If you have debts that you don’t seem to be able to reduce and that are mounting up each month, it may be time for you to start using a debt management plan – often known simply as a DMP.
What a debt management plan does is to help coordinate your debts and make the repayment rate more affordable by reducing the monthly payments. You can go to any debt management company for assistance in setting up a DMP and there are also some charities that will offer the same service.
Before setting up a DMP, the debt management company will help you work out how much of your income you require to meet your monthly household expenses. Any remaining income will go to your creditors via the debt management company. With a DMP, you pay a single monthly payment to the debt management company, which then redistributes the payments amongst your creditors.
Most creditors will be willing to freeze interest or charges once you start a DMP as it shows your commitment to repaying your debts. However, creditors are not obliged to do this. Generally once you have a DMP, you will have less or no contact from your creditors – they will liaise with the debt management company instead. This can really help someone who is in debt psychologically, as they don’t feel so harassed for payments.
Debt management plans don’t suit everyone, but if you have some surplus income after meeting priority bills each month, it may be the best way to pay off outstanding debts. However, when deciding on how much you can put aside for the debt management plan, it’s best to allow yourself a cushion of cash to cover any unexpected bills or emergencies, like the car needing repair or the boiler breaking down. Otherwise you may find that you have no spare cash available as it is all being directed into the DMP.
Each individual’s circumstances are different, so make sure you get some independent financial advice before signing up to a DMP.