Debt Management Plan
What is a Debt Management Plan?
A Debt management plan is an informal arrangement between the creditors and your debt management provider. You will pay the debt back in full, but the payments are based on what you can afford to pay your creditors. The debt management provider will contact all creditors to let them know that they are acting on your behalf, as well as negotiate arrangements with the creditor. They will request that interest and charges are frozen but this cannot be guaranteed.
Who provides Debt Management plans?
There are 2 different types of debt management plan; you can look to use a free service (for example: Step Change) or a fee charging company. As with all solutions, it is best to speak to a debt advisor to discuss your circumstances and determine the best solution.
Advantages
- A Debt Management Plan is an informal agreement to pay one affordable regular payment which is shared amongst your creditors
- Interest and charges on included debts may be frozen
- It can slow down creditor contact
- Debt Management Plans are flexible, informal solutions and are not legally binding, so you can leave the plan at any time
- Your Debt Management Plan provider will deal with your creditors on your behalf
Disadvantages
- There are fee-free DMPs available, however if you choose a fee-charging DMP company, you will usually be charged for their services monthly within your usual DMP payment. Fees vary between DMP companies.
- Interest and charges are not guaranteed to be frozen
- Creditors can still contact you about payments and may refuse to co-operate
- A DMP may adversely affect your credit rating and your ability to obtain credit may be limited
- Your debts will still have to be paid in full. Reducing monthly payments to a level you can afford will generally increase the term of your debts