What are the advantages and disadvantages of a DMP Debt Management Plan?
A DMP has both pros and cons. Before you start a Debt Management Plan, you need to be fully aware of both the advantages and disadvantages of this kind of debt management solution.
If you are unsure about which debt solution is right for you then speak to a BeatMyDebt.com debt expert on 0800 077 6180. Initial consultation is free of charge.
To find out more watch the video and continue reading below.
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THE ADVANTAGES OF A DEBT MANAGEMENT PLAN
1. Swift to implement
You will normally be able to get a DMP up and running very quickly. You do not have to wait for the creditor's agreement. You can stop paying the standard repayments to your creditors immediately. The reduced payment offer is then submitted to your creditors and you start making the reduced payments straight away allowing you to get straight back in control of your finances.
2. Affordable Repayments
Your monthly repayments are reduced to affordable amounts which fit within your disposable income. This means that you no longer have to 'Rob Peter to pay Paul'. For example, you stop using your bank overdraft and credit cards to make your debt repayments each month.
3. Single Monthly Repayment
If your payments are managed by a Debt Management Company, then you will be able to make a single affordable payment which is easier for you to manage each month. The Debt Management Company will make all the individual payments for you.
The plan is not legally binding and therefore flexible. You can stop paying into the agreement at any time if you decide an alternative solution is better for you.
5. Discreet Procedure
A Debt Management Plan is not recorded in the insolvency register or publically advertised anywhere. It is a private agreement between you and your creditors and no-one else is told of its existance. Therefore can generally be used by professionals, forces personnel and company directors without damaging career prospects.
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THE DISADVANTAGES OF A DEBT MANAGEMENT PLAN
Although the advantages of a Debt Management Plan are significant, undertaking one is a serious matter. As such, there are some things that you must bear in mind when thinking about a DMP:
1. No debt written off
You will have to repay 100% of your debt. Creditors will not normally agree to write off any debt.
2. No Guarantee that Interest will be frozen
Creditors are not under any legal obligation to agree to your DMP payment proposal. They cannot refuse to accept the payments you make but they can refuse to suspend interest or late payment charges. This means that you may pay off less each month than is added to your accounts in interest and charges. As interest is added to your ourstanding accounts this may well lead to an increase in the total sum you owe.
3. No legal protection from your creditors
A DMP is an informal agreement. This means that once in the plan, you are not legally protected from your creditors. They are therefore allowed to take further action against you if they wish. As such, even if you are maintaining your monthly payments they can still decide to take court action against you, apply for a county court judgement (CCJ) and then a charging order against your property or an attachment of earnings against your salary.
4. Significant increase in repayment period
Because you are paying reduced amounts each month and interest may continue to be added, your debt repayment period will be significantly increased and may last many years.
5. Negative affect on your credit rating
Your credit rating will be negaitively affected. Default notices will be recorded on your credit file. This will mean that you will find it difficult to get further credit for 6 years and until your debts are repaid or settled in full.
For more information about improving your credit rating see the BeatMyDebt.com Guide to Improving Your Credit Rating.
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