Hearing the phone ring isn't exactly a joy when serious debt problems exist. Dealing with creditor harassment is unpleasant and stressful. Don't let financial difficulties and stress continue indefinitely as a debt management plan can change things for the better.
What is a Debt Management Plan?
A minimum of £100 is contributed towards the arrangement each month. The debt management company takes their 15% fee and the remainder is paid to creditors on a pro rata basis. Unlike an Individual Voluntary Arrangement, a debt management plan is only a voluntary agreement and is not legally binding on creditors.
Budget Preparation and the Necessary Paperwork
Put together a personal budget statement documenting all sources of income and expenditure. This should include a full list of creditors, their addresses, account numbers and how much is paid to them each month.
This will allow the debt advisor to work out which unsecured debts can be included in the plan. It will also enable the advisor to see how much can be paid to creditors without imposing further personal hardship.
How the Debt Management Plan is Arranged
An agreement will be sent to sign allowing the debt management company to represent their client. This will document what was discussed over the phone, including a full breakdown of income, expenditure and how much is being offered to the creditors.
If the creditors agree, the program will commence and a payment will be taken from the client bank account by direct debit on a specified date.
Advantages of a Debt Management Plan
- No longer having to deal with creditor harassment. All queries can be directed to the debt management company.
- It may be possible to stop any charges and freeze interest. This can save literally thousands of pounds, especially on agreements where the APR is very high.
- Make a single payment instead of lots of individual payments.
- A debt management plan can cut monthly outgoings significantly allowing client's to pay their mortgage or rent.
Disadvantages of a Debt Management Plan
- Debt management companies will usually take the first payment as their fee and then upwards of 15% on all future payments. This means that if £100 is paid into the plan only £85 will be used to reduce debt levels.
- Interest and charges on debts aren't always frozen.
- The repayment period can be very long, especially if a lot of money is owed.
- It is only a voluntary arrangement and is not binding upon either party.
- A minimum of 3 creditors are required.
A debt management plan is an excellent solution for those with debts under £15,000. Those who have larger debts should consider an Individual Voluntary Arrangement or personal bankruptcy because it would take too long to pay off the outstanding money. Always consult a qualified debt advisor before proceeding with any debt solution.
Sources
"Debt management plan (DMP). Consumer Credit Counselling Service (CCCS).
Asa Ghaffar - Asa has over 10 years of practical experience in loan approval, secured lending, bad credit repair, stock trading and debt management.
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