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If you owe money to your creditor and struggling to keep up with the debt payments, a debt management plan may be right for you. A debt management plan, or DMP, is a type of repayment plan, that is managed by a third-party organisation that specialises in helping people with debt.
Before you decide to enter a debt management plan you should understand it in detail. We will cover the plan in detail in this article.
A Debt Management Plan is an informal agreement between you and your creditors about your debts. A debt management plan (DMP) helps you to manage your debts and pay them off at a more affordable rate by making reduced monthly payments. The debt management plan provider will manage your debt on your behalf and deal with your creditors directly.
It isn’t legally binding, unlike other debt solutions, such as an Individual Voluntary Arrangement (IVA) or a Trust Deed. With a DMP, your monthly payments are proposed based on what you can reasonably afford.
You’ll deal with a third-party provider, such as a debt charity or a debt management organisation if you decide to use a debt management plan (DMP). Your DMP provider will assist you in creating a budget before establishing your plan. They’ll also help you to understand your options, and then talk to creditors on your behalf to work out a new payment plan. Creditors may agree to waiver fees and lower interest rates. This will demonstrate how much you can afford to pay toward your debts once all of your priority payments and living expenditures have been met.
If there’s any money left over after your living costs are covered, you’ll share this out fairly between your creditors. Usually, you’ll make a monthly payment to your DMP provider, and they’ll pass on the correct payments to your creditors.
You can only use a Debt Management Plan for non-priority debts, such as |
You can’t use a Debt Management Plan to pay off priority debts, such as |
The length of your debt management plan is mostly determined by the amount of debt you have and the amount you can pay each month. However, because DMPs are flexible, if your income rises or you get a new job, you may be able to increase your monthly payment and work toward paying off your debt sooner.
Because a debt management plan is an informal agreement, you are not obligated to stay on it for a set amount of time and can cancel it at any time.
If a DMP is suited to your situation, there are some advantages |
If you’ve decided that a DMP is best for you, follow these steps to get one started |
Some companies will charge |
Debt Management Plans can only be used to pay ‘unsecured’ debts, for example, debts that have not been guaranteed against your property
Your plan can be cancelled if you do not keep up your repayments
If you’re having trouble covering the cost of your monthly debt repayments, can’t keep up with payments to various creditors, or would like a third party to deal with creditors on your behalf, a DMP may be an option worth considering.
It’s always best to talk things through with an experienced debt adviser before you decide to take out a Debt Management Plan. Debt advisers can help you make the right decisions, which means you might be debt-free sooner than you thought. If you are looking for an experienced debt advisor to talk about your finances, you can talk to Shergroup’s debt management specialist today, online or by phone, who will be able to help you start sorting out your financial problems.
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Last updated | 19 July 2023
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