Debt Management Plans (DMP) are often a good solution for those that find themselves struggling at the end of the month
to pay all the bills as well as making the regular payments to debts. It is informal rather than the formal solutions
of a bankruptcy or an IVA. There are many companies that can assist in setting up a debt management plan. It is important
to note that services differ greatly and sometimes there is a fee involved in setting up the plan, always check this with
How a DMP works
A Debt Management Plan is where a third party speaks to an individual’s creditors and arranges a reduced repayment plan.
A single manageable monthly payment is paid by the individual to the Debt Management Company, who will then split the
amount between the various creditors. The amount repaid monthly by the debtor will be based on the individual’s
circumstances and amount they can feasibly afford. If there is a fee charged by the Debt Management Company, then this
is usually taken from the monthly payment before the remainder is split.
Eligibility and advantages
In order to be eligible for a Debt Management Plan, an individual must have some money from their income after all
essential expenses are paid. The main advantage of a Debt Management plan is that it is flexible and an individual pays
only an affordable monthly amount. If there are changes over time the plan can be easily changed to offer perhaps more or
sometimes less as is necessary. By budgeting in such a way it is possible to reduce debt over time, eventually becoming
debt free when the total debt is repaid. There is also no stigma attached to such plans, as there often is with
alternatives such as Bankruptcy.
However, there are some downsides. As a reduced monthly payment is negotiated, it can take much longer to clear the debt.
Furthermore, being in a Debt Management Plan may affect your ability to get further credit in the short and medium term
as a record of the plan is kept for 6 years on a credit file. As creditors do not have to reduce payments, or freeze
interest, by paying a lower monthly amount, it is possible that the debt may actually increase over time, though the Debt
Management Company should monitor this and advise you if the plan is not working.
As with any debt solution, it is vital that an individual seeks proper advice before undertaking. However, if eligible,
and if using a reputable company, a Debt Management Plan can help expose the light at the end of the tunnel.