Debt Management

Debt management plans explained

Debt management plans explained

Debt management companies have been in the news recently after the BBC discovered that unscrupulous debt management companies are holding on to clients’ cash rather than paying it to creditors.

This follows the recent comment by the chief executive of the Money Advice Trust charity that some companies were “not in a fit shape to be trusted” following the recent OFT investigation.

All of this means that, more than ever, the UK’s indebted families need to know who they should go to for advice, if a debt management plan can help and whether there is a way out of a desperate financial situation.

Unsecured debts

A debt management plan (DMP) is an agreement between a debtor and creditors when usual contractual payments cannot be made due to financial difficulties.

Originally an American idea, the DMP was introduced into the UK by the Consumer Credit Counselling Service (CCCS) in the early 1990s when the charity was set up. It was a debt solution that dealt with the fallout of unsecured lending in an era when the personal credit market was expanding dramatically.

A DMP provides a structured arrangement to pay off all unsecured debts, rather than writing off some of the money as happens with formal debt solutions like an Individual Voluntary Arrangement (IVA).

This arrangement runs over a longer time period than originally agreed, with one payment per month that the debtor can afford given their circumstances. The payment is distributed to creditors on a pro-rata basis.

Timing

Importantly, a well-managed plan provides breathing space. It ensures the debtor has money to afford everyday essentials, rather than feeling pressured to pay creditors their money first.

However there are disadvantages. A DMP is an informal solution, so creditors do not have to accept the plan – although the vast majority do – and a few do not freeze interest or fees, meaning that the debtor continues to be charged.

One creditor disagreeing with the implementation of a DMP will not bring down the plan, but will make it harder for the debtor to pay off all of their debts successfully. In these extreme cases the debt is still paid at the lower pro-rata rate while we – credit counsellors – petition the non-participating creditor to accept the plan.

A DMP not a catch-all either. Depending on the person’s situation and the amount of debt, a legally-binding agreement may be a better solution.

For example, we advise our clients that a DMP is not worthwhile when the debt cannot be paid off in a reasonable timeframe.

A more formal agreement may be more restrictive and harmful to their credit score and also goes against our ethic to encourage repayment whenever possible. However it could see them debt free in less time.

Struggling to pay

Martin (not his real name) lives in London and his story is typical of those who need a DMP.

He struggled to make ends meet and eventually turned to credit to pay for his basic living costs after losing his job. When he contacted the CCCS in 2008 he had £30,000 of debt.

After a counselling session he was recommended a four-year DMP, which he is now more than halfway through. In that time Martin has gone from having four creditors to one, having paid some of his smaller debts in full.

“When I lost my job, I turned to credit cards to pay for essentials. Eventually, I could not get more credit because I was too big a risk,” he says.

“I have now paid most of my creditors, and will settle my debts in the next few years. My DMP has allowed me to take control of things.”

Setting up a DMP

For those considering a DMP, you can arrange it yourself and there are internet forums that advise on the best way to go about this. It involves producing a budget – listing income, expenditure and debts – to show what money is available after essentials, utilities and priority bills are accounted for.

You then speak with each creditor in turn and ask them to accept lower monthly payments from any surplus amount.

However it can be a complex procedure to set up a DMP on an individual basis and it can be fraught with difficulties, not least negotiating with the very same lenders that are hounding you for money. For those in a fragile state of mind this is just too much to contemplate.

Instead we recommend that a third party arranges a plan on your behalf, so there is an intermediary between you and your creditors.

Having this buffer means that during this stressful period, when lenders and debt collection agencies are ringing you repeatedly with demands, you have someone else acting in your best interest.

The benefit of using an intermediary also comes from their relationships with the creditors. As they arrange thousands of DMPs each year, they are often in a better position to negotiate with the lender.

The downside is that many debt management companies will charge a fee for their work, on top of the debt owed. As such, to save money over the lifetime of the plan, and pay off the debt sooner, it is much better to talk with a charity or a not-for-profit organisation that set up and run DMPs for free.

DMPs provide a clear framework to paying off your debts and should your creditors agree to the plan they are incredibly practicable.

But if you cannot stick to the DMP payments, then other options might have to be considered, including formal solutions like bankruptcy or an IVA.

As such, DMPs are not the perfect solution in all cases. Your financial situation is the most important indicator of the whether one is right for you.

Source BBC

Debt Management

Debt Management

A Debt Management Programme serves as a means for you to start prioritising your debts and regain control. It allows you to pay your household bills first (mortgage, gas, electricity, council tax etc…) then offer a reduced payment to your unsecured creditors (personal loans, credit cards etc…).

Debt Management is designed so you will pay back what you can afford to the creditor on a monthly basis and not what the creditor requests. We can help you manage your debt and agree a repayment plan which fits within your budget.

Negotiation – will negotiate with your creditors to agree a plan and whilst we cannot guarantee that they will accept it, we can usually achieve an agreeable plan for you.

Interest and charges – cannot guarantee to get interest and charges frozen, however we will work with your creditors on your behalf to achieve the best debt repayment plan for you.

Monthly or weekly payment – made at the most convenient time for you (e.g. just after you have been paid), which allows us to pay all of your unsecured creditors for you, so that you have the peace of mind that your creditors have received the agreed payment.

Find out how we can help you with a Debt Management Plan by calling one of our trained debt advisors who will explain your options to you in a non judgmental and sympathetic way and hopefully put you on the road to a debt-free life.

We could help you

• Reduce your Debt Repayments
• Freeze Interest Rates
• Stop Legal Action
• Give you Free Debt Assessment
• Negotiate with your creditors
• Find the best solution for you

Click here for our Debt Counselling service

Debt Management Plans Explained

A Debt Management Plan (DMP) is an informal arrangement which allows you to consolidate all of your unsecured credit commitments into one affordable payment. This is not ‘another loan’, simply a plan to repay what you can afford to pay currently. The lenders will in most cases freeze the interest charges and accept a small monthly REGULAR payment from you. The benefits of this are as follows:

• Pay only what you can afford to pay
• Interest charges are frozen
• Only one single payment to make each month
• Stops the debt collectors calls and visits
• No need to deal directly with any lenders

We will negotiate with your creditors and try to freeze your interest and charges to help reduce the monthly payments to a more manageable level. As part of the DMP we deal directly with the creditors and ask them to cease any further collection activity with you. The clients will pay us an amount which is worked out based on their income and expenditure and we then distribute payments between the creditors.

For more information regarding your suitability for a DMP please contact us below

Six Steps to a Debt Management Plan

Step 1 – One of our debt advisors will work with you to assess your financial situation.This is 100% confidential. We’ll need to know your income and expenditure, who you owe money to and any other relevant information about your situation.

Step 2 – Your information will be collated into a Financial Statement, so that we can determine how much you can afford to offer each of your creditors.

Step 3 – The Debt Management Company will approach your creditors and ask them to accept the reduced payments.

Step 4 – You make a single monthly payment, which is distributed to your creditors.

Step 5 – A member of the Simple Debt Solutions Debt Management Team will work with you throughout the plan period should you experience any difficulties whilst the arrangement is in place (very rare).

Step 6 – We will review your Debt Management Plan regularly to ensure that it until meets your circumstances.

The plan will continue until your debts are cleared or until you wish to end the arrangement (for example if your income improves and you can afford to revert to the original monthly payments).

To get ethical, professional advice on a Debt Management Plan, call us now on 0800 389 5959 or fill in our online form and we’ll call you back.

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Is a Debt Management Plan right for me?

A Debt Management Plan is a good option if you can afford to make regular payments to your creditors and you want an organised, simple way to pay. It can be the best option if you:br / br / simply need a short term solution to your debtsbr / have unsecured debts that you can't afford to repaybr / have significant equity in property but prefer not to remortgage or take out a secured loanbr / owe money to only one or two different companiesbr / do not qualify for an Individual Voluntary Arrangement (IVA)br / do not want your wife, husband, partner or spouse to find out about your debtbr / prefer to use a third party to deal with your debtsbr / could pay your debts in full but don't want to change your lifestyle.

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