Available through non profit and for profit organisations
A Debt Management Plan (DMP) may be the most reasonable road to a sounder financial future. Here are four important things to understand before you set up your DMP with your creditors please note Debt managements plans are available Across the UK Although residents of Scotland have access to other solutions that may be more beneficial visit *Trust Deed or Debt arrangement scheme for more information.
- credit score affected
- your paying back every penny of the debt
- interest may not be frozen
- creditors could reject the plan
DMP Covers Non-Priority Debts
Before entering into a DMP, it’s crucial to understand which debts you can cover. DMP’s are valid only for non-priority debts. Priority debts include mortgage and rent arrears, magistrates’ and court fines, and income tax or VAT arrears. Falling into arrears with priority debts has far-reaching consequences and as such, they cannot be included in a DMP. DMP’s can only be utilized for non-priority debts such as bank loans, credit card debt, student loan arrears, water charges and benefits overpayments.
DMP Can Increase Payback Time
When you enter into a DMP, you are paying only fractional amounts of your overall debt over a longer period of time. So, while you can take comfort in the fact that you have made your non-priority debts manageable, it can take considerable time for your debts to be considered paid and for results to appear on your credit rating. As such, DMPs require commitment —and patience. In addition, DMPs can only be utilized for unsecured debts that have not been guaranteed against your home or property.
Joint DMPs vs. Individual DMPs
Individual DMPs are effective for individual debtors to get relief FROM past due bank loans and overdue credit card statements. However, they are also a useful tool for couples who are eager to get their joint financial situation back on track to become more viable for mortgage and automotive loans. When you take on a loan with another individual, you are both equally liable for its repayment, an understanding known as “joint and several” liability. Regardless of the difference in you and your partner’s income, Joint DMPs are an effective way to get your family’s financial future off on the right footing.
Establishing a DMP & Moving Forward
DMPs are available through both for-profit and non-profit providers. Before entering into any DMP agreement, ensure first that your priority debt is manageable. Paying off high-interest credit cards and bank loans is of no use if you cannot also afford your mortgage or tax arrears. Secondly, carefully review any DMP agreement to ensure no hidden fees or commitments will hinder you from paying off your debt in the allotted timeframe. Lastly, keep organised records of all financial statements for reference and as proof that you have entered into a DMP to resolve your debt status. Lastly and perhaps most importantly: make timely payments. Missing even one monthly payment to your DMP can jeopardise the entire agreement and set you back to where you began.