We’re all conscious that prices of essentials are increasing at a rate which far outstrips wage growth. As homeowners we are bracing ourselves for an increase in the cost of our mortgages. Many workers, especially those employed by the state, fear the prospect of redundancy in the coming months. All of these factors create a risk of growing debt levels for many families. A debt management plan may be one of the few available options to help you deal with problem levels of debt. So just how is a debt management plan (DMP) beneficial.
Unlike IVAs (individual voluntary arrangements), bankruptcies or Scottish trust deeds, there is no fixed time period associated with a debt management plan. The primary determinants of how long your DMP might last focuses on how much you owe at the outset, how much you agree to pay towards the debts each week or month, how much of your contribution is taken up by management fees and whether your creditors choose to support you by freezing the interest being applied to your credit accounts.
The starting point in setting up a debt management plan is to work through a review of your current financial circumstances, ideally with a professionally qualified debt adviser. They will want to gather information which includes the amount of debt, your pay level and other income, your regular expenditure as well as any other major assets you may have. By working through this information the adviser can explain which of the debt solutions options best fit your circumstances and the exact advantages and disadvantages of each. This process can be conducted over the phone and need not take up much of your time.
If you wish to proceed with a debt management plan, the company should send you the documentation required to get started. You may be asked to provide some documentary evidence of your circumstances which may include payslips, bank statements and creditor information.
As part of the documentation from the DMP provider, you should receive an estimate of the term of your debt management plan. This should include the assumptions upon which it has been calculated. Effectively, the DMP provider is working out an equation of your ability to pay versus the total amount you owe. They will need to consider additional factors including their fees and the likely response of your creditors to payment proposals.
Once you have returned the documentation and have initiated the payment your debt management company will begin communicating with your creditors. They will work towards an agreement which matches your ability to repay the debts. Many creditors will respond in a matter of days, although some may take weeks or even months, depending upon their level of administrative competence.
It’s now up to you to maintain your agreed payments. Adjustments are possible but can only be made if your circumstances take a turn for the better or worse. Each time you change your payment it will have an impact on the likely duration of your DMP. You should take a keen interest in whether your creditors agree to freeze or reduce the interest on your accounts, as this plays a big part in the likely duration of your repayment term.
When your debts have been cleared the debt management plan will come to an end. As it is an informal process there is no formal discharge procedure. The debt management plan provider should confirm that your debts have been cleared, return any paperwork to you and ensure your monthly payments have been cancelled.
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