What Is A Debt Management Plan

Debt management plans (DMP) are a commonly used method for helping consumers get out of debt.

They are usually used for paying personal unsecured debts which the consumer can no longer afford to repay. DMPs are offered by debt management companies, whether voluntary or private.

DMPs involve calculating all incomings and outgoings of the consumer and assessing how much can be used to pay off debts each month. If this is insufficient to service all debts then the debt management company will re-negotiate interest rates and payments with lenders to reach a more manageable repayment plan for the consumer.

Most lenders are happy to re-negotiate payments if they know a DMP is in place as they are aware that they are much more likely to get their money back if the consumer is offered a realistic and sustainable repayment plan.

Once a DMP is in place, the consumer will pay a set amount each month which is distributed among creditors. If the consumer keeps up these payments they should find themselves debt free after a certain amount of time.

All debt management plans should give the consumer a case officer in the debt management company who they can contact for advice or if they get into difficulty. Also, if the DMP requires repayments over a long period of time the plan should be reviewed at regular intervals to ensure that it still meets the needs of the consumers.

Consumers are not obliged to stick with a DMP until all debts are cleared. For example, if an individual’s financial situation improves they can scrap the DMP and revert to making their original monthly repayments to their various creditors.

Other advantages of DMPs include:

• You do not have to deal directly with your lenders.

• The debt management company will have experience with lenders and will usually be able to prevent any court action against you.

• You will receive monthly statements that will help you track your progress.

• You may be able to get free of your debt problems without getting a poor credit rating.

However, DMPs are not legally binding and it is possible that not all creditors will be happy with the repayments on offer.

Also, if a consumer’s surplus income is too low to make significant repayments each month, a DMP may not be enough to get them out of financial trouble. In this case, they may have to consider an individual voluntary arrangement (IVA) or bankruptcy.

A debt management plan can offer those in financial difficulty a cheaper and relatively hassle free way of getting out of debt. While many people opt to go it alone, a good DMP can be invaluable assistance.