Debt Management Plan
Most people experiencing financial difficulties will have heard of Debt Management Plans (DMPs) because they are one of the staple debt solutions.
Introduced into the UK as a mainstream debt solution during the nineties, DMPs provide a platform to help with the repayment of overburdening unsecured debt.
DMPs offer flexible terms to people who can't afford the monthly cost of the debt repayments.
None Borrowing Option
The principle of a DMP is to allow a person to reduce their debt repayments, without the need to consolidate their debt without the need to borrow more money.
Instead, the DMP replaces the monthly repayments to creditors with new reduced repayments based on affordability.
Good with short term problems
DMPs are particularly useful when dealing with short-term debt problems, such as those caused by redundancy or short-term illnesses.
Then, if and when the financial difficulties have been overcome, normal repayments can be resumed.
Bad with long term problems
Because a DMP is an informal solution, it doesn't carry with it any legal obligations. Consequently, creditors are at liberty to continue charging interest on the outstanding debts if they so wish, which can have the effect of lengthening the repayment term of the plan.
This poses little problem for those experiencing a short-term financial problem but should be a consideration for those whose financial circumstances are unlikely to improve over the medium to long term. For the majority of those people, entering into a DMP could mean many years of debt repayments.
Credit rating problems
As with entering any debt solution, your credit rating could be adversely impacted by entering a DMP.
Because the DMP cannot provide any legal protection from your creditors, they remain free to take legal action against you if they wish, which could result in a default notice or a County Court Judgement being put against you, which would have a negative impact upon your credit rating.
Take professional advice
It is, therefore, always advisable to have a chat with a professional debt adviser before entering a DMP to ensure you are fully aware of the potential consequences.
Which is best Charity DMP or Commercial DMP?
Debt Management Plans provide by a charity such as StepChange or Christians Against Poverty (CAP) are free.
This has the effect of ensuring that every penny of the monthly payments you make goes towards repaying your debts which, in turn, means that a DMP administered by a charity will complete much more quickly.
This reason without doubt makes the charity DMP by far the better option.
Professional Debt Help
If you would like to have a chat with one of our debt advisers, please call our helpline on 0800 856 8569.
All consultations are completely free and confidential, and come without any obligations.
For more information about charitable debt management companies click here
