Understanding the available tools can help you navigate financial challenges. A Debt Management Plan is one such tool, designed to help people regain control of their finances.
What Is a Debt Management Plan?
A DMP is a formal agreement between you, your creditors and a third party to pay off your unsecured non-priority debts. This plan can be useful if your monthly payments are limited or you expect to see an improvement in your financial situation soon.
What is it?
A DMP can be set up by a company licensed to manage debts and authorised by Financial Conduct Authority (FCA). The process usually involves:
- Assessment: Provide details about your current financial situation including debts, assets, income and creditors.
- Proposal: Based on your budget, the company will calculate a monthly payment.
- Negotiation: They will contact your creditors and seek their agreement to the proposed plan.
- You’ll pay regular payments to a debt management company which will distribute the money to your creditors. It is important to remember that
- While many creditors agree to freeze charges and interest, they aren’t obligated.
Costs Associated with a DMP
Some debt management companies may charge:
- Setup fees
- Each payment is subject to a handling fee
- Make sure you are aware of any fees and their impact on your repayments.
Eligibility criteria
DMPs can be used to manage ‘unsecured debts’, including:
- Credit card debt
- Personal loans
- Overdrafts
- These rules do not apply to secured debts such as mortgages and car finance agreements.
Benefits of a DMP
- Consolidate multiple debts into a single payment to simplify your finances.
- Debt management companies negotiate with creditors on behalf of their clients.
- Flexible payments: You can adjust your payment schedule if you change your financial situation. If you need advice from Accountants Bristol, consider visiting a site such as com/accountants-near-me/bristol
The disadvantages of DMP
- Creditors can still contact you and take legal action even if they don’t agree with the plan.
- Potential Costs: Some companies charge fees that can prolong the time required to pay off your debts.
Your Responsibility
Maintaining the agreed-upon payment schedule is essential. Missed payments may lead to cancellation of the plan and creditors could resume collection action.
Seek Advice
Financial professionals can help you understand your options before you commit to a DMP. They will guide you and give you impartial advice.