If you are facing difficulties to meet the monthly payments, then a debt management plan can take a good amount of pressure off. However, it can also make it pretty difficult to borrow money from creditors– it can potentially influence your lifestyle as well as limit your options. But, a well-managed Debt Management Plan can help you get your financial situation back on track, also significantly improve your credit report in the long run.
Well, if you don’t have much knowledge about the DMP settlement program and are wondering how you can pay off with it, then keep reading this guide! Here, you will find all the information regarding the debt management plan!
What is DMP?
Well, DMP is a settlement agreement that is generally conducted between a debtor and his or her creditor if the debtor is not able to make monthly payments on time. This allows the debtor to pay a low amount every month than the initially agreed one. But, the debtor will still need to pay off all the debt; however, he or she can do it more slowly.
To get a Debt Management Plan, the debtor usually need to:
● Have disposable earning for making decreased monthly payments
● Be able to make big payments that helps to pay off all the debts in a reasonable time frame (your Debt Management Plan provider will guide you on how long it is)
● Not have sufficient amount of disposable income to repay all the debts within 6 months
What kinds of debt can be incorporated in a Debt Management Plan?
The ‘non-priority’ debts can only be incorporated in the DMP settlement agreement, such as:
● Credit cards
● Student loans
● Water bills
● Bank loans
● Benefits overpayments
Debts that cannot be incorporated in your Debt Management Plan are named ‘priority’ debts, since there are major consequences for not repaying them back. These incorporate Magistrates' court fines, Mortgages, Overdue payments for gas, rent, council tax , electricity, or child support, TV license fees, Overdue income VAT or tax.
So, being a debtor, if you want to begin a DMP settlement agreement, your creditors must agree to it. This might be in their best interests, since a Debt Management Plan can help creditors get their money back.
Well, Debt Management Plan is not legally binding; therefore it can be canceled any time by either you or your lender. You might use a professional financial advisor who will provide the debt advice, deal with lenders, also calculate your monthly payments.
And, when you begin your Debt management plan, you will just need to make a single payment every month to cover all the debts incorporated in the plan. Your financial advisor will not only give you suggestions but also split the payment between your creditors. Well, you need to continue to make the monthly payments unless either your debts are completely paid off or you are able to make the complete, original payments once again.
But, while you are in a Debt Management Plan, you might face certain things since every DMP settlement agreement comes up with some consequences.
● While you are choosing to move towards the stepchange debt management plan, you might need to pay more interest. Generally, creditors charge monthly or yearly interest on your debts. A few creditors also charge daily fees. So, as you are paying your debt over a longer period, you might pay more interest altogether. But, creditors will sometimes ask to freeze interest rates late charges during the DMP.
● A Debt Management Plan can potentially decrease credit rating. But, in the long run, this can be better for your credit report than getting into more major difficulty with the creditor.
● After applying for a Debt Management Plan, you will be considered as a defaulter. can get a defaulter since you’re making decreased monthly payments.
● Certain Debt Management Plan providers charge a fee. However, there are a few providers who can give you free services.
● Certain creditors might still get in touch with you If you are struggling to repay the priority debts, you will need to deal with all these creditors directly.
So, now you are well accustomed which debts to pay off with a Debt Management Plan! Although, DMP is a reliable option to pay off all the debts but make sure you get services from a reputed as well as trustworthy service provider. To get a free debt management plan in the UK, check the local forums.
