Interest Charges and DMP

Debt Management Plans (DMPs) are an excellent way to assist in debt management, especially when an individual has had a change in financial circumstance, such as redundancy. Unlike an Individual Voluntary Agreement (IVA) or Bankruptcy, DMPs are informal agreements. This offers a far greater flexibility over some other options as repayment amounts can be amended if circumstances improve. There is also no requirement to release equity in a property or sell a home, making them extremely popular to those with some income left each month after essential expenditure.

Will Interest be frozen?

As DMPs are not legally binding in any way, creditors are under no obligation to freeze interest fees and/or charges. It is important to consider that, if interest is not frozen, then this will be added to the outstanding debt, increasing the length of repayment.

Increase the likelihood of frozen interest

While creditors do not have to freeze the interest, they could do if they see that it will be of benefit. For example, if the only option other than a DMP is an IVA (assuming eligibility), not only will interest be frozen, but also any outstanding debt after usually 5 years of repayments will be cleared. Therefore the creditors will actually receive less than if they had agreed to a DMP (100% of the debt is required to be repaid in a DMP).

Prepare a realistic proposal - by being honest in the initial financial proposal and repaying as much as can genuinely be afforded, this will show the creditors willing and they are far more likely to accept.

Continue to repay as much as possible - even before the DMP is agreed, try not to default on any repayments. If the amount requested is too much, prioritise the debt and pay as much as you can. It is also worth speaking to the creditors to advice of the situation. This will again show willing, and that you are not just trying to get out of paying.

Use a reputable debt management company - While a DMP can be proposed on an individual basis, debt management companies often have very good relationships with creditors, and will therefore be able to argue that a freeze on interest and charges will actually be in their benefit.

Often, creditors will see that it is beneficial to freeze interest and charges in order to re-coup as much of the outstanding debt as possible (which is their only goal).

As ever, it is important to always seek advice regarding finances prior to any action being taken. There are a lot of free services that can assist (National Debtline, Consumer Credit Counselling Service CCCS and the Citizens Advice Bureau CAB), and many of the fee charging companies offer free consultations with no obligations.

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