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What is a Debt Management Plan?

A Debt Management Plan or DMP is an informal agreement between a debtor and their creditors. A DMP could help to reduce outstanding debts over a fixed period of time at a lower repayment level to help people regain control of their finances. An income and expenditure of the individual or household is taken into consideration and the surplus or the individual’s disposable income is then distributed to creditors (less any fees due) If the individual’s circumstances change, payments may be lowered or raised accordingly making the plan is totally flexible and there is no binding contract.

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Advantages of a Debt Management Plan

Fair and open way of sharing payments, widely understood by creditors.

The debt management company will help you prepare your plan, including agreeing the level of your household and personal spending based on guidelines, which can then be used to put your case to the creditors.

The debt management company will negotiate with creditors on your behalf, so offers are more likely to be accepted and interest frozen than if you try to do this yourself.

You may be able to vary your payments if your circumstances change.

You make single payments each month or quarter to the debt management company, which is responsible for administering all payments to your creditors.

Any monthly payment you make should be passed on to creditors within 5 working days. Some debt management companies do not charge you a fee.

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Things to Consider

The debt management company cannot force creditors to accept your proposal or freeze interest. A plan is not binding on creditors who refuse to take part in it, but they cannot refuse to accept any payments made to them.

You remain liable to pay your debts until they are paid in full.

Creditors could still take enforcement action against you, for example by getting a county court judgment and then an order, which creates a charge on your home*, even if you are keeping up your payments under the plan, unless they agree not to do so.

You may not be able to make reduced offers if your circumstances worsen and you can no longer afford your agreed monthly payments.

A plan can last for several years. However, some creditors may be prepared to freeze interest for only a shorter time. If interest and charges cannot be frozen for the full length of the plan, then the total amount you end up paying under the plan could be more than the original amount of your debts, and could extend the lifetime of the plan.

*Having a charge on your home means that if you do not repay the debt, the creditor has a claim on the proceeds if the property is sold.

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