DMP’s pros and cons

Debt Management Plan – The Pros and Cons

Making the decision if a Debt Management Plan is right for you depends on careful consideration of your personal circumstances. Here’s some debt advice on DMPs to help you along the right path.

Debt management plan benefits

  • A Debt management plan is an informal arrangement that avoids the need for formal insolvency procedures such as an IVA or bankruptcy.
  • In reaching agreement with your creditors a DMP should suspend actions against you such as CCJ’s (County Court Judgments) although they will still get marked as defaults.
  • Creditors will, in many cases, freeze interest payments.
  • Your monthly debt repayments should be reduced, if not then don’t do it.

Debt management plan drawbacks

  • The arrangements are informal so your creditors can change their mind at any time.
  • Your credit rating may still be harmed as a Default notice will nearly always be served.
  • While DMP arrangements reduce your monthly repayments to make them affordable it may mean you will pay more in total over a much longer period.
  • Interest may continue to be charged on your debts particularly on your arrears which may be charged at higher rates than your original loan rate.
  • Unless your debts are less serious you could end up in debt for a very long time. In the worst case you may find you have no real prospect of getting out of debt and becoming debt free.

In reality the idea of a DMP is to help you to get back on your feet, it’s not a magic bullet. Hopefully your circumstances will change for the better in the future and you will be able to address the debts then. Most lenders will in fact accept reduced ‘full and final’ settlements, some as low as half the outstanding sum owed. So, a change in your finances in future should get rid of your debts for ‘less than half’ the amount you owe!

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