A Debt Management Plan (DMP) allows you to make reduced repayments to your lenders (creditors) over a number of years. Payments are made until the debt is cleared in full or until you are able to make the full repayments again. The repayments are based on what you can afford after a realistic income and expenditure has been drawn up.
A debt management company will negotiate the reduced payments with your creditors on your behalf. The payments are then made to the management company each month and are then distributed to your creditors for you.
When choosing a debt management company be careful! Companies offering this service vary greatly. Some companies charge you fees for putting together a DMP whereas other companies pass the cost onto the creditor so you do not pay up-front fees. Also, make sure that the company you choose will send you regular statements if you require them. This is to ensure that the payments to the creditors are actually being paid regularly and are not simply gaining interest for the debt management company. For information about debt management companies that do not charge fees contact your Local Citizens Advice Bureau http://www.nacab.org.uk/
The advantages of a Debt Management Plan:
You no longer have to deal with your creditors. You make payments that you can afford. Your payments are re-evaluated frequently so that any changes to your situation can be taken into account. You only make one payment a month.
The disadvantages of a Debt Management Plan:
Debt management plans are not legally binding so creditors do not have to agree to repayment schedules. However, if the arrangement works well the creditors will be happy to co-operate.
A Debt Management Plan may not be suitable if:
Your surplus income is low and would therefore mean that you would be making the repayments for many years. If this is the case there are other options available such as an Individual Voluntary Arrangement or Bankruptcy.
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