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Guide: DMP (Debt Management Plan)

A DMP (debt management plan) is a debt solution that provides UK residence (excluding Scotland) potential relief on their debts if they qualify for the programme.

It can be difficult for people to admit that they need help, and many people wait for their financial life to get out of hand before seeking help. Seeking help from a debt management company at an early stage can help you recover quickly and help you have a future without debt.

What is a DMP?
A debt management plan is a structured payment plan that is put in place for you by an FCA regulated financial advisor who is in a position to help the debtor pay off his debt. The purpose of the debt management plan is to help eliminate the debt at a reduced level over a fixed period, to help the debtor start to improve their finances.

What criteria meets a DMP?
All cases are assessed individually and require an insolvency expert to determine what debt relief programme.

For a DMP the professional will look at the following and require that all the following is met.

– England, Wales or Northern Ireland residence.

– Ability to pay back debts in less than 10 years.

– Ability to afford a monthly payment.

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How does a debt management plan work?
First, your debt adviser will advise on how you could save by looking at your budget. Your debt adviser will help you evaluate your financial situation and debts by asking a series of questions. By asking these questions, you will get a more accurate picture of your finances. You must be sincere when outlining your financial situation so that a debt adviser can provide you with the specific assistance you need. This information is used to calculate how much you can comfortably pay each month with your surplus income.

As soon as this amount is agreed with you, your creditors will be contacted and asked to stop all expenses and agree with them on a different payment schedule, which will be easier to manage every month. In most cases, lenders are happy to accept the plans, because, from experience, they know that the policies are realistic and sustainable.

Then you make a single monthly payment, which is distributed among your creditors on your behalf. You must pay in your debt management plan every month. Throughout your plan, you will be able to speak with an experienced debt adviser who you should contact if you have any problems during the term of the agreement.

Your debt management plan will be reviewed regularly to ensure it matches your circumstances. If your financial situation changes, the debt management company has the opportunity to review payments on your behalf.

Getting a debt management plan in place
Many debt management planning companies will work with your creditors and aim to freeze any interest and fees. This will be very useful for you since you can focus on paying off the debt itself rather than the interest and fees that have been added. Remember that in all cases, this is not so, but the company will always strive for this.

Is it suitable for you?
If you have unsecured debt that is getting too much and you are struggling to pay back, then a debt management plan may be for you.

When you get a debt management plan, keep in mind that you should be able to maintain regular payments for it. If you do not make payments or “do not make payments,” they may appear in your credit history, which may make it difficult to obtain a loan over the next six years.

Another point worth noting is that the goal of a debt management plan is to fully repay your debt, rather than a loan cancellation service. Many people fall into the illusion that credit card debt can be cancelled, but this is an entirely different financial decision and is not suitable for the vast majority of people.

What debts CAN be used in a DMP?
✓ Credit cards

✓ Personal loans

✓ Overdrafts

✓ Catalogues

✓ Bailiffs

✓ Old utility/phone bills

✓ Payday Loans

✓ Previous years council tax (subject to area)

✓ Store cards

What debts CAN’T be used in a DMP?

✘ Mortgages

✘ Other secured loans

✘ Hire purchase agreements

✘ TV license arrears

✘ Student loans

✘ Child support arrears

✘ Debts incurred through fraud

✘ Court fines

✘ Social fund loans

What are the advantages of a DMP?
•You can manage your debt much better and lower your monthly payments.

•You can stop the collection agencies from calling you and asking for money.

•You will have peace of mind knowing that you can pay your monthly payments and that you can better budget each month.

•You can stop the default notes issued against your name.

•All of your debt payments will be included in your monthly payments, so you only need to expect a payment date.

•Your interest may be frozen for a certain period, and accrual may be suspended.

•Litigation against you will be suspended, and a debt management plan can usually prevent creditors from filing for bankruptcy.

What are the disadvantages of a DMP?
•You will have to make a long-term commitment, usually for five years. During this period, it is almost impossible to obtain a new loan at a reasonable interest rate.

•The agreement will be sent to the credit bureaus, and your credit rating will be lowered.

•You will have limited flexibility, and a debt management plan is legally binding. This means that you will have to comply with payments and deadlines. If you do not follow the rules, your policy may be cancelled, and you may need to return the full amount that you owe.

How a debt management program affects your credit rating?
A debt management plan will be presented to the Credit Bureau as a note on your credit card. It usually stays there for six years. Therefore, your credit rating may be affected. It will be challenging to get a new loan while your debt management program is running and for a bit of time after until your credit score improves.

How to apply

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