What is a debt management plan?

A debt management plan (DMP) is provided by a debt management company (DMC) who negotiates with your creditors/lenders to change your current debt repayment terms. A DMP can be a useful short term debt solution if your debts are on the low side or if you just need time to see if your circumstances improve.

What do debt management companies, actually do?

DMCs act as a go-between for someone who owes money (the debtor) and the lenders (the creditors) to whom the person owes money. The DMC goes through the debtor’s income and expenditure, lists all the creditors and then establish a repayment figure that they both agree can be afforded each month in the plan.

The DMC then makes contact with the creditors on the debtor’s behalf and draws up a contract between them and the creditors that feature in the plan. Once the agreement is ready the debtor pays the DMC the agreed amount on a monthly basis and they in turn distribute that payment to the creditors.

Will interest and charges be stopped automatically in a DMP?

This is not guaranteed but the DMC will negotiate with the creditors to get all the interests and additional charges stopped and this is normally achieved after several months, provided the agreed payments in the plan continue to be made. Some creditors may take longer than others before they agree to freeze interest.

Do I have to pay for a debt management plan?

‘Yes’ if a commercial company is used to set up the plan and ‘no’ if a debt charity is used.

Some consumers go to a commercial firm because they feel they will get an improved level of service, a bit like opting for private education or healthcare.  This list of helpful  organisations shows you where to get help and also lists the full contact details of the debt charities.

As with all debt solutions there are pros and cons. Check out the list of debt management pros and cons  here, which also has further questions and answers too.

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