Debt Management Plans
Sometimes it can seem daunting having many different bills, loans and credit cards to pay. A debt management plan - or DMPs for short - can help reduce this to one smaller payment each month.
Debt Management Plans - or DMPs for short - are informal agreements with creditors to pay a reduced amount of your debt to them each month. These are made on a creditor-by-creditor basis.
A DMP provider will be able to work out your monthly disposable income after any expenses, such as mortgage repayments, utility bills and food, have been taken into account. When they have worked out what you can afford to pay, they will then contact all your creditors proposing a smaller payment each month. You then pay the management company one single payment which is then divided fairly between all your creditors.
Although most creditors are willing to accept DMPs, and even freeze any interest, they are under no obligation to do so. As it is only an informal arrangement, they can still demand the full amount is repaid, charge interest and take legal action to pursue the money you owe. Fortunately many don't do this and, as long as you are paying back an agreed amount each month, they will let the plan continue.
Under a DMP you are promising to repay your debt in full at a slower rate than was originally agreed but at an amount you actually can afford. While it means you are paying back a more manageable amount, like all solutions it is not without its drawbacks. It will result in a creditor will post a default notice against you for not being able to meet the monthly repayments. Although this is nothing to worry about, it will affect your credit rating. Secondly, it will extend the length of time it takes to eventually pay back the amount you owe - although some creditors will occasionally offer a settlement figure much lower than the original debt if the plan has been running for some time.
One other thing worth noting is that DMPs can only be used for unsecure debts, so cannot include agreements such as mortgage repayments.