If you’ve been offered a DMP, this may, or may not, be a good thing. It depends on your individual situation and your specific needs; there is no one-size-fits all approach.
So what is a DMP anyway?
Well, DMP simply stands for “debt management plan”. These are completely informal arrangements between a person who finds his / herself in more debt than is comfortable – and his or her creditors.
Often, those creditors accepted reduced interest rate payment terms on a debt management plan because they’re keen to realise something back on their credit.
They realise that with more drastic actions such as an individual voluntary arrangement (or “IVA”) or with bankruptcy, they may not see any return on the monies they’re owed.
The main aims and objectives of any debt management plan are to consolidate all creditors together and to then make pro-rata payments. The indebted person is then, in theory, more able to make affordable debt repayments on a regular basis.
They’re also designed to help keep creditors generally well- informed and to keep the two-way lines of communication open.
Obviously, the ultimate aim is to get interest payments reduced and maybe stopped altogether. Also, a DMP should stop any threatening letters / phone calls and should halt any further legal action. And the ultimate aim is usually to lengthen the term of the debt, but also to pay it off in full.
In today’s tough economic climate, more people than ever are struggling with insurmountable debts. If you’re one of them, it’s always better to take action quickly.
There are many steps you can take depending on the nature and amount of your debts and any assets you have to set against these debts. But the important single most important thing is to face up to the problem and take immediate action to combat your difficulties.
A DMP is one potential solution to the spectre of unmanageable debt. It can be very helpful for people struggling to pay monthly payments on credit cards and loans whilst still offering a reasonable degree of flexibility.
The most appealing thing about a debt management plan for many people is that someone else will talk to creditors on your behalf.
Also, a debt management plan is very private; you don’t go on an official register and your assets aren’t usually looked at.
Your representative will also negotiate one affordable monthly amount to your creditors. These payments will be based on your income, but none of your debts are actually written off. Instead, interest payments are usually stopped.
Be wary of which company you choose to organize your debt management plan as some charge extremely high fees both up-front and monthly.
If you pay for the plan around 15% is about average for a monthly payment to the company running the plan. And if the company doesn’t charge you, question how they make their money; i.e. is it via donations from creditors? In which case – are they really acting in your best interests?
A DMP can be a great tool if your debts seem insurmountable – but aren’t completely so in practice.