What is a debt management plan? A debt management plan consolidates all of your unsecured debts into a single and more affordable monthly repayment, which is then paid to creditors on a pro-rata basis over an agreed period of time.
A debt adviser will take on the role of handling your debts.
If you choose a private firm to manage your repayment plan, make sure you use one that is fully licensed and adheres to the DTI's debt management guidelines.
Check with the Office of fair trading that the company holds a licence and has not breached the guidelines in the past.
The adviser will also enter into direct negotiations with your creditors to organise the repayment of the debts.
It is in your own interest to maintain the payments because failure to pay could result in creditors cancelling the agreement and demanding repayment of their debts in full.
If you start to have problems making payments, contact the administrator or debtor adviser who may be able renegotiate the deal.
The process 1) Look for a good debt management company and ask to speak to a debt adviser.
2) The debt adviser will review you income and monthly outgoings highlighting all your wasteful spending which you will need to eliminate.
3) The adviser will help you determine what your disposal income is, or what your spare cash is after paying for all your household commitments such as food, transport, rent, car finance, utility bills, council tax etc.
what ever you have left after receiving your salary is you disposal income which will be paid into your debt management plan.
4) Once you have agreed to the plan, your adviser will contact your creditors and present them with a detailed statement of your financial affairs.
Your disposal income will be offered as a monthly payment to be agreed to.
5) Your adviser will ask your creditors to freeze interest and other charges, such as penalty fees.
Creditors will also be asked not to take any legal or any action to recover the debt, providing you keep to the terms set out in the debt management plan.
6) Your adviser will also try to negotiate a full and final settlement at the lowest possible level and cut your debt payments 7) Once all your creditors have agreed with the proposal put forward, a direct debit or standing order will be setup to collect your disposal income every month.
You pay a monthly fee to the debt management company that sets the DMP up.
This is usually between 10- 15 per cent of what you pay monthly.
Once a debt management plan is completed you will be considered debt free and will be able to start afresh.
For a debt management plan to be successful, you must make sure you stick to your budget and avoid borrowing more money or using credit.
If you are still struggling with the debt management plan then go back to your debt adviser and ask for other alternative solutions available.