Debt Management Plan
The debt management plan is an informal debt solution or agreement between creditors and debtor to reduce the monthly income paid in balancing a debt, waives and freezes interest and charges. It is a debt consolidation plans but not a loan obtained from a financial institution or peer-to-peer lender in settling creditors.
Specifically, this consolidation plan is suitable for high consumer debts and unsecured debt like credit card debts, personal loans, medical bill, student loan, etc. To redeem your financial status and life is the purpose of the is the plan. Gracious is this plan, for it offers a low-interest rate, long repayment period and profound leniency in reducing the amount of principal debt to be paid.
Although it is informal, however, the debtor is not denied the assistance of a third party – a credit counselling agency. A credit counselling agency works together with the debtor in abolishing his debt by determining the affordable instalment base on the income and expenditure of the debtor. The duration for repayment and standing order for payment is by the agency.
The professionalism of the agency isn’t particular to the debtor only, but the intermediary work protrudes to the creditor end. This agency debate, negotiate and converse with creditors on behalf of the debtor for leniency. Depending on the debtor choice, there’s the free agency that charge not to give their support and backing. Some agencies are for-profit, therefore require charging and fees to employ their service.
How can I get a Debt Management Plan
Debt Management Plan is not open or available for all debt and a saving net that relish with grace to crystallise you out debt without restriction placed on the amount. DMP should be attempted by a debtor who is pressed on every side by debts and plans to prevail by making a monthly commitment in repayment within 3 – 5 years.
DMP is adaptable for debtors who have a constant stream of income and also a propensity for an increase in monthly income. The monthly instalment isn’t a getaway card from other debt and priority bills. That’s why the agency rapport with the debtor to know his budget and result in a monthly repayment plan that distils with convenience.
Which Debts are included in a Debt
DMP help with non-priority debts, not all falls into the category. Several liabilities are out of the DMP defined sets. Here is a list of debts DMP gives a debtor enrollment for:
- Student loan
- Credit card debt
- Personal loans
- Payday loan
- Store cards/credit
- Bank/building society loans
- Money borrowed from peer-to-peer lenders.
Which Debts are not included in a Debt Management Plan
- Income tax
- Court fines
- Council tax
- TV license
- National insurance
- Child support or maintenance.
The advantages of a Debt management plan
A debt management plan has been proving over and over and acclaimed to be one of the best debt solutions that protect you from the grin teeth of debt. The advantage that keeps debtor exhilarating are:
No record on the insolvency register
It saves from the insolvency register. Having name writing in insolvency register does affect credit score, harm career life, especially for a financial expert. It can prevent the debtor from directing a company and also a barrier in becoming a citizen of a country.
Depict willingness to pay your debt
Enrolling for a DMP comes from a willing mind to settle scores with your creditors. Creditors appreciate this better than debt write off, which seizes their 85 per cent of the interest. With this, creditors may call off all lawsuit against you and withhold the threat of debt collectors.
Some creditors soothe you better by granting favours like freezing of interest and charges and penalties, reduction in debt payment, etc.
Freezes interest and charges
Creditors ease the travail of the debtor by cancelling and abolishing the interest and penalties, but unlike Debt Assistance Scheme, they compelled. You may have your charges and interest frozen out of the goodwill of the creditor. This generosity is invoked and incited by your inclination toward his repayment and intercession of your credit counselling agency.
Reduction in monthly payments
With DMP, you buy yourself more time to strive with your debt and have your it together with interest spread out over a long duration of time. Also, if you have a one-in-a-million creditor, you can have part forgiveness of your debts which result in a reduction of the monthly payment.
DMP is deformable to suit debtor situational changes. This flexibility makes it a better consolidation plans that its counterpart, debt consolidation loan.
What are the disadvantages of a Debt Management Plan
- It spread debt payment over an extended period that is payable in short time interval with an intense commitment on the debtor part.
- Freezing of interest, charges, and penalties is a rarest privilege from creditors, not creditors obligation.
- You are subjected to full accountability to your debt if creditor gives no goodwill donation or empathy.
- The chance of having a reduction in monthly payment is slender, as there is no compulsion on the creditors to do so can make it prohibitively expensive to come by.
- For it isn’t a legal solution, the creditor can increase misery with legal threats.
- The creditor is still close on heels to contact and disturb their debtor.
- A private credit counsellor will charge for their intermediary and mediator service.
- It harms credit score which arouses difficulty in securing more credits.
What is the process of setting a Debt Management Plan
Debt Management Plan as a consolidation plan is multi-faceted by exact nature but its entirety coast along by similar principle. Here are guidelines to be successful with DMP:
- Choose your DMP provider.
You can pursue a DMP with your creditors without a third party if you know you can represent yourself better and your communication skills can afford an excellent treat.
If you doubt your proficiency in winning a negotiation, a credit counselling agency can be a mouthpiece to manoeuvre around the harshness of your creditors to pin down an affordable instalment with him. If you can’t afford to give a dine to the private agency, you have several debt charities offering DMP service for free.
- Determine your affordable monthly payment
If without agency, skim through your retrospective expenditures and steady income and deduce a reasonable amount for the repayment of debt.
It becomes easy with an experienced third party to your assistance. All you have to do is tender your payslip, bills, and other documents when requested by the agent. These known variables help the agency in determining an amount that’s safe for the debtor and permissible or pleasing to the creditors.
- Tenders suggestion to your creditors
All the preceding step are proposed, petitioned and purposed for the appraisal of creditors. DMP can’t enforce the creditor’s consent, creditors disapproval predicate legal action which will bring debtor to the edge of Individual Voluntary Arrangement (IVA), Trust Deed, and other dreadful insolvency options.
- Comply with the reduced monthly payment.
DMP has appeal for your debts, creditors have approved the reduced monthly payment. It doesn’t end here, you as a debtor show your grave gratitude by nor defaulting payment. Paying directly to your agency who creates a standing payment order for settling multiple creditors provides more convenience than morefold repayment that require reaching directly to several creditors.