How does a debt management plan work?
December 4, 2017
A debt management plan (DMP) is an agreement between you and your creditors to pay back the money you owe, at a more affordable rate than the original contractual terms allowed.
Unsecured debts including personal and payday loans, overdrafts, credit cards and store cards, can be included in a DMP, and are repaid from your surplus income. The DMP provider helps you budget so you’re not over-committed financially, and also distribute payments to your creditors each month.
How a DMP works in practice
Initially, you need to provide detailed financial information to your specialist adviser, who establishes how much you can comfortably afford to pay your creditors. This amount is calculated by deducting all your essential living costs from the total monthly income figure
These living costs include, but are not limited to, mortgage/rent payments, rates, gas, electricity, water bills, criminal fines, arrears of child maintenance, tax and National Insurance, and money judgments.
Once a DMP is set up, the provider receives the payment and distributes it to your creditors at the agreed rate. Creditors don’t have to accept this new repayment amount, however, and some may continue to contact you for more money.
Advantages of a Debt Management Plan
- A DMP helps you regain control of your financial situation, and avoid potential bankruptcy
- You can budget more effectively with the help of a financial expert
- Your professional adviser deals with creditors, and distributes payments
- You may be able to pay a lower interest rate on your debts
- Your debts are cleared in full at the end of the debt management plan
Drawbacks of entering a DMP
- Creditors aren’t obliged to agree the plan. Some may continue to chase you for payment, or refuse to freeze the interest and charges on their debt, which means you’ll pay more in the long-run.
- A DMP will appear on your credit file, and is likely to prevent you from accessing further borrowing or credit for some time
- Secured debts aren’t included in a DMP – you need to continue payment of these as normal
- There’s no legal protection with a DMP – it’s not a formal agreement, and a creditor can withdraw from it at any time
Is a debt management plan right for you?
A DMP may be suitable if you have surplus income at the end of each month. It’s important to ensure you can afford the agreed repayments over the long-term, however, as it’s unlikely you’ll have access to any further credit or borrowing whilst the DMP is in existence.
If you don’t have any income left after your essential household bills, a debt management plan isn’t the right debt solution for you, but there may be others more suitable. None of your debt is written off with a DMP – you continue to make the agreed payments until your creditors have been repaid in full.
If you feel your unsecured debts are no longer manageable, Northern Ireland Debt Solutions can help you regain financial control. We provide professional assistance to residents of Northern Ireland who are struggling with debt. Call our Belfast office to speak to our licensed insolvency practitioners, and arrange a free same-day consultation.
Help for individuals and sole traders in Northern Ireland affected by Coronavirus
20th March 2020If you’ve been affected by the coronavirus pandemic and are struggling to meet your financial demands, there are various steps […]
What is the role of the Official Receiver and Trustee in a bankruptcy process?
17th January 2020The Official Receiver (OR) and Trustee both play key roles in a bankruptcy process, and are appointed by the Department […]
What debts are included and excluded in an IVA?
16th January 2020An IVA is a flexible way to pay off debts within a defined timescale, and can be a good alternative […]
What are income payment agreements in a bankruptcy?
15th January 2020When you enter bankruptcy control of your assets transfers to the Trustee, but there’s a further obligation that can arise […]
What are the advantages of an IVA?
14th January 2020Individual Voluntary Arrangements (IVAs) are formal insolvency procedures that allow you to deal with serious debt, and offer an alternative […]
How does bankruptcy affect a husband or wife?
13th January 2020Bankruptcy has wide-ranging effects on you as an individual, but potentially also on your husband or wife. If you have […]
Why Choose Us?
- Speak direct with a qualified adviser
- We do not operate call centres
- Head office in Belfast - National Coverage
- Home visits also available
- Fully regulated advisers and Reputable Firm
- Helping thousands of individuals since 2010
Our Insolvency Practitioners
are regulated by ICAS or IPA
Home Visits also Available
Contact Form -
Here at Northern Ireland Debt solutions we take your privacy seriously and will only use your personal information to contact you with regards to your enquiry. We will not use your information for marketing purposes. See our PRIVACY POLICY
