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What is a debt management plan?

What is a debt management plan?

What is a debt management plan?

A debt management plan (DMP) can be a great solution to tackling mounting non-priority debts, such as credit cards and personal loans. An informal agreement between you and your creditors, it allows you to make affordable monthly repayments for these costs and still have money left over to pay for all your daily living expenses.

Priority and non-priority debts explained

A DMP can only be used in the case of non-priority debts. For example, priority debts can include:

  • Payments on mortgage or rent
  • Gas or electricity bills
  • Council tax, income tax, or VAT
  • TV license fees

Non-priority debts, on the other hand, are for areas which are essential. For example:

  • Credit card or store card debts
  • Overdrafts
  • Personal loans
  • Money borrowed from friends and family

How does a debt management plan work?

Debt management plans are typically set up by DMP providers. When applying for one of these agreements, the provider will arrange a consultation with yourself and discuss your circumstances.

Generally, this conversation will cover such areas as budgeting as well as how much you can afford to pay back each month.

Next, the provider takes the proposal to your creditors. If approved, this individual then manages the plan. This means that – for the course of the DMP – the provider typically handles any interactions with your creditors.

However, a debt management plan is only an informal agreement and, therefore, is not legally binding. Consequently, the plan can be rejected by your creditors – or yourself – at any time.

Can creditors refuse a debt management plan?

Although creditors can refuse a debt management plan, it’s worth bearing in mind this is relatively unlikely to happen. After all, assuming the proposal is reasonable and shows clear benefits to them, most creditors will accept a DMP.

Yet, if this occurs, it’s essential to coordinate with your DMP provider. He or she will be able to examine the situation and determine the best way to proceed.

An informal agreement between you and your creditors, a DMP allows you to make affordable monthly repayments

Do I qualify for a debt management plan?

You will only qualify for a DMP if your debts are non-priority issues. As well as this, you’ll usually be eligible for a debt management plan if:

  • You currently can’t afford to pay your non-priority debts, but you have enough to make reduced monthly payments.
  • You’ll be able to clear your non-priority debts in a reasonable amount of time.

What are the benefits of a debt management plan?

Similar to other financial solutions, a DMP carries a variety of pros and cons. However, there are several benefits which make debt management plans the preferred choice of many:

  • A debt management plan can be a free service.
  • Putting all debts into one affordable payment makes finances much easier to manage.
  • As a DMP provider usually deals with creditors, this grants you peace of mind.
  • As the plan is reviewed on a regular basis, this ensures the DMP remains affordable.

Is a debt management plan right for me?

If you have the funds available to make regular payments each month towards your non-priority debts, then a DMP could be ideal for you. If you want to find out more information, get in touch with one of our friendly advisors and they could assist you in finding your ideal debt solution.

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