What is a Debt Management Plan DMP explained easy
Put into really easy language and terminology for you to understand just what is involved with a debt management company, the ‘jargon’ used with these businesses can leave those confused folks with debt problems even more confused. All is explained very clearly.
What is a debt management company
Before entering a debt management plan, advice should be taken to make sure another debt solution is not more appropriate for your situation, debt management plans are for folks who are struggling with debts and to reorganise their monthly debt repayments into an informal single amount.
Income and expenditure is worked out with the debt management company with priority going to mortgage or rent, council tax, utility bills, transport and general housekeeping spending. Allowances are made for; home repairs, car servicing, haircuts, and reasonable leisure activities, the left over is classed as disposable.
The debt management company writes to the creditors offering pro-rata percentage share of available money, if you owe 50% of your total debt to one company this company will be offered 50% of your available money. The debt management company pay the creditors through the single payment you will have paid them each month.
Before proceeding
Ensure you fully feel confident with the company you are enquiring with, research others. Do not talk to a third party of a debt management company, go and talk direct.
Make sure you understand the fees and payments, one or two up front monthly payments are normal but some businesses have been known to charge thousands.
Most debt management businesses have a minimum fee without a maximum, play very cautious here; once the upfront fee has been collected usually the monthly fee can be in the region of 15-18% of the monthly contribution as a debt management plan fee.
Debt management advisor’s do not need to be qualified; hundreds of inexperienced untrained advisers are working within debt management. A BTEC qualification is available for advisors, find a company using this; the certificate in Debt Resolution (CertDR). Advanced Certificate approved by Edexcel.
Payments you make to debt management businesses should be forwarded on to creditors within five working days, its known most do not do this, the office of fair trading are now insisting this is carried out.
Two main associations exist for debt management companies; they are DEMSA (Debt Managers Standards Association) and Debt Resolution Forum (DRF). Is your debt management program with an organisation that participates in one of the industry trade associations?
Make sure you have a good point of contact with a case worker; you do not want to be left many days waiting worried for various answers to questions.
Reasons not to choose a DMP
Do not get drawn into debt management companies that promise all interest will be frozen, this is not true, insist from the start about interest.
Often the freezing of interest and charges with reduced payments is what the aim is for, but many creditors will only offer reduced interest, these are put in place for three, six or twelve months before the arrangements are renegotiated.
Each creditor will have a process about how they will react to reduced repayment offers and support is not always satisfying. Until an account is three months behind some lenders will not consider making concessions, situations like these could mean additional interest might continue to be applied at the start of the debt management plan, but then interest should be reduced or frozen.
Debt management plans can last up to nine years, IVA’s five years, and bankruptcy one year, though under certain circumstances bankruptcies can last three years.
Reasons to choose a DMP
To avoid formal plans like bankruptcy or an IVA, the informal DMP allows you to keep assets like your home; insolvency can threaten assets, can be inflexible and can cause problems for those in certain professions.
To meet changing circumstances debt management plans are flexible. Debt management plans are often preferred to IVA’s where people are uncertain about what the future will hold for them financially.
Debt Management Plans may be helpful when situations arise, one partner of a relationship decides to have a debt management plan without the other knowing, this is not possible with bankruptcy or an IVA, honesty arises here.
Bankruptcy would usually end in loss of home whereas IVA’s are getting much more difficult for those with equity more than the unsecured debt.
