Bank finance articles and tips

A Debt Management Plan (DMP) is an effective way of turning several unmanageable monthly credit agreements into one single affordable repayment. A DMP (or debt management program as it is sometimes called) can help anyone to manage their debts when they are unable to meet agreed repayments to their creditors due to financial difficulties. It won't write off your debts but could enable you to repay them over a longer period with lower monthly repayments.

Debt management plans are not legally binding; they are an informal arrangement between you and your creditors (the lenders you owe money to). This means you could cancel your program at any time. However, this also means that your creditors are not required to accept your proposals for lower repayments and/or a reduction in the amount of interest or charges payable.

What kind of debt can be repaid using a plan?

It is important to note that a debt management plan can only deal with your unsecured debts, such as personal loans, credit cards, store cards, catalogues and overdrafts. If you have car finance, a mortgage or any other loans secured by assets, they cannot be included in your program.

Having said that, our advisers will only ever recommend a solution to debt problems that is right for your individual circumstances. This will depend on several factors, which includes the type of debt, the total amount owed and the number of different creditors you owe money to. This will determine whether or not a debt management plan will work for you.

When will a debt management program not be the best solution?

There are two main reasons why a debt management program may not be the best solution to your problems. First, if your debts have grown to such a size that don't think you'll ever be able to repay them all in full within a reasonable amount of time. In this case, you might need a solution that actually reduces the total amount you have to repay, like an Individual Voluntary Arrangement (IVA).

Secondly, if you can still afford your monthly payments, debt management will not be an option for you. Your lenders will not accept a reduction in your repayments unless you genuinely can't afford them anymore. Besides, if you can afford your payments, a debt management plan will mean that you pay for longer because of the smaller monthly payments and you'll pay more overall because of the increased interest charges.

Will a debt management plan affect my credit rating?

You must bear in mind that because your monthly payments are going to be smaller, you will be repaying your debt over a longer period than originally agreed. This is likely to mean that you'll pay more in the long run. It also means that you are defaulting on your original credit agreement that will show up on your credit report for up to six years.

However, a good debt management plan will demonstrate to your creditors that you are serious about clearing your debt to them. They will often agree to freeze or reduce the total amount of interest payable and/or any other charges that might have been added to your accounts. This can significantly increase your chances of eventually repaying all of your creditors and help prevent your debt from spiraling out of control.

Richard Marshall writes for the popular debt help website IVADebtManagementPlans.com, where debt advisers will provide an unbiased consultation to determine the best solution to any debt problem. Whether that's an IVA or a Debt Management Plan, visit the website today to learn more about their services and get help for debt problems.

By Richard T Marshall
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