Debt Management Plan

If you are in debt to more than one creditor by more than £1,500, then a Debt Management Plan can be an option that you might explore. This article answers many of the Frequently Asked Questions (FAQs) about Debt Management Plans (DMPs).

What Is A Debt Management Plan?

A debt management plan is an arrangement that is made by a debt management company on your behalf to your creditors in order to change the terms of your debt repayment.

How Is It Debt Management Plan Arranged?

A debt management plan is arranged as follows:

  • You consult with a debt management company and provide them with all the details of your debts.
  • The debt management company negotiates with your creditors to freeze the interest being charged on your debts (which might be a temporary measure while the DMP is being arranged).
  • The debt management company seeks to reduce your monthly payments by negotiating on your behalf with your creditors.
  • Once the details are all arranged, you undertake to pay the agreed amount every month in order to satisfy your creditors and to pay off the debts.

Why Use A Debt Management Company?

By using a debt management company, you will empower them to handle negotiations with your creditors on your behalf and come to an arrangement with them about your payments.

Are There Alternatives To Debt Management Companies?

If you do not wish to use a debt management company you have two options:

Create Your Own Debt Management Plan

You can create your own debt management plan by negotiating directly with the financial organisations that you have money to. Most financial organisations are sympathetic to people who wish to resolve their debt problems and so you can often come to an arrangement with them.

However, many debt management companies have arrangements in place with many of the leading creditors in the UK and so they are best placed to carry out negotiations on your behalf that you may not be equipped to do.

Consult With A Debt Management Charity

There are a number of debt management charities that might be able to help you too.

How Much Do Debt Management Companies Charge?

Debt management companies charge an initial fee and then a monthly fee which is typically 20 per cent of your loan payments. Whether this charge is factored into your monthly payment and so you will not be paying an additional amount to them.

How Is A Debt Management Plan Calculated?

A debt management company will look for a debt management solution to work out how much money you can afford to pay on a monthly basis after taking into consideration your living expenses such as mortgage/rent, heating costs, council tax, food bills, etc. The objective of the exercise is to identify a monthly payment that you can afford. Once the figures have been finalised, the debt management company will negotiate with your creditors on your behalf to finalise a monthly payments that you can afford and that is acceptable to them.