Debt management plans - what you need to know (2024)

FAQs

Debt management plans - what you need to know? ›

Debt management plans are structured repayment plans to help you repay outstanding debt. In most cases, credit counseling agencies negotiate payment plans on your behalf. It also involves you restructuring your budget to pay off old debt, manage your current finances, and find other ways to become financially secure.

DMPs can help you pay down your unsecured debt considerably faster. The tradeoff is that you'll have to close those accounts. For example, any credit cards you choose to include in the DMP will be closed. You won't be able to use those credit lines anymore.

Recognizing the type of debt you're carrying is step No. 1. For example, if your mortgage and/or auto loan are what's dragging your finances down, a DMP won't help, as those debts are secured by your house and your car.

Sometimes a creditor will refuse to deal with a DMP provider. This could be because the creditor doesn't want to accept the reduced payments or sometimes it could be because they've objected to you using a fee-charging provider, which would mean there's less money to pay the debts you have with them.

Debts that cannot be included in a debt management plan (DMP) are those that are considered 'priority debts' such as mortgages and secured loans, student loans, court fines, and child support payments.

Every participating creditor offers their own rates, but in aggregate, the average interest rate for accounts included on a debt management plan with MMI is below 8%.

You usually can't include these debts in a DMP - check with the DMP provider. You'll need to choose another debt solution for your priority debts if you can't put them in a DMP. Non-priority debts are less urgent and include things like bank loans, credit cards, student loans, water charges and benefits overpayments.

DMPs and Your Bank Account

You can often continue using your current bank account as normal. However, as specialists in DMPs, we recommend that you change your bank account if you have an overdraft that you have used and are now applying for a DMP.

How long does a DMP stay on your credit file? Debts will stay on your report for six years, starting from the date they're paid off or defaulted. A DMP means you'll repay your debts more slowly, so your score may be negatively impacted for longer.

You'll need to send your debt management plan provider a payment each month, usually by Direct Debit. The DMP provider will then pay your creditors on your behalf according to the terms of the plan. You don't have to worry about contacting your creditors to reduce your payments; this'll be done for you.

What's the best debt management company? ›

Debt management plans are usually best for people who are deeply in debt but can still make the required monthly payment. You'll also have to check whether your debt qualifies for the plan. There are alternatives to a DMP, such as bankruptcy or a debt consolidation loan.

A DMP may be a good thing for you if: You owe multiple debts. By consolidating these non-priority debts, you deal with a single monthly payment instead of keeping track of multiple due dates. You need help managing your repayments.

What is the maximum amount of debt suitable for a DMP? There isn't a fixed maximum debt level for a DMP. What's more important is whether the plan can help the debtor manage and clear their debts in a reasonable amount of time.

If your circ*mstances improve and you find yourself in a better financial position, you can pay off your debt management agreement early. However, there may be other considerations, so make sure you understand the terms and conditions.

Debt relief plans can help make your payments more manageable, but they're not right for everyone. It's important for you to understand how each plan or program works and how debt relief can affect your finances.