charges associated with a charity DMP.
- Commercial Debt Management Plans. Commercial Debt Management Plans are assisted plans. The chosen debt management company contact the creditors and establish the size of the repayments. They collect and distribute the repayments on behalf of the applicant, who pays a service charge for the work the debt management company undertake.
For further information on Debt Management Plans please call an adviser on 0800 088 7502
