What is a debt management plan (DMP)?
A debt management plan (DMP) can be a great alternative to clearing your debts without applying for an IVA or filing for bankruptcy. It’s an agreement formed between you and creditors to repay your debts at an amount you can afford. Unlike an IVA, they aren’t legally binding and they’re perfect if you can only afford small repayments or if you intend to make repayments in the next few months.
To be eligible for a DMP your debts must be unsecured rather than debts guaranteed against your home and you must have some ‘surplus’ or ‘disposable’ income to put towards your repayments.
There are two ways to set up a DMP: using a debt management company authorised by the Financial Conduct Authority (FCA) or arranging it yourself.
Going it alone
If you choose to organise a DMP yourself you’ll need details of all debt amounts owed and to whom they’re owed. Don’t forget to include interest rates and additional fees. You’ll need to contact each creditor and negotiate a repayment plan. Fortunately, most creditors are very lenient when it comes to DMPs – so you can suggest making repayments you can actually afford.
Choosing a debt management company
If you don’t have time to sort out a DMP for yourself or you’re unsure of where and how to start, then a specialist DMP company could be your answer. All you have to do is give your details to the company such as your current income, number of creditors, debt amounts, assets and expenditure. The company can then calculate affordable monthly repayments and will contact your creditors to ask them to confirm. Of course, creditors can refuse the proposed repayments but this happens less frequently than you’d think – because they want their money back, after all! DMPs may charge a set up fee and a handling fee for each repayment, but they will always ensure you understand the full cost of your debt management plan.