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Is a Debt Management Plan Right for You?

Are you struggling with debt? Is a debt management plan right for you?

It follows you around, and sometimes you can feel at your wit’s end. With a myriad of options available, it’s hard to know what all of them are or do.

Debt management plans are one option for those with high unsecured debt to consider. The bar to qualify is attainable, and most individuals with a source of income can start one. If they are right for you, DMPs can help simplify and make debt repayment more affordable.

If you’ve been struggling with debt, you’re in the right place. Read on for an overview of debt management plans in the UK.

What Is a Debt Management Plan (DMP)?

For those who have seen their debt continue to grow, especially as a result of the pandemic, the prospect of managing it can be difficult. A debt management plan could be the first step in getting back on track, but it’s important to know what it is first. To do that, we have to clarify some terms.

There are two types of debt you are most likely to incur: secured and unsecured debt. Secured debt often comes with collateral, like when it comes to large-scale loans. Your house mortgage or monthly car payments both count as secured debt.

Often secured debt comes with terms attached, which make it difficult to get out of. The bank may try to repossess your home, or you may need to give up your car if you can’t pay. There are methods and services to help with secured debt, but a debt management plan focuses on unsecured debt.

Unsecured debt refers to debt that doesn’t have any collateral behind it. Think of your credit card, for example. A debt management plan will allow you to lump all your unsecured debt into one monthly payment.

How Does a DMP Work?

The agency in charge of setting up and managing the DMP will consider your budget and finances. The goal of a DMP is to factor in how much money you have coming in and which bills take the most priority. These calculations will consider living expenses and any secured loans you have.

DMPs allow you to tackle your unsecured debt without falling behind on mortgages. Once you’ve decided on an affordable amount, the agency will take the next step.

They will talk to your creditors on your behalf. More often than not, they get them to freeze interest and accept a new repayment plan based on your DMP.

A DMP will also split your monthly payment across your various debts based on priority. The creditors you owe the most to will get the largest piece of the monthly payment, and so on. DMPs work by giving you the option to pay off your debt over time and by simplifying the repayment process.

You can talk to your creditors directly to try and set up a DMP or go with a debt management company. These companies will sometimes charge you a fee, but non-profit agencies exist too.

Is a DMP Right For You?

Each person is different and so are their needs. Different agencies and services can make suggestions to you based on your situation.

However, at the end of the day, the final decision will be up to you. There isn’t even such a thing as the best debt management plan because every DMP will be unique.

There are several types of organisations that you can contact about setting up a DMP. At Become Debt Free we can help you decide whether a DMP is right for you and directo you to an organisation that can help.

DMPs can be beneficial if they allow you to reduce your stress levels and improve your mental health. Some creditors will prefer that you repay your debt rather than default on it. These creditors will often accept a DMP solution and may even waive late fees to get you to pay.

While not all creditors will agree to waive or reduce interest and other fees, it will usually still make a dent. Going through a DMP also means your creditors may stop hounding you for collection. This is because they’ll know their monthly cheque will come in from the agency, so they don’t have to bother you.

What Do You Need to Start a DMP?

The barriers to starting debt management plans are somewhat low. The first step is you’ll need gainful employment or some other form of income. You can’t set a budget to get out of debt if you don’t have any money coming in to pay that debt.

Most agencies that work with you on a DMP will make sure the payments are affordable. They ensure to be fair on your budget without hurting your quality of life.

That said, those having difficulties meeting their basic needs shouldn’t fixate on DMPs. They are for those in need of help budgeting their income against their expenses and debts.

There is also no credit check or requirements needed for a DMP. Missing payments before you start also won’t affect your ability to get one. That said, starting a DMP can hurt your credit score.

This is because some creditors will prefer to close your account while it’s being repaid. The age of an account affects the credit score, and starting from scratch can be tough. Those considering a big purchase may want to wait a bit or look into other options in the meantime.

Leaving a debt management plan is as easy as starting one. You can cancel at any time or work with the agency to adjust your payments.

The Down-low on Debt Management Plans

Debt management plans (DMPs) are a way to simplify and consolidate your unsecured debt. If they are right for you, they can bundle your debt into monthly payments that are fair to you and your budget. DMPs will take your unique situation into consideration to assist your debt repayment.

Become Debt Free is one of many companies that can provide info on DMPs and other debt-related services in the UK. Consider giving us a call if you’d like to know more.

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Customers can get free debt advice from the Money Advice Service – an organisation set up by the Government to offer free and impartial advice to those in debt. For more information from the Money Advice Service visit MAS is part of the Money & Pensions Service. We are not affiliated with MAS in any way.

Become Debt Free is a trading style of Re10 (Finance) Limited Registered Number 04651137.  Data Protection Act Registration Number – Z8613095

Become Debt Free specialise in providing and administering Individual Voluntary Arrangement (“IVA”) solutions to individuals based in England, Wales and Northern Ireland.  We do not administer Debt Management Plans, Debt Relief Orders, or any other debt solutions.  We only provide advice after completing or receiving an initial fact find where the individual(s) concerned meets the criteria for an IVA, therefore, all advice is given in reasonable contemplation of an insolvency appointment.

* To qualify for debt write off in an IVA with us, you must have a minimum of £7,000 of qualifying unsecured debt owed to two or more creditors.  The amount of debt write off is based on your own personal circumstances – typically this could be up to 85% of what you owe; and this has been achieved by over 10% of our customers who have successfully completed their IVA’s in the last 12 months.  The amount of debt write off differs for each customer and is dependent upon their individual financial circumstances and subject to the approval of their creditors.

Andrew Bowers is authorised in the UK to act as Insolvency Practitioner by the Insolvency Practitioners Association.


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