A Debt Management Plan (often referred to as a DMP) is an agreement created between the borrower and the lender to help repay debts which are considered non-priority. A Debt Management Plan can be cancelled at any time because it is not legally binding. They are usually managed by a Debt Management Plan provider who communicates between the borrower and the lender.
What Is a Debt Management Plan?
A Debt Management Plan is an agreement which is put in place between the borrower and the lender to help the lender pay back their non-priority debts. These may include store cards, short term loans and credit cards.
The Debt Management Plan involves making one payment on a monthly basis, where the money repaid is split between the debts you are currently paying off. This ensures that you will not have to pay off your debts individually, and means you do not have to liase with multiple creditors every month. Instead, you create a plan with your Debt Management Plan provider and they will facilitate the repayments for you.
What Are The Consequences Of a Debt Management Plan?
Consequences of a Debt Management Plan include it potentially taking longer to repay debts, refusal of cooperation by the creditors, and the Debt Management Plan showing on a credit record.
With any Debt Management Plan, it is possible that it takes longer than originally anticipated to repay any debts. This is because each month, you are likely to be paying a smaller fee to each individual creditor as you have arranged to split one sum between any lender you have borrowed money from.
In addition to this, creditors can refuse to cooperate with the Debt Management Plan provider and yourself, meaning that they will not be included in the Debt Management Plan. This will mean you will have to continue paying off your debt to them as has been previously arranged, even if you create a Debt Management Plan to pay off alternative debts.
Furthermore, it is also possible that taking out a Debt Management Plan shows up on your credit record, which can then negatively impact your credit score. This will then make it more difficult for you to obtain funding in the future if you do feel you need to apply for a loan.
It is always important to check if there are any fees involved with your Debt Management Plan. Some providers do charge for their services, however others offer them free of charge.
Do You Need a Debt Management Plan?
Debt Management Plans are suitable for you if you are positive that you will be able to make the repayments on a monthly basis. They are also useful if you do not want to continue dealing with your lenders on an individual basis, and want to arrange for someone to do this for you.
Additionally, making one payment on a monthly basis may also help you to budget well and save money around the house. This skill will then help you to pay off any future debts well and stick to the originally agreed payment dates without the use of a Debt Management Plan.