Debt Management Plan

With a debt management plan payments are made until the debt is cleared in full or until you are able to make the full repayments again. These reduced repayments are based on what your cashflow can afford after a realistic income and expenditure has been drawn up.

A debt management company will negotiate on your behalf  for the reduced payments. The payments are then made to the debt management company each month and they distribute them to your creditors for you.

When choosing a debt management company be careful!

Companies offering this service can vary greatly. Some debt management companies charge you fees for putting together a DMP whereas other companies can pass the cost onto the creditor so you do not pay up-front fees.

Also, make sure that you can get regular statements from the company if you need them. This is to make sure that the payments are actually being paid regularly to your creditors and are not simply gaining interest for the debt management company.

The advantages of a Debt Management Plan:

• You no longer have to deal one on one with your creditors.
• You make reduced payments that you can afford.
• Your payments can be re-evaluated often so that any changes to your situation can be taken into account.
• You only make one payment a month.

The disadvantages of a Debt Management Plan:

• Debt management plans are not legally binding so creditors do not have to agree to repayment schedules. However, generally if the arrangement works well the creditors are often happy to co-operate.

A Debt Management Plan may not be suitable if:

Your cashflow is limited which means that you would be making the repayments for many years. If this is the case there are other options available such as an Individual Voluntary Arrangement or Bankruptcy.