Debt Management Plans (DMP) are a popular debt solution. It’s impossible to say how popular as there are no official records, however, I think most people who work in the industry would agree, there’s probably more DMPs than any other debt solution.
For the right kind of circumstances they can be a great way to get your finances under control. Like with all debt solutions, there are pros and cons to a DMP. It’s important to weigh these up before starting a solution.
About Debt Management Plans
Debt Management Plans allow you to slow down the rate in which you’re repaying your lenders to a pace that suits you. Because your repayments are based on what you can afford, they should always be manageable.
Debt Management Plans aren’t like other debt solutions. They aren’t legally binding and for that reason they are called an informal debt solution.
Why DMPs are a good idea
So why are DMPs a good idea? The first thing your debt management provider will do is check your monthly affordability. This is an important step towards improving your household finances.
Let’s say in total you’re currently paying £300 towards your debts but really you can only afford £100. Your debt management provider will speak with your lenders and ask to reduce the monthly amount they receive.
Each month you’ll pay your debt management provider and they will split your repayments on a pro-rata basis. That just means the lender who you owe the most to receives the highest split of your payments (and vice versa).
Why not set up a DMP yourself?
You might be wondering why you wouldn’t just call up your lenders yourself. In theory, there’s nothing to stop you from doing this. However, it’s probably isn’t likely that lenders will accept a lower offer of repayment when you call, rather than a debt management provider.
Debt management providers often have a good relationship with lenders. It means not only can they agree reduced payments with all of your lenders, very often that can have your interest and charges frozen too.
The pros of an a DMP
- Make affordable monthly repayments
- Consolidate your debts into one payment
- Interest and charges are usually frozen
- Your debt management provider can deal with lender letters and calls
Are DMPs a bad idea?
If you’re struggling to repay your debts then on the whole it’s unlikely a DMP is a bad idea. However, there might be a few occasions it might be:
- There’s another debt solution that could get you debt free quicker
- You have a good credit rating and need to keep it this way
- It’s only poor budgeting that is causing you to struggle financially
The cons of a DMP
- Your lenders aren’t legally obliged to stop contacting you
- Your debts will take longer to repay
- Your credit rating is likely to be impacted
Speak to a debt expert
The content provided here is for informational purposes. Before you start a debt solution you should always seek the help of a debt expert from a regulated company. If you think a DMP could be for you, click get started, answer a few questions, and speak with an advisor.
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