Debt Management Plan

Debt management can take many forms but is generally taken to mean a Debt Management Plan (DMP). This is where you, a representative of yours (perhaps a Citizens Advice Bureau advisor) or a specialist debt management company contacts your creditors to explain you are having financial difficulties. They will briefly outline the reason for your difficulties, such as drop in income, and will provide a breakdown of your income and expenditure as well as a list of your creditors. The spare income on your financial statement is offered on a pro-rata basis to your creditors (for example if the amount you owed your bank represented 60% of your debt total, they would be offered 60% of your spare income ensuring that whoever is owed the most, gets the most).

Types of debt management plan

However, debt management can also be taken to mean options such as moratorium (a fixed payment break due to a specific reason such as maternity leave); full and final settlement offers (where you have a lump sum but it's insufficient to pay debts in full, a percentage of the balance can be offered to each creditor on the understanding that the remaining balance is written off; or token payments where individuals are unable to pay any more than £1 or so per month to their creditors - this is not a long-term solution but can used where someone has a temporary situation that will definitely improve.

A debt management plan can be a very successful way of dealing with fairly straightforward debt problems.

Advantages of a debt management plan:

  • Usually straightforward to set up, creditors are used to receiving such offers
  • Your monthly payments are affordable
  • Your assets (such as your home) are not taken into account
  • Your job should not be affected
  • No-one will know about your arrangements

Disadvantages of a debt management plan:

  • The creditors do not have to accept the offers, or stop adding interest/charges to your account
  • Creditors can change their mind at any time, leaving you open to formal recovery action
  • Debt management companies usually take a percentage of your monthly payments as their fee meaning it takes longer to repay your debts
  • Your credit rating will be affected for the duration of the arrangement

Find out more about a debt management plan

For all you need to know about debt management plans, please contact us for some free, no obligation help and advice.

Campbell Dallas Debt Solutions - if you have debt problems, we have debt solutions.

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