DMPs, or Debt Management Plans are non-binding agreements set between lenders and individuals who owe money. In essence, they are different than enforceable debt-resolutions such as Bankruptcies, IVAs and Debt Relief Orders.
In debt management arrangements, the debtor may able to secure a lower payment plan spread for longer. But keep in mind that decisions such as agreeing to the new terms, suspending legal actions or freezing the interest rate will be entirely up to the debtor. Also, the new term may not necessarily be better and the debtor may have to pay more in the end (due to accumulating interest).
It’s best to get debt advice before moving forward with new terms so you can make the most of your money. A debt charity or commercial debt company can help mediate between debtor and creditor, provide calculated plans that can pay off the debt quickly and even assist in budgeting and optimizing debt repayment.
Debt Charities
Debt Charities are organisations who debtors can approach for a Debt Management Plan. By definition, these are charitable institutions that act independently and aren’t concerned about turning a profit.
It’s important to know that debt charities do not work for free. For instance, in Scotland, when considering a Trust Deed, the debtor may be handed to an insolvency practitioner since the charity isn’t licensed for the work required, hence the corresponding fees. Debt charities typically get paid a percentage of the settlement for managing the debtor’s financial problems.
The procedure to become a debt charity involves intensive vetting and passing the requirements set by the Charities Commission. Some not-for-profit examples include the following:
National Debtline. Offers free DMPs and advice over the phone.
StepChange Debt Charity. Offers free DMPs and financial advice.
PayPlan. An independent DMP provider.
Citizens Advice. Offers free in-house or over-the-phone financial assistance.
Christians Againts Poverty. A representative can offer advice about sound debt management strategies.
Shelter. A housing institution that can help debtors online, over the phone or in person.
Debt Management Firms
A percentage of the total repayment will be given to the debt management company as compensation for their services, including when a debtor’s case is referred to an insolvency practitioner. It’s a common practice within the industry and doesn’t affect the monthly payment at all.
DMP providers will work closely with the debtor to find out repayment factors such monthly payment, the total amount you can pay and the number of months needed to complete it. As a professional company, they will have overhead and other expenses that must be compensated.
Keep an eye for the following if you decide to work with a fee-charging company for a DMP:
Non-charitable organisations don’t have to go through stringent processes as compared to charities in terms of setting up trade and a website.
For the best results, look for an adviser who is licensed by government and professional bodies, including the Office of Fair Trading and the Financial Services Authority. This ensures that the individual you work with is licensed and capable of providing sound debt advice.
Reputable firms will have a Consumer Credit license number on their website which shows that they are recognised by the government as a legal debt management organisation. Moreover, they won’t have booking or setup fees that you need to pay before a consultation can take place. These kinds of services should be free no matter how big or small the company is.
Assess Your Financial Situation
Transparency is one of the most important aspects when you need to resolve a debt. When working out a payment plan, you will need to see which balances you should pay first and the total amount of debt for each lender.
Here’s a checklist of information to obtain:
Total Owed. Ask the outstanding balance on all your debts per lender.
Monthly Payment and Interest Rate. Run this alongside the total owed, per lender.
Income. How much do you earn or take home each month?
Monthly Bills. These are your living expenses.
These figures would help provide a clearer picture of your financial situation and how you can get out of it debt-free.
If your income falls short of the monthly payments, it’s best to contact the lenders to see what can be done. More often than not, these companies can set up a plan to lower the monthly payment and have it spread for a longer period of time.
The option to go to a charity advisor or debt help firm is open to anyone who wants to get out of debt in the soonest possible time. They will be in charge of calling the lenders and acquiring the needed information to come up with the best debt management plan.
The only thing you need is to find the right debt charity or firm suitable for your particular financial situation. A company with an excellent track record should be able to set up a suitable debt management plan just for you.
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