If you are finding yourself struggling with debt problems every month, then one financial solution you could use to help is a debt management plan. A DMP is a flexible agreement with your creditors, enabling you to make lower monthly payments based on what you can afford. The intention of a debt management plan is to get you out of debt as quickly as possible.
As with most debt solutions, debt management plans have their advantages and disadvantages.A debt management plan will have a big impact on the way you manage your finances, and you will have to set a fairly strict budget therefore it is important you understand this before going ahead.
Benefits of a debt management plan
- Puts in you control of your finances and debt
One of the main features of a debt management plan is that you will pay back your monthly debts at a realistic, affordable level. Your creditors must agree to this with your debt management company. When making your monthly payment towards your debt, you will be left with enough money for rent and living expenses whilst paying as much as possible to get your debt cleared. Your debt management company will ensure that your payments will be affordable and realistic.
- Should meet your needs and change with your financial circumstances
Often, debt management plans are seen as good option for people in debt as they are more flexible than certain solutions such as IVAs. Because they are not legally binding there are no legal commitments. If your financial situation changes somewhat, then you are able to adjust your payments.
- It is possible to get penalty charges and interest frozen. Your debt management company will engage in negotiations with your lenders and try to get them to freeze any costs so you can focus on paying the debt itself.
Drawbacks of using debt management
- It could impact your credit rating
When you engage in a debt management plan you will be paying the debts back at a different rate than was initally agreed with your creditors. Because you are repaying your debts at a slower, this is what impacts your credit rating. It is possible that your lenders could register a default notice on your credit history. If a default notice is registered, then this could remain in place for upto six years, which means you could have problems getting credit during this time.
- You could end up having less disposable income than before.
A debt management plan will help you pay your debts back as fast as possible, at a realistic, affordable rate. You may find it hard to find money for the luxuries in life, as you will be expected to pay as much back as you can afford. If your income level improves, it may be necessary to use some of this to help pay your debts back.
- A debt management plan is not a legally binding arrangement
There is nothing in the law which says that your creditors must agree to a debt management plan. If they do not believe it is the best way forward then they do not have to accept the terms.
We've touched on just a few of the good and bad points of a debt management plan. For more information about them, check out a reputable provider.
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