Debt Management Plan

Debt Management may be an ideal solution to your debts but it will depend on your individual circumstances. For example, a Protected Trust Deed or another debt solution may be more appropriate so it is important we have a clear understanding of your particular situation.

What is a Debt Management Plan?

A Debt Management Plan (DMP) is an informal arrangement put together by a Debt Management Company. With debt management, you agree to pay a regular amount each month to a debt management company. This company then negotiates new repayments with the Creditor's you owe money to; usually a lower repayment, but over a longer period of time.

The company will negotiate and deal with Creditors, and will request Creditors to freeze or reduce interest payments. The Creditors will be paid monthly payments from the contributions you make on a pro-rata basis, and you will be sent regular statements and kept informed of any changes.

There are two types of Debt Management Companies:

1. Charities which are funded by your Creditors.
   These charities charge the various banks and lenders for operating the Debt Management Plan.


2. Commercial debt management companies, i.e. Carrington Dean.
   Initial fees are based upon your monthly disposable income – and what you can realistically afford. You will pay a monthly administration fee so that Carrington Dean can manage and distribute the funds to your Creditors. Carrington Dean currently charge a monthly fee of 15% with a minimum fee of £25 and maximum fee of £300. Carrington Dean will take the first two payments as an administration fee, but in subsequent months your payment will be distributed to your Creditors.
   

Why would you want a Debt Management Plan?

A Debt Management Plan may be the ideal solution to your debt problems if you have equity in your home but do not wish to - or are not able to – remortgage. Similarly, if you have tried self-help plans a Debt Management Plan could be an excellent solution. When considering a Debt Management Plan you should be aware that unlike a Protected Trust Deed it is not a legally binding agreement and does not offer protection against Creditors. Another solution may more suitable so please do not hesitate to contact us to find out.

Advantages

1. You pay one single reduced amount.
2. The repayments are based on what you can afford.
3. The plan is flexible and it can be reviewed if your circumstances change.

Disadvantages

1. Creditors may not respond to this as a Debt Management plan is an informal agreement. Consequently they may continue to add interest and charges, thereby increasing your debt.
2. A Debt Management Plan cannot stop any Creditor taking legal action against you.
3. As you are not making contractual payments, it will take longer to clear your debts.  However, you will have a more manageable repayment plan and better  understanding of your finances, allowing for better budgeting.
4. A Debt Management Plan will affect you credit rating, as you are failing to comply with the original credit agreement.